A Travelers Cos. Inc. unit is not obligated to indemnify a trading company that sold fake Fendi goods to a retailer under the advertising injury provisions in its liability policies, an appeals court said Tuesday in affirming a lower court ruling.
New York-based Ashley Reed Trading Inc. sold counterfeit goods, including luxury handbags, shoulder bags, purses and wallets allegedly manufactured by Rome-based Fendi Adele S.R.L., to Florence, New Jersey-based Burlington Stores Inc., according to Tuesday's ruling by the 2nd U.S. Circuit Court of Appeals in New York in United States Fidelity and Guaranty Co. v. Fendi Adele S.R.L. et al.
USF&G, which is now a unit of New York-based Travelers, had sold to Ashley Reed two liability insurance policies that covered the relevant period of Feb. 8, 2003, through Feb. 8, 2006, according to the ruling.
In January 2007, Fendi sued Ashley Reed for trademark counterfeiting, false designation of origin and trademark dilution, and was eventually awarded $34.7 million. Burlington also obtained a judgment requiring Ashley Reed to pay a total of $248,000, according to the ruling.
USF&G sought a declaration in U.S. District Court in New York that it was not obligated to indemnify Ashley Reed in the case. In August 2014, the court granted summary judgment in USF&G's favor.
On appeal, a three-judge panel of the 2nd Circuit unanimously agreed with the lower court's ruling. Fendi and Burlington pointed to two subsections of the advertising injury section of Ashley Reed's liability policy to support their position.
One defined advertising injury as arising out of “the use of another's advertising idea in your 'advertising.' ” The second defined it as “infringement of another's copyright, trade dress or slogan in your 'advertising.' ”
Neither is applicable in this case, according to the ruling. “As a matter of common sense, there is a difference between the placement of a counterfeit brand label on a handbag and the act of soliciting customers through printed advertisements or other media,” said the ruling.
“In short, we conclude that Ashley Reed's injuries arose not from its advertising activities, but from its sale of counterfeit products,” said the ruling, in affirming the lower court's decision to deny coverage.
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