Northwest Insurance Law Blog : Seattle Insurance Lawyer & Attorney : Williams Kastner Law Firm : Tacoma, Washington, Portland

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In Australia Unlimited, Inc. v. Hartford Cas. Ins. Co., the Washington Court of Appeals held that Hartford had a duty to defend its insured against a trade dress infringement claim. The umbrella policy at issue provided “personal and advertising injury” which it defined to include “injury arising out of . . . copying in your advertisement [of] a person’s or organization’s advertising idea or style of advertisement.”

In determining that Hartford had a duty to defend the trade dress infringement claim, the court adopted the following three-part analysis used by the United States District Court for the Eastern District of Virginia in a 2002 decision involving Hartford and the same policy language:

(1) whether the insured was engaged in advertising;

(2) whether the insured's alleged conduct was one of the offenses enumerated by the policy as giving rise to an advertising injury, and

(3) whether the injury arose from an offense committed during the policy period and in the course of the advertising activity.

Applying this framework, the Court of Appeals rejected Hartford’s argument that there was no coverage because the insured had copied a product and then merely portrayed that product in its advertisement because “trade dress protection is based on marketing and advertisements.”

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In Sony Computer Entertainment America, Inc. v. American Home Assurance Company et al. (9th Cir. July 15, 2008), the Ninth Circuit recently affirmed a district court’s denial of coverage for claims arising from the alleged malfunction of Sony’s Playstation 2, one of the world’s most popular gaming consoles.

Facing breach of warranty, negligent misrepresentation, and related consumer protection claims by disgruntled purchasers, Sony turned to its media liability and general commercial liability insurers for defense and indemnity. Sony filed suit when the insurers denied coverage, but the district court granted summary judgment in favor of both insurers.

As to Sony’s media liability policy, the Ninth Circuit concluded that the policy was not designed to provide coverage for alleged misrepresentations stemming from an alleged product defect. In reaching this result, the court rejected Sony’s attempts to find coverage by focusing upon the plain meaning of isolated phrases rather than evaluating the policy as a whole. The court also rejected Sony’s argument that the insurer at least had a duty to defend based on policy exclusions because exclusions “cannot expand the basic coverage granted in the insuring agreement.”

As for the general liability policy, the Ninth Circuit distinguished the Playstation 2 plaintiffs’ claims of misrepresentation from the covered occurrences of “loss of use of tangible property” or “physical injury to property.” When Sony pointed out that the Playstation 2 plaintiffs could also have filed claims for loss of use and physical injury to property, the Ninth Circuit refused to allow the insured to wander so far beyond the terms of the written complaint to support the claim of the coverage. In so doing, the Ninth Circuit confirmed that an insurer is generally entitled to rely on the face of the underlying complaint when assessing its obligations, particularly its obligation to defend.