The First Circuit recently applied a policy exclusion limiting the available coverage for an intellectual property claim. In Sterngold Dental, LLC v. HDI Glob. Ins. Co., 929 F.3d 1 (1st Cir. 2019), the Court addressed how to construe "the scope of the so-called intellectual property exclusion (IP exclusion) to the personal and advertising injury coverage under a standard commercial general liability policy." The Court held that the exclusion applied, finding that even if the complaint against the insured constituted an advertising injury, that injury arose out of alleged trademark infringement.
In Sterngold, Intra-Lock sued Sterngold, alleging that Sterngold had infringed Intra-Lock's OSSEAN trademark by using the marks OSSEO and OSSEOs for a nearly identical product. Sterngold demanded that HDI defend the lawsuit and provide indemnification under the definitions of "advertising" and the provisions of the "personal and advertising injury" insuring agreement, but HDI declined. After Sterngold settled the underlying lawsuit, it again demanded that HDI indemnify it. HDI again refused, and Sterngold sued HDI. The District Court granted HDI's motion to dismiss, holding that Sterngold's insurance policy from HDI did not provide coverage for the lawsuit. Sterngold appealed.
Applying Massachusetts' law, the First Circuit affirmed the dismissal of Sterngold's action. The Court held that, even assuming Intra-Lock's complaint alleged a claim for advertising injury; the claim was excluded because the underlying claim arose out of the infringement of Intra-Lock's trademark. The Court noted that the complaint labeled its claim as one for the "Infringement of [its] OSSEAN Trademark" and alleged that Sterngold willfully infringed and diluted that trademark.
The Court rejected Sterngold's argument that the OSSEO and OSSEOs marks were slogans, and thus fell within an exception to the intellectual property exclusion for "infringement, in your 'advertisement,' of copyright, trade dress or slogan." The Court noted that Intra-Lock never pursued a slogan infringement claim, nor did its complaint mention the word "slogan." Rather, Intra-Lock asserted that OSSEAN was a source identifier of its proprietary product. The Court affirmed the District Court dismissing Sterngold's insurance coverage suit against HDI.
Comment: Intellectual property infringement claims are a significant risk that companies face today, and the costs of IP litigation have increased significantly. As such, insureds will continue to challenge the insurance company's interpretation of policy terms to expand the scope of available of coverage under the "advertising injury" section of their CGL policy. In Sterngold, the Court determined that the policy, which contained an IP exclusion, was unambiguous and should be enforced. Insurers, therefore, should not be fearful about pursuing a declaratory judgment action where the "plain language" of the IP exclusion forecloses relief to the insured.
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Chelsea R. Seidel