The Ninth Circuit affirmed the United States District Court for the Central District of California's grant of partial summary judgment in favor of plaintiff Hudson Insurance Company ("Hudson") in its contribution action against defendant Colony Insurance Company ("Colony"). The Ninth Circuit concluded Colony should have defended the insurers' joint insured in an underlying action arising out of the insured's sale of counterfeit football jerseys.
All Authentic Corporation ("All Authentic") was sued for damages by NFL Properties LLC ("NFL Properties") for selling counterfeit jerseys. NFL Properties asserted causes of action for trademark infringement, trademark counterfeiting, trademark dilution, unfair competition, and deceptive acts and practices. Among other things, NFL Properties alleged All Authentic offered a counterfeit "Steel Curtain Custom Limited Edition Steelers Jersey" on its website. The counterfeit jerseys read "Steel Curtain" across the back and bear the numbers of four Pittsburgh players, using the same style of numbering and lettering as the authentic jerseys. The counterfeit jerseys feature the same black and gold color combination and striping as the official jerseys.
All Authentic tendered the action to its two insurers, Hudson and Colony. Hudson agreed to defend under a reservation of rights. Colony, however, declined to defend, relying on its exclusion for "personal and advertising injury" arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. The exclusion does not apply to infringement in your "advertisement" of copyright, trade dress or slogan.
Hudson defended All Authentic against NFL Properties and incurred defense costs in excess of $900,000 before the action settled. Hudson subsequently sued Colony for equitable contribution for 50% of its defense fees and costs.
Hudson moved for partial summary judgment on the ground that Colony should have defended because All Authentic faced potentially covered liability for trade dress infringement and slogan infringement in All Authentic's advertisement. The United States District Court for the Central District of California agreed, concluding that "by alleging that the insured infringed "Steel Curtain," [NFL Properties] set forth a claim for slogan infringement that was potentially covered by the Colony [p]olicy."
Colony appealed. The Ninth Circuit upheld the district court's grant of partial summary judgment. Although NFL Properties never asserted a claim for slogan infringement, it did allege in the complaint that All Authentic sold a "Steel Curtain Limited Edition Steelers Jersey" on its website, which "reads 'Steel Curtain' across the back and bears the number of four Pittsburgh Steelers players." A slogan is defined "brief attention-getting phrase used in advertising or promotion." The Ninth Circuit agreed with the district court that a "fair reading of the [complaint] reveals that 'Steel Curtain' is used to promote fan loyalty to the Steelers ? in general, and a subset of Steeler players in particular." This potentially stated a claim for slogan infringement.
The Ninth Circuit distinguished this case from California's leading "speculation case," Gunderson v. Fire Ins. Exch., 37 Cal.App.4th 1106 (Ct. App. 1995). In Gunderson, the insureds sued their insurance company for failing to defend them in a dispute over an easement. The Gunderson insureds sought coverage for the dispute, arguing the plaintiff could have sued them for covered "property damage," namely physical damage to the plaintiff's fence. The California Court of Appeal disagreed, finding there was no potential coverage because the complaint, on its face, contained no allegations concerning damage to the fence. In contrast, NFL Properties' complaint alleged facts giving rise to a potential claim for slogan infringement in All Authentic's advertisement of the counterfeit jerseys.
The Ninth Circuit rejected Colony's argument there was no potential for coverage because NFL Properties knowingly declined to pursue a slogan infringement claim. The "technical label" on a cause of action does not dictate the duty to defend. What matters is whether the facts alleged or otherwise known by the insurer "suggest potential liability or whether they do not."
Not even NFL Properties' failure to affirmatively allege ownership of the slogan or standing to enforce the slogan rights relieved Colony of its duty to defend. NFL Properties never disclaimed standing to enforce those rights. Colony should have defended All Authentic and raised NFL Properties' rights or standing to prosecute any slogan infringement claim as a defense.
This opinion is not final. Though it has been certified for publication, it may be withdrawn from publication, modified on rehearing, or granted review by the United States Supreme Court.
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