Remember my recent post on how broad the duty to defend was? Well it's still broad. In a new opinion, the 4th Circuit Court of Appeals, under North Carolina law, reversed a district court's order on a motion on the pleadings that had dismissed a policyholder's complaint based on application of the "prior publication" exclusion. The decision is another lesson in how broad the duty to defend is compared to the duty to indemnify.
In Pennsylvania National Mutual Casualty Insurance Co. v. Beach Mart, Inc., No. 18-1285 (4th Cir. Aug. 1, 2019), an insurance company contended that its duty to defend its policyholder in a trademark, slogan, breach of contract claim was eliminated by the "prior publication" exclusion contained in the primary and umbrella commercial insurance policies issued by the insurer to the policyholder. The underlying fight was about the use or misuse of trademarks and slogans and the alleged breach of a settlement agreement resolving the use of the trademarks and slogans. The district court granted the insurer's motion on the pleadings based on the exclusion. The 4th Circuit reversed and remanded.
According to the opinion, the policies were issued effective January 1, 2008. Both policies contained an exclusion under their advertising and personal injury coverage grants for trademark infringement, but that exclusion expressly stated that it did not apply to infringement of slogans. Both policies also had a "prior publication" exclusion that precluded coverage for injuries "[a]rising out of oral or written publication of material whose first publication took place before the beginning of the policy period."
The underlying parties entered into various agreements about the use of the mark and slogan as early as 1995. There were some alleged breaches and in 2005, the parties negotiated a further agreement for use of the mark after December 31, 2005. Yet, after that date the court noted that the complaint alleged use of the mark improperly by the policyholder as well as adopting an allegedly similar advertising slogan and store facade.
In reversing, the circuit court outlined the details of North Carolina law on the duty to defend and insurance policy construction. The court found, after taking the underlying plaintiff's allegations as true, "at least some" of the offensive publications occurred prior to coverage, but others arguably took place after coverage. The court noted that under North Carolina law, an insurer's duty to defend is not excused by a "prior publication" exclusion if the offending publications took place both before and after the commencement of the policy period. The court also stated that an insurer is not excused from defending its policyholder just because pre-coverage publication is "similar" to a post-coverage publication. Under North Carolina law, held the court, the exclusion works only if the policyholder continuously and repeatedly publishes "substantially the same" offending material. If the pre and post-coverage publications differ in substance, the "prior publication" exclusion will not bar coverage. The court found that the factual allegations in the underlying pleadings satisfied this test.
The court focused on the allegation that alleged offensive publication took place after December 31, 2005, which did not state with precision when those publications took place. Given that coverage commenced on January 1, 2008, which the court cleverly noted was subsequent to December 31, 2005, and that the underlying plaintiff did not seek to terminate the 2005 agreement for those offensive publications until 2011, the court could not say that these publications were not even arguably covered by the policy. The court also found that the prior and subsequent publications differed in substance. Therefore, the court found that the exclusion could not be applied on a motion to dismiss on the pleadings and reversed and remanded the case back to the district court.
The opinion goes into great detail on its factual and legal analysis so if you are fascinated by duty to defend cases or the application of the"prior publication" exclusion for advertising injuries, you should read the full opinion, which is linked above.
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