INSURANCE-RELATED COURT CASES

COURT DECISIONS

Digested from case reports published in Westlaw, West Publishing Co., St. Paul, MN

Food fight: Does policy cover trademark violation?

Great River Food, an Asian food wholesaler, sued another Asian food wholesaler, Kim Seng Company, for trademark violations. According to Great River, Kim Seng infringed on Great River’s trademark, “Que Huong,” which Great River had been using for its frozen meat products since 1986.

“Que Huong” is a Vietnamese phrase that means “home town,” “native land,” “country” or “fatherland.” Kim Seng registered “Que Huong” as a trademark for several of its products in 1997 and registered a phrase using “Que Huong” on another product in 2000. In its applications, Kim Seng noted that it had been using the language as a trademark as far back as 1988. Between 1997 and 1998, Kim Seng used the phrase for several of its products as well as a trademarked logo that included a water buffalo.

From October 6, 1997, through October 6, 1998, Kim Seng was insured under two commercial general liability policies. The primary policy, issued by Great American Insurance Company of New York, provided coverage for “advertising injury.” The umbrella policy, issued by a related Great American company, provided excess coverage. Both policies excluded coverage for advertising injuries arising out of publication of material whose first publication took place before the beginning of the policy period.

Great American denied coverage for the Great River Food trademark infringement action based on the prior publication exclusions. Another insurer paid for Kim Seng’s defense and eventually filed suit against Great River. Great River sought a declaration that it was not obligated to defend and indemnify Kim Seng. The trial court found in favor of Great American, and Kim Seng appealed.

On appeal, Kim Seng argued that the prior publication exclusion applied only to libel, slander and invasion of privacy, and not to trademark infringement. Under the primary policy, the definition of “advertising injury” applied to four different situations: (1) “oral or written publication of material that slanders or libels…”; (2) “oral or written publication of material that violates a person’s right of privacy”; (3) “misappropriation of advertising ideas or style of doing business” and (4) “infringement of copyright, title, or slogan.” The umbrella policy had similar language.

Kim Seng argued that because the exclusion used the words “oral or written publication,” it was relevant only to injuries arising from an “oral or written publication that constitute[d] defamation or violation of the right of policy.” The Court of Appeal, Second District, Division 5, California, rejected this argument, noting that it was insignificant that some of the language in the exclusion happened to match some of the words in some of the subparts of the definition of advertising injury, but not the other subparts.

Kim Seng also argued that the word “material” used in the prior publication exclusion meant something tangible, such as packaging, and could not refer to prior publication of a “right” or trademark. Again the court disagreed, reasoning that “[i]t would make no sense for the exclusion to apply only to the specific packaging or label and not to the infringing trademark that is the subject of the underlying action.”

Finally, Kim Seng argued that “Que Huong” marks adopted during the policy period (such as “Bun Tuoi Hieu Que Huong Brand,” “Bun Que Huong Dac Biet,” and a logo that included a water buffalo and the words “Que Huong”) having words or logos different from the “Que Huong” marks used prior to the policy period (such as the “Old Man Que Huong Brand” and the “Que Huong” mark by itself) were not subject to the prior publication exclusion.

Great American argued that the use of the words “Que Huong” during the policy period constituted a republication of the prior publication of the “Que Huong” mark. Again, the court agreed with Great American. According to the court, “[e]ven with the addition of descriptive words and logos, the use of the term “Que Huong” still suggest[ed] that the product [was] from the same source as the products bearing the original “Que Huong” trademark—the Great River product. The court concluded that the trademark infringement action involved a claim against the words “Que Huong,” the use of which preceded the insurance policies. Therefore the exclusion applied.

The judgment of the lower court in favor of Great American was affirmed.

Kim Seng Company vs. Great American Insurance Company of New York-No. B208688-Court of Appeal, Second District, Division 5, California-November 13, 2009-179 California Appellate Reporter 4th 186.

Stabbing victim seeks coverage under boyfriend’s policy

In June 2005, Meghan Laporta invited Jeffrey Ramsey, with whom she was involved in a romantic relationship, into her apartment. Without provocation, Ramsey stabbed himself and Laporta with a kitchen knife. Laporta filed a negligence action against Ramsey. In her complaint she alleged that, because he suffered from mental and psychiatric disorders, Ramsey did not understand the nature of what he was doing when he stabbed her.

At the time of the assault, Ramsey was insured under a Merrimack Mutual Fire Insurance Company homeowners policy issued to his parents, Franklin and Rachel Ramsey. The policy contained an exclusion that stated: “Coverage E-Personal Liability and Coverage F-Medical Payments to Others do not apply to ‘bodily injury’…[a]rising out of sexual molestation, corporal punishment or physical or mental abuse…” The policy defined “bodily injury” as “bodily harm, sickness or disease, including required care, loss of services and death that results.” The policy did not define “sexual molestation,” “corporal punishment,” or “physical or mental abuse.” Citing this exclusion, Merrimack claimed it was not obligated to defend or indemnify Ramsey. The lower court agreed; Laporta appealed.

