Third Circuit Finds False Comparative Advertising Claim Triggers Duty to Defend Miller Nash LLP

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Most liability insurance policies offer what is known as “personal injury and advertising” coverage, which typically covers claims that an insured’s advertising defamed or disparaged the goods or services of another. person or organization. Section 43 (a) of Lanham Law (as well as various analogues of state law) provides plaintiffs with a cause of action for false advertising, which usually requires proof that the defendant has made a declaration of false or misleading fact in an advertisement or a commercial promotion which caused harm to the applicant. Defendants who are sued for anything that involves their advertising or promotional activities should consider the advertising damages provision of their policy, as coverage can often be found for at least the defense of such actions.

A recent case in Pennsylvania provides a good example. Famous energy drink company 5 Hour Energy sued a competitor, Vitamin Energy, for trademark infringement and other allegations, including false advertising. The false advertisement alleged that Vitamin Energy published a misleading comparison of its products with those of 5 Hour Energy. Vitamin Energy requested coverage from its insurer Evanston Insurance Company, and Evanston denied the request. Ultimately, Vitamin Energy sued its insurer for coverage. The district court ultimately sided with Evanston, finding no cover. This week, the third circuit reversed.

In Pennsylvania (as in many states, including Washington, Oregon, and California), the duty to defend is much broader than the duty to indemnify. Under Pennsylvania law, the duty to defend exists if the factual allegations in the complaint include harm that is actually or potentially covered. In Vitamin Energy, the insurer argued that the accused’s advertisement only made allegedly false statements about the insured’s own product (i.e. Vitamin Energy), and not the products of 5 Hour Energy. The Third Circuit disagreed, finding that the plaintiff’s complaint, interpreted liberally, also alleged that Vitamin Energy’s allegedly false statements about its own product in the comparative ad implicitly humiliated and made potentially false claims. on the product it was compared to (that is, 5 hours produces energy). As long as the underlying complaint contained at least one allegation falling within the scope of the police, the complaint triggered the obligation to defend oneself. While the ground for the complaint could have been trademark infringement and other claims that were not covered (due to policy intellectual property and other exclusions), this does not work against of the duty of defense. As long as there is a covered claim, the insurer has a duty to defend the entire lawsuit.

(We’ve written about some West Coast precedents on similar issues in 2018, here, including a mention of a Ninth Circuit case with similar facts, Crum & Forster v. Willowood, decided in 2017.)

So, if you are faced with a lawsuit involving advertising, check your policy and consult an experienced insurance advisor before you take your next step.

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