In June, Syed S. Ahmad and Jennifer E. White published an article in Risk Management Magazine about how commercial general liability (CGL) policies may help with trademark infringement litigation, despite common exclusions. A recent federal court opinion out of California conforms with the precedent we described in that article, holding that the insurer, Great Lakes Reinsurance (UK) PLC (“Great Lakes”), is required to defend In and Out Fashion, Inc. (“IOF”) in a trademark suit filed by Forever 21, Inc. (“Forever 21”). The fashion giant alleged that IOF essentially sold Forever 21 products as its own by obscuring or removing Forever 21’s marks. IOF requested that its CGL insurer, Great Lakes, defend it in the underlying suit. The relevant CGL policies covered damages because of “personal and advertising injury,” defined to include “infring[ing] upon another’s copyright, trade dress or slogan in your ‘advertisement’.” The policies excluded damages arising from trademark infringement and, according to the insurer, did not cover copyright, trade dress or slogan infringement in non-“advertisement” mediums. Great Lakes refused to defend IOF, and sued for declaratory relief regarding its obligations under the policies.
The US District Court for the Central District of California held that Great Lakes was required to defend IOF in the underlying suit because Forever 21 alleged trade dress infringement via an IOF advertisement. Specifically, the court held that, although Forever 21 primarily alleged trademark infringement (which was not covered by the policy), some of the complaint’s allegations could be read to constitute trade dress infringement (which would be covered by the policy). For example, Forever 21 claimed that, after removing all references to Forever 21, IOF would, nevertheless, market the products “as Forever 21 goods in an effort to . . . create an association between the unauthorized goods and Forever 21.” The court interpreted these allegations to mean that “there is something about the ‘total image and overall appearance’ (i.e., trade dress) of these garments, besides their mere use of the Forever 21 trademark, that helps identify the garments as Forever 21 products.” The court also held that the complaint alleged sufficient “advertisement” via the garments themselves, which conveyed Forever 21’s unique styles and “other source identifying indicia.”
The IOF decision underscores the same takeaways emphasized in our June publication. Notably, the duty to defend is broader than the duty to indemnify. This means that an insurer can be required to defend an entire lawsuit – even non-covered claims, like trademark infringement — if one allegation is potentially covered by the policy. This can be critical since early insurer involvement can lead to earlier settlement. Also, the IOF opinion is a reminder that policyholders should not get hung up on the pleaded counts and instead, focus attention on the allegations and the words from which they are comprised. In IOF, for example, it did not matter that the complaint failed to raise a specific “trade dress” count; it was enough that the facts alleged, taken together, amounted to a claim for trade dress infringement.