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High Point Design, LLC v. LM Insurance Corp.

United States Court of Appeals, Second Circuit

December 19, 2018

HIGH POINT DESIGN, LLC, Plaintiff-Appellee,
v.
LM INSURANCE CORPORATION, LIBERTY MUTUAL FIRE INSURANCE COMPANY, LIBERTY INSURANCE CORPORATION, Defendants-Appellants.[1]

          Argued: May 8, 2017

         High Point Design, LLC sought a defense from its insurer pursuant to the terms of insurance policies providing coverage for advertising injuries. The insurers, LM Insurance Corporation, Liberty Mutual Fire Insurance Company and Liberty Insurance Corporation (collectively, "Liberty"), refused to provide a defense on the ground that the counterclaim at issue in the underlying litigation alleged only injury for trade dress infringement, not advertising injury. The United States District Court for the Southern District of New York (Katherine B. Forrest, J.) granted High Point's motion for partial summary judgment and found Liberty owed High Point a defense based on allegations in the counterclaim that High Point "offered" the infringing items for sale. We agree with the district court that as used in the counterclaims and with the additional context of the discovery demands in the underlying litigation, the term "offering for sale" includes advertising, such that Liberty owes High Point a defense. However, Liberty's duty to provide a defense did not arise until High Point provided Liberty with discovery demands served in the underlying litigation. We therefore vacate the district court's award of damages, and remand so that the district court can determine the amount of legal fees incurred from that point forward.

         Affirmed in part, vacated and remanded in part. Judge Newman concurs in part and in the result, and files a separate concurring opinion.

          MARSHALL T. POTASHNER, Jaffe & Asher LLP (Bension D. DeFunis, on the brief), New York, N.Y., for Defendants-Appellants LM Insurance Corporation, Liberty Mutual Fire Insurance Company, Liberty Insurance Corporation.

          RICHARD S. SCHURIN, Stern & Schurin LLP (Steven Stern, on the brief), Garden City, N.Y., for Plaintiff- Appellee High Point Design, LLC.

          Before: NEWMAN, POOLER, and HALL, Circuit Judges.

          POOLER, CIRCUIT JUDGE

         High Point Design, LLC sought a defense from its insurer pursuant to the terms of insurance policies providing coverage for advertising injuries. The insurers, LM Insurance Corporation, Liberty Mutual Fire Insurance Company and Liberty Insurance Corporation (collectively, "Liberty"), refused to provide a defense on the ground that the counterclaim at issue in the underlying litigation alleged only injury for trade dress infringement, not advertising injury. The United States District Court for the Southern District of New York (Katherine B. Forrest, J.) granted High Point's motion for partial summary judgment and found Liberty owed High Point a defense based on allegations in the counterclaim that High Point "offered" the infringing items for sale. We agree with the district court that as used in the counterclaims and with the additional context of the discovery demands in the underlying litigation, the term "offering for sale" includes advertising, such that Liberty owes High Point a defense. However, Liberty's duty to provide a defense did not arise until High Point provided Liberty with discovery demands served in the underlying litigation. We therefore vacate the district court's award of damages, and remand so that the district court can determine the amount of legal fees incurred from that point forward.

         BACKGROUND

         As relevant here, High Point sells and distributes footwear on a wholesale basis. From November 2008 through November 2012, High Point was the named insured on a series of commercial general liability insurance and umbrella policies issued by Liberty (the "Policies"). At issue here is coverage under a commercial lines policy, No. YV5-Z21-093433-020 (the "CGL"), and an umbrella policy, No. TH2-Z21-093433-030. The CGL provides in relevant part that:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages even if the allegations of the "suit" are groundless, false or fraudulent. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply. We may, at our discretion, investigate any offense and settle any claim or "suit" that may result. . . .

App'x at 559.

         The CGL defines "personal and advertising injury" to include an "injury . . . arising out of . . . [i]nfringing upon another's copyright, trade dress or slogan in [High Point's] 'advertisement.'" App'x at 535. "Advertisement" is defined as "a paid announcement that is broadcast or published in the print, broadcast or electronic media to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters." App'x at 534. The CGL excludes coverage for:

"Personal and advertising injury" arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights or out of securities fraud. Under this exclusion, such other intellectual property rights do not include the use of another's advertising idea in your "advertisement."
However, this exclusion does not apply to infringement, in your "advertisement", of copyright, trade dress or slogan.

App'x at 483, 534.

         The umbrella policy also covers an "advertising injury," defined as an "injury arising out of paid announcements in the print or broadcast media resulting in . . . [i]nfringement of copyright, title or slogan." App'x at 601. The umbrella policy excludes "advertising injury arising out of . . . [p]atent infringement." App'x at 638.

         One of the items High Point manufactures and distributes is the Fuzzy Babba slipper, which it sold through various retailers, including Meijer, Inc., Sears Holding Corp., and Wal-Mart Stores, Inc. (together, the "Retailers"). High Point Design LLC v. Buyer's Direct, Inc., 621 Fed.Appx. 632, 635 (Fed. Cir. July 30, 2015). Buyer's Direct Inc. also manufactures slippers, including the Snoozie, on which it holds a design patent. Id. at 634-35. Buyer's Direct sent High Point a cease-and-desist letter alleging that the Fuzzy Babba slipper infringed on the Snoozie's design patent. Id. at 635. High Point responded by seeking a declaratory judgment that the Fuzzy Babba's design does not infringe on Buyer's Direct's design patent, and that the patent covering the Snoozie is either invalid or unenforceable. Id. Buyer's Direct filed a counterclaim for patent and trade dress infringement. Id. It also filed a third-party complaint against the Retailers alleging that the Retailers infringed the Snoozie's patent and trade dress by selling Fuzzy Babba slippers. Id.

         As is relevant to High Point's claims for insurance coverage, Buyer's Direct's counterclaim alleges that:

Counterclaim Defendant High Point has infringed and is still infringing the '183 Patent by manufacturing, importing, selling and/or offering for sale the High Point Slipper Socks, and/or other footwear that embodies ...

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