California Supreme Court Overrules Prior Appellate Decision on Coverage for Product Disparagement

In Hartford Casualty Insurance Co. v. Swift Distribution, Inc., the California Supreme Court clarified the law on coverage for commercial disparagement, expressly overruling an earlier intermediate appellate decision that had significantly broadened coverage for the tort.  The Supreme Court held a claim of disparagement must contain a false or misleading statement that specifically refers to and clearly derogates a competitor’s product or business.

Hartford issued a CGL policy to a company doing business as Ultimate Support Systems.  Ultimate sold a product called the Ulti-Cart, a multi-use cart marketed for the loading and transport of musicians’ equipment.  A competitor who made a similar transport cart called the Multi-Cart sued Ultimate for patent and trademark infringement, false designation or origin, and damage to business, reputation and goodwill.

Hartford denied any duty to defend or indemnify Ultimate on the ground the claims were outside the personal and advertising injury insuring agreement.  Ultimate contended the allegations raised a claim for covered disparagement. An earlier appellate decision, Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc. (2012) 207 Cal.App.4th 969, had found a claim for covered disparagement potentially existed because an insured’s reduction in the price of a product could implicitly constitute disparagement of that product.  Hartford brought a declaratory relief action in which the trial court granted summary judgment for Hartford, which was affirmed by the Court of Appeal and Supreme Court.

The Supreme Court found Ultimate’s advertisements contained no disparagement of Multi-Cart’s products.  It held that, while the similarity between the Ulti-Cart and the Multi-Cart could cause consumer confusion and might support a claim of patent or trademark infringement, it did not, by itself, support a claim of disparagement because there was no express assertion or clear implication of the inferiority of the Multi-Cart.

The Supreme Court also held that phrases and words used in Ultimate’s advertising, such as “patent-pending,” “innovative,” “unique,” “superior” and “unparalleled,” did not support a claim for disparagement as these phrases and words were not specific enough and were more akin to “mere puffing,” which could not support tort liability.

Image courtesy of Flickr by Jeepers Media