Insurer Must Defend Forever costumes wholesale, 9th Circ. Told

Law360, Los Angeles (August 3, 2017, 7:47 PM EDT) — A Los Angeles-based clothing wholesaler asked the Ninth Circuit on Thursday to uphold a district court’s ruling that Great Lakes Insurance SE must defend it against a trademark infringement lawsuit brought , saying the lower court correctly held that the underlying action alleged potentially covered claims.
Great Lakes’ policyholder, In and Out Fashion Inc., was accused in the underlying suit of selling unauthorized Forever 21-labeled clothing.

In and Out’s commercial general liability policies with Great Lakes contain a broad exclusion for claims stemming from violations of intellectual property rights, but there is an exception to the exclusion for copyright, trade dress and slogan infringement occurring in the company’s advertisements. A California federal judge last year found that Great Lakes’ defense duty was triggered because the facts in the underlying complaint raised the possibility that In and Out could be held liable for infringing Forever 21’s trade dress in its advertising.

Great Lakes the lower court’s analysis on appeal to the Ninth Circuit, asserting, among other things, that Forever 21 didn’t point to any alleged injury due to In and Out’s advertisements. But the wholesaler countered on Thursday that its insurer is arguing for an overly stringent standard, contending that Forever 21 didn’t have to point to any specific advertisement to trigger Great Lakes’ defense obligations.

“The Forever 21 complaint includes facts establishing the potential for [In and Out] to be found liable for infringement of trade dress or infringement of slogan in its advertisement,” In and Out’s attorneys wrote. “[In and Out’s] alleged advertising activity did not merely expose the infringement; Forever 21 asserted that it was injured as a result of [In and Out’s] advertisement.”

In and Out operates a wholesale clothing store in downtown Los Angeles. Forever 21 sued the company in September 2014, claiming it had infringed the apparel giant’s trademarks by selling unauthorized or counterfeit Forever 21-branded clothing. According to Forever 21, In and Out often blacked out or removed the labels on the items to conceal their true origin.

Great Lakes refused In and Out’s request for a defense, then filed the instant case in California federal court seeking a ruling that its policies don’t cover the underlying claims.

In June 2016, U.S. District Judge Christina A. Snyder ruled that Great Lakes must defend In and Out, saying Forever 21’s suit contains facts that could support a covered claim for trade dress infringement in In and Out’s advertisements. The judge noted the underlying complaint’s general references to In and Out’s advertising, marketing and promotional activities.

In an opening appellate brief lodged in May, Great Lakes contended that In and Out’s display of the clothing at issue in its store does not, by itself, constitute advertising within the terms of the policies. Moreover, the insurer said, Forever 21’s references to In and Out’s purported advertising activities are too vague to trigger coverage.

In and Out, however, shot back in its own brief that Great Lakes has merely “conjured roadblocks” to support its denial of coverage. Neither the policies nor applicable California law require the plaintiff in an underlying case to offer proof of a specific act in order to trigger an insurer’s duty to defend, the company said.

“A rule requiring an insured to submit proof of the pleading of specific facts or evidence that a specific act occurred would be contrary to the fundamental principle that a duty to defend is established when an insurer learns based on the facts alleged, reasonably inferable, or otherwise known, that the complaint could fairly be amended to state a covered liability,” In and Out’s attorneys said.

Given the allegations in Forever 21’s complaint, it is possible that In and Out’s promotion and sale of the purportedly infringing apparel could lead to the wholesaler being held liable for infringing Forever 21’s trade dress in an advertisement, according to the brief.

Moreover, In and Out asserted, beyond the underlying suit itself, Forever 21 also confirmed in interrogatory responses that it was seeking damages from the wholesaler attributable to its alleged use of Forever 21’s trademarks in its advertising materials. Therefore, the insurer cannot reasonably argue that its defense duty wasn’t triggered, the company said.

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