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An insurer is obligated to defend a printing services company under the “personal and advertising injury” provision of its commercial general liability insurance policy because the company allegedly disparaged another company’s product, says a Kansas federal district court.
Columbus, Ohio-based State Auto Property & Casualty Insurance Co. issued a CGL policy to Fort Scott, Kansas-based Ward Kraft Inc. in April 2017 that was extended through April 2019, according to Wednesday’s ruling by the U.S. District Court in Kansas City, Kansas, in State Auto Property & Casualty Insurance Co. v. Ward Kraft Inc. et. al.
In July 2018, Lincolnshire, Illinois-based Zebra Technologies Corp. filed suit against Ward Kraft and another firm in federal court in Illinois charging the companies with patent infringement, among other claims, for allegedly manufacturing and selling patient identification wristband products that infringed upon its rights.
State Auto denied coverage, but agreed to provide a defense subject to a reservation of rights. It then filed suit in Kansas, seeking a declaration it had no duty to indemnify or defend Ward Kraft under the policy.
The court, which had earlier bifurcated the issue of State Auto’s duty to defend from its duty to indemnify, held the insurer had a duty to defend the company.
A provision under State Auto’s “personal and advertising injury” section of its policy provides coverage for injury arising out of disparagement of a company’s goods, product or services, said the ruling.
“Thus, Ward Kraft must show that Zebra has alleged that Ward Kraft criticized the quality of Zebra’s products in some way,” it said.
“Ward Kraft relies specifically on Zebra’s allegations that Ward Kraft’s acts have caused the public to believe that the two companies or their products are affiliated, and that Ward Kraft’s products ‘are subject to the same high-quality standards’ as Zebra’s products.
“By those allegations, Zebra has accused Ward Kraft of equating its own inferior products with Zebra’s superior products,” said the ruling. It said it agreed with another case “that such a comparison effectively lowers the other company’s product and thus may constitute disparagement,” and concludes there is therefore a duty to defend under the provision. The court also held Ward Kraft is entitled to recover fees incurred in defending this lawsuit.
Ward Kraft’s attorney, Alexander Brown, a partner with Lathrop GPM LLP in Kansas City, Missouri, said in a statement, “We are thrilled the Court confirmed that our client Ward Kraft is entitled to a full defense under the terms of State Auto’s policies, and that the Court awarded our fees in defending against State Auto’s coverage suit.”
State Auto’s attorney could not be reached for comment.
In July, a federal appeals court ruled a caulking product company competitor’s litigation against the company cannot be considered disparagement or defamation under its coverage, in upholding a lower court’s ruling in favor of a Hartford Financial Services Group Inc. unit that said the insurer was not obligated to defend the company.
A federal appeals court has upheld dismissal of litigation filed by a frozen fish company against its insurer for its refusal to defend or indemnify it in an advertising injury case.