You May Have Insurance Coverage for Allegations of Trademark Infringement

By: DEAN R. KARAU

February 2009

In a 2007 article, my colleague Laura L. Myers advised that

“[a]n insurer may have a duty to defend its insured despite a trademark exclusion, even where most of the claims involve trademark issues, if ‘factual allegations go beyond the elements of a trademark claim and exceed the scope of the trademark exclusion.’
. . .
“Even if you think your insurance excludes coverage for trademark infringement, you should have your attorney review your policy in light of the allegations. It may be that you have coverage even if the infringement allegations constitute the majority of the claims.”

(See A Trademark Exclusion May Not Relieve An Insurer Of Its Duty To Defend in the April 2007 edition of Trademark Topics.^SM)

Two years later, that advice is still important, as amplified by a December 2008 decision from the state of Washington.

Shoemaker Crocs, Inc. sued Washington-based competitor Australia Unlimited, Inc. for trade dress infringement based on the production, importation and distribution of NOTHINGZ brand shoes (see right). The parties subsequently settled, but after settlement, Crocs sued Australia Unlimited again, this time for a breach of the settlement agreement.

In each case, Australia Unlimited tendered defense of the suits to its insurer, Hartford Casualty Insurance Company, under its commercial general liability and umbrella policies. Hartford denied a duty to provide its insured with a defense.

Australia Unlimited then sued Hartford in state court, claiming breach of contract, bad faith, and violation of the state Consumer Protection Act. The trial court agreed with Hartford, but the Washington Court of Appeals found that,

“An insurer’s duty to defend arises ‘if the insurance policy conceivably covers the allegations in the complaint, whereas the duty to indemnify exists only if the policy actually covers the insured’s liability.’ Here, the complaint filed by Crocs, Inc., in the federal lawsuit in Colorado against Australia Unlimited (AU) alleges trade dress violations that are conceivably covered by the umbrella policy issued by The Hartford Casualty Insurance Co. [covering advertising injury]. Thus, Hartford had a duty to defend AU in that action. However, Hartford had no duty to defend AU either in the International Trade Commission proceeding seeking injunctive relief or the second lawsuit in Colorado by Crocs for breach of contract.”

This case serves as a reminder that you should always have your attorney review your insurance policies in light of the allegations of trademark or trade dress infringement because those allegations may trigger your insurer’s duty to provide you with a defense.

Australia Unlimited, Inc. v. Hartford Casualty Ins. Co., __ P.3d. __, 2008 WL 5234761, No. 61113-5 (Wash. App. Dec. 15, 2008).