Court rejects ‘advertising injury’ coverage for suit against insured

An insurer did not have to defend its insured against a competitor’s lawsuit where the competitor’s claims challenged statements the insured made about its own products, a court ruled.

The case

A competitor of Albion Engineering Company believed that Albion had claimed that its products were made in the United States when they really were made in Taiwan. The competitor sued Albion in federal court in New Jersey for false advertising and product marking in violation of the federal Lanham Act and for tortious unfair competition through false statements and material omissions under New Jersey law.

Albion notified its insurer, Hartford Fire Insurance Company, of its competitor’s lawsuit.

Hartford disclaimed coverage and Albion sued. The the U.S. District Court for the District of New Jersey entered judgment for Hartford, and Albion appealed.

The insurance policy

The Hartford business liability insurance policy provided that Hartford would:

pay on behalf of [Albion] those sums that [Albion] becomes legally obligated to pay as damages because of . . . “personal and advertising injury.”

The policy defined personal and advertising injury to include:

oral, written or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.

The Third Circuit’s decision

The U.S. Court of Appeals for the Third Circuit affirmed the district court’s decision, finding that neither of the competitor’s claims in its lawsuit against Albion met the requirements of New Jersey law for trade libel or product disparagement because the lawsuit did not allege that Albion had libeled or disparaged products made by the competitor.

In its decision, the circuit court explained that the competitor’s Lanham Act claim alleged that Albion made “false statements of facts, misrepresentations, and material omissions of facts of the geographic origin of [Albion’s] merchandise and the commercial activity of Albion in violation of . . . the Lanham Act.” The circuit court added that the competitor made materially similar allegations for its claim of unfair competition.

In the Third Circuit’s view, the gravamen of the competitor’s suit was that “Albion lied about Albion’s products,” not the competitor’s products.

Rejecting Albion’s contention that its statements about its own products “implicitly” defamed its competitor, thus giving rise to a duty to defend, the circuit court concluded that the lawsuit against Albion did “not meet the requirements for coverage under the Hartford policy.”

The case is Albion Engineering Co. v. Hartford Fire Ins. Co., No. 18-1756 (3d Cir. July 10, 2019).

This piece first published at law.com.

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