On January 5, 2022, the United States Court of Appeals for the Third Circuit found that Evanston Insurance Company ("Evanston") owed Vitamin Energy, LLC ("Vitamin Energy") a duty to defend a lawsuit brought by the owner of the 5-hour Energy brand, reversing a district court decision that had found no duty to defend as a matter of law. The case was decided under Pennsylvania law. See Vitamin Energy, LLC v. Evanston Ins. Co., Case No. 20-3461 (Jan. 5, 2022).
The Evanston insurance policy provided advertising injury coverage for the "publication of material that libels or slanders a person's or organization's products, goods or operations or other defamatory or disparaging material, occurring in the course of the Named Insured's Advertisement." In federal court in Michigan, 5-hour Energy had asserted claims against Vitamin Energy under the Lanham Act for trademark infringement, false designation of origin, false advertising, and trademark dilution. It also made claims under Michigan law for trademark infringement, indirect trademark infringement, and unfair competition.
There are five key takeaways from the Third Circuit's decision finding a duty to defend.
The Duty to Defend Is Broad
The Third Circuit began its unanimous opinion with a simple statement: "Pennsylvania law imposes on insurers a broad duty to defend lawsuits brought against those they insure." Then, the court explained what that means in practice.
The court quickly honed in on the factual allegations of "comparative advertising," particularly paragraph 40 of the 5-hour Energy Complaint which included a chart that compared Vitamin Energy to its competitors, including 5-hour Energy. The parties agreed that the term "disparaging material," as used in the Evanston insurance policy, includes, at a minimum, an injurious false statement of fact about another's goods. Although the allegedly false statement was that Vitamin Energy contains 1000 MG of Vitamin C and 100% Daily Value of Vitamin B, the allegation was that this allegedly false statement left the false impression that Vitamin's Energy's products were superior to 5-hour Energy in that regard, thereby disparaging 5-hour Energy with regard to its vitamin content. The crux of the allegation was that Vitamin Energy had more vitamin B than 5-hour Energy. That was not mere puffery about the superiority of Vitamin Energy, but an alleged disparagement based on a false comparison of fact.