The United States Court of Appeals for the Eighth Circuit recently weighed in on an important insurance coverage issue surrounding commercial general liability (CGL) policies and intellectual property claims in Minnesota. In Selective Insurance Co. of Am. v. Smart Candle, LLC, — F.3d — (8th Cir. 2015), the Court held an insurer has no duty to defend a trademark infringement claim under the “advertising injury” coverage in a CGL policy. The decision turned on what type of “infringement” was arguably alleged, and whether the insurer had an obligation to look beyond the four corners of the complaint in order to make that determination.
The policyholder, Smart Candle, LLC, was sued for its use of the trade name and trademark “Smart Candle.” The plaintiff alleged that such use infringed upon its rights over the use of that name and trademark, and sought a permanent injunction against Smart Candle’s use of the name, trademark, and domain name “smartcandle.com.” Smart Candle forwarded the complaint to its CGL insurer, Selective Insurance.
Selective denied coverage under the “advertising injury” coverage in its policy, which defined injury resulting from, among other things, as “infringing upon another’s copyright, trade dress or slogan in your ‘advertisement.’” The policy also excluded any injury “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” The exclusion did not apply to “infringement in an ‘advertisement’ of copyright, trade dress or slogan.”
Selective filed an action in federal court in Minnesota for a declaration that it owed no duty to defend or indemnify Smart Candle. In response, Smart Candle asserted the term “Smart Candle” was both a trademark and a “slogan.” As support, Smart Candle argued that Selective had not conducted “any reasonable investigation of the plaintiff’s claims, including a review of Smart Candle’s website … or any of Smart Candle’s advertising before denying coverage.” The district court granted summary judgment in favor of the insurer.
The Eight Circuit affirmed. First, it noted that the CGL policy did not define “slogan,” so the “popular and ordinary meaning” applied. The district court determined that the plaintiff had “explicitly” based its complaint on the improper use of “Smart Candle” as a trademark and trade name, and therefore no reasonable jury would conclude the claim was for “slogan” infringement. The court also found that interpreting “trademark” also to mean “slogan” would render meaningless the policy’s differentiation of the two terms and violate Minnesota’s rules of contract interpretation. By way of example, the court contrasted “Smart Candle” with Nike’s “Just Do It” slogan, a slogan separate and distinct from its trademark.
Importantly, under Minnesota law, the insurer had no affirmative duty to investigate “beyond the four corners of the complaint” to determine whether other facts could be interpreted to trigger Selective’s duty to defend or indemnity Smart Candle. The only question was whether the pleadings alone arguably raise a claim that is within the scope of coverage. The line drawn is a fine one indeed, as Minnesota law also provides that facts outside the complaint which are reasonably available to the insurer can also inform the duty to defend. See Crum v. Anchor Casualty, 119 N.W. 2d 703 (Minn. 1963).
This case has important implications for insurers and policyholders alike. For a duty to defend or indemnity to arise under a CGL policy, the complaint must specifically allege specific infringement of a covered trademark or slogan. The decision also clarifies that courts will apply common sense definitions and differential meanings to different words. We will continue to monitor this case on remand and other decisions impacting insurance coverage of intellectual property claims. If you have any questions about this, or any other matter, please contact us.