A commercial general liability insurer had no duty to defend an insured retailer in a trademark infringement lawsuit because the complaint in the underlying lawsuit identified the alleged infringement as beginning before the CGL and umbrella policies were effective and did not include any “fresh wrongs” to fall outside the policies’ “prior publication” exclusion, the U.S. Court for Appeals for the Third Circuit ruled, affirming the lower court (Hanover Insurance Co. v. Urban Outfitters, Inc., October 23, 2015, Roth, J.).

Background. Urban Outfitters, Inc., an apparel and accessories retailer, was sued by the Navajo Nation for allegedly having improperly used the “Navajo” or “Navaho” names in the company’s advertising materials and having falsely represented through the use of Indian identifiers, styles, designs, tribal patterns, or motifs that the products advertised were of genuine Indian or Native American origin. The Navajo Nation’s amended complaint alleged that, since at least March 16, 2009, Urban Outfitters had advertised, promoted, and sold its goods under the “Navajo” or “Navaho” names and marks, on the Internet and in stores across the United States and in direct competition with the Navajo Nation’s goods.

Urban Outfitters held commercial general liability insurance and umbrella insurance coverage under a “fronting policy” issued for the period from July 7, 2010—July 7, 2011, by OneBeacon America Insurance Co. for which Hanover Insurance Co. was the responsible insurer pursuant to an agreement between the two insurance companies. Subsequently, Urban Outfitters held separate CGL and umbrella policies issued directly by Hanover for the period from July 7, 2011—July 7, 2012.

Hanover accepted the defense of the retailer against the Navajo Nation’s lawsuit subject to a reservation of rights and filed the instant coverage action seeking a declaratory judgment that it had no potential duty to indemnify and, as such, no duty to defend Urban Outfitters in connection with the underlying litigation. Hanover then moved for judgment on the pleadings, asserting that the offending publications allegedly had begun prior to the inception date of the insurance policies at issue.

Policy language. All of the policies stated that coverage was afforded only for a covered “personal and advertising injury” offense committed “during the policy period.” The policies specifically excluded coverage for “personal and advertising injury” liability “arising out of oral or written publication of material whose first publication took place before the beginning of the policy period.”

“Prior publication”. The federal district court held that the “prior publication” exclusion applied to the advertising injury alleged in the underlying action. The underlying complaint clearly alleged “personal and advertising injury” within the scope of the policies’ coverage. However, the “prior publication” exclusion would bar coverage if the injurious advertisement had been “first published” before the initial policy period commenced. In the circumstances at bar, the inception date of the “fronting policy” for which Hanover first became responsible as insurer was July 7, 2010, but the complaint in the underlying action alleged that “at least since March 16, 2009,” Urban Outfitters had started using the “Navajo” and “Navaho” names in its product line, etc.

Therefore, taking the allegations in the underlying complaint as true, it was clear that the advertising injuries allegedly had begun prior to the Hanover policies’ inception date and, thus, were excluded from coverage, the court declared. Because all of the claims in the underlying action alleged various injuries stemming from advertisements published prior to the initial policy’s inception date, those injuries were subject to the prior publication exclusion, the court explained, concluding that the exclusion excused Hanover from having to defend or indemnify Urban Outfitters against the underlying suit and granting the insurer’s request for a declaration in that regard.

 

“Fresh wrong”. Because there were no allegations in the underlying complaint of any “fresh wrongs” during the coverage period, and the “first publication” date occurred before the policies’ coverage began, the federal appellate court affirmed the lower court’s ruling that the insurer had no duty to defend the retailer. The appellate court noted that there was no binding authority in the Third Circuit as to what constitutes a “fresh wrong,” and proceeded to build upon a ruling from a sister circuit. The persuasive Ninth Circuit ruling held that “fresh wrongs” were those new matters not “substantially similar” to materials that had been published before the coverage period, and that pre- and post-coverage publications are “substantially similar” when they carry out the same wrong.

In the present case, the appellate court added that variations occurring within a common, clearly identifiable advertising objective do not give rise to “fresh wrongs.” Looking at the complaint, the alleged misconduct had been qualified as occurring “since” or “at least as early as…” the March 2009 date and, thus, denoted continuity between the pre-coverage and post-coverage use of the trademarks. There was nothing in the complaint that alleged separate torts during the coverage period or that there was any break in the alleged infringement. Accordingly, the retailer’s advertisements from before coverage began had a common objective to those during the coverage period to trigger the “prior publication” exclusions.

The case is No. 14-3705.

Attorneys: Andrew J. Gallogly (Margolis Edelstein) for Hanover Insurance Co. Stephen C. Baker (Drinker Biddle & Reath) for Anthropologie Inc., Anthropologie.com, Free People of PA, Freepeople.com, UO.com, Urban Outfitters Inc. and Urban Outfitters Wholesale Inc.

Companies: Hanover Insurance Co.; Anthropologie Inc.; Anthropologie.com; Free People of PA; Freepeople.com; UO.com; Urban Outfitters Inc.; Urban Outfitters Wholesale Inc.