On appeal, Laporta argued that the term “physical abuse” in the policy exclusion implicitly required intent. According to Laporta, because Ramsey did not intend or expect to harm her, the exclusion did not apply. The Appellate Court of Connecticut disagreed. It found that the exclusion expressly exempted coverage for bodily injury arising out of physical abuse. According to the court, Laporta’s reading of the policy was “plainly unreasonable.” The court concluded that the stabbing clearly constituted physical abuse within the meaning of the policy.

The judgment of the lower court was affirmed.

Merrimack Mutual Fire Insurance Company vs. Ramsey-No. 30245-Appellate Court of Connecticut-November 3, 2009-982 Atlantic Reporter 2d 195.

Contractor challenges business risk exclusion

Tyson Fresh Meats, Inc., owned a wastewater treatment plant in Nebraska. The plant operations included football field-sized lagoons that were covered by polyethylene tarps. The tarps were secured with concrete in trenches surrounding the lagoons. In 2006, Tyson hired Copple Construction, LLC, to repair small holes in the tarps. Jerry Copple, the owner of Copple Construction, was preparing to patch a hole when his hot-air blower malfunctioned, causing a fire. One third of the tarp was destroyed; the estimated replacement cost exceeded $340,000.

Copple Construction filed a claim with its general liability insurer, Columbia National Insurance Company. Columbia denied the claim, and Copple filed a declaratory judgment action asking the court to find that there was coverage under the policy. The lower court found in favor of Copple. Columbia appealed.

The Columbia policy contained a business risk exclusion that read as follows: “[t]his insurance does not apply to…[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.”

On appeal, Columbia argued that the lower court erred when it found that coverage was not excluded by this provision. The Supreme Court of Nebraska agreed. In reaching its decision, the court found that because the tarp was kept in place by a concrete-lined trench, the tarp was “annexed” to, and thus part of, the real property. The court also found that the property damage was to “[t]hat particular part” on which Copple was “performing operations.”

Copple had argued that “[t]hat particular part” included only the small portion of the tarp that it had been hired to repair, not the entire tarp. The court rejected this argument and concluded that it was “not possible to segregate the tarp at issue into smaller sections for the purposes of determining on what part of the tarp Copple was ‘performing operations.’” The court concluded that the business risk exclusion applied and that there was no coverage under the policy.

The decision of the lower court was reversed.

Copple Construction, LLC, vs. Columbia National Insurance Company-No. S-09-267-Supreme Court of Nebraska-December 24, 2009-776 North Western Reporter 2d 503.

Parents seek coverage for day care abuse

Kathleen King operated a day care business out of her home. Joe and Edie Ault hired King to take care of their daughter for $125 per week, but terminated services when they heard that King’s husband, Arthur, had molested another female child in the day care. Arthur eventually was criminally convicted of molesting the Aults’ daughter.

The Aults filed a civil lawsuit against the Kings. The Kings had a Grinnell Mutual Reinsurance Company farm and personal liability insurance policy, but they did not notify Grinnell of the lawsuit. Later the Aults’ lawyer sent a letter to the Kings’ insurance agency informing it of the lawsuit and also sent a copy of the complaint to Grinnell. Grinnell declined to defend or indemnify the Kings in the lawsuit. The Aults and the Kings eventually settled for $500,000 plus costs against the Kings.

On January 23, 2008, the Aults filed an action naming Grinnell as a garnishee defendant, claiming that Grinnell was obligated to indemnify the Kings from the $500,000 judgment. The trial court found in favor of the Aults; Grinnell appealed.

The Grinnell policy contained a business activities exclusion that excluded coverage for “‘bodily injury’ or ‘property damage’ arising out of ‘business’ activities of any ‘insured person’ when the total gross receipts from the ‘business’ activities exceed $2,000 in the prior or current calendar year.” The lower court found that this exclusion was ambiguous and construed it liberally in favor of the Aults. On appeal, Grinnell argued that the court erred in finding that the exclusion was ambiguous and that it did not operate to exclude coverage.

On appeal, it was undisputed that Kathleen King was an “insured person” and that her business grossed over $2,000 per year. The parties also agreed that Arthur King injured the Aults’ daughter while she “was in the care and custody of Kathleen King.” The issue, then, was whether or not the Aults’ daughter’s injuries “arose out of” Kathleen King’s day care business.

The Aults argued that “[f]or a grown man to negligently touch or fondle a minor, it does not require that the two be involved in a business activity. Arthur King could have just as easily touched [the Aults’ daughter] in another setting, or at another place.”

The Court of Appeals rejected this argument. In reaching its decision, the court stated: “We do not see how the causal connection between Kathleen’s business activities and [the Aults’ daughter’s] injuries could be any more direct.” The court found the Grinnell policy unambigu­ously excluded coverage for the daughter’s injuries as well as any injuries to the Aults deriving from their daughter’s injuries.

The decision of the lower court was reversed, and the case was remanded to the lower court.

Grinnell Mutual Reinsurance Company vs. Ault-No. 25A03-0905-CV-205-Court of Appeals of Indiana-December 17, 2009-918 North Eastern Reporter 2d 619.