IP exclusion shields Hartford units in spandex case

A ruling in favor of Hartford Financial Services Group Inc. units in a coverage dispute with a spandex supplier that is being sued for copyright infringement by a stretch fabric wholesaler was handed down by a federal court.

The U.S. District Court in New York held that Hartford Fire Insurance Co. and Hartford Casualty Insurance Co. do not have a duty to defend or indemnify New York-based Spandex House Inc. under an intellectual property exclusion in its coverage, according to Monday’s ruling in Spandex House Inc. v. Hartford Fire Insurance Co. et. al.

According to the ruling, Los Angeles-based Rex Fabrics sued Spandex House in December 2016 alleging that it and unnamed co-defendants had “created, sold, manufactured, caused to be manufactured, imported and/or distributed” fabrics and garments identical to five of Rex Fabrics’ designs.

The District Court ruling said the coverage’s intellectual property exclusion was unambiguous and bars coverage and that, Spandex House’s arguments to the contrary, an advertising exception to the exclusion did not apply.

The advertising exception states the intellectual property exclusion does not apply if the only allegations are limited to advertisement infringement or copying, said the ruling.

“If the lawsuit alleges any other theory of infringement — such as infringement caused by the policyholder’s sales, distribution, manufacturing, or other activities unrelated to its advertisements — then the Exception does not apply,” said the ruling.

“To be sure, some of Rex Fabrics’ allegations appear to relate to Spandex House’s advertisements … But the bulk of the allegations of infringement relate not to advertisements but to sale and distribution,” the ruling said.

“Spandex House has made no showing that the allegations of sale and distribution arise out of — or are in any way causally related to — its advertising activities (other than the unremarkable assertion that some of the advertisements depict the allegedly infringing products),” said the court, in granting Hartford summary judgment dismissing the case.

The ruling added that Spandex House could reopen the case “should circumstances in the Rex Fabric Action change in such a way that a reasonable possibility of coverage of that Action arises.”

A Hartford spokesman did not immediately respond to a request for comment, and Spandex House’s attorneys could not be reached.

A federal court ruled last week that a Hartford unit is not obligated to pay claims submitted by a financially troubled Detroit meat retailer that suffered robbery, vandalism then a fire that destroyed its remaining property because it misrepresented its losses.