SECOND CIRCUIT COURT OF APPEALS UPHOLDS INSURER’S DUTY TO DEFEND
High Point Design, LLC v. LM Ins. Corp.
911 F.3d 89 (2d Cir. 2018)
In an important precedential decision, the United States Court of Appeals for the Second Circuit ruled in favor of Stern & Schurin’s client finding that its insurer breached its duty to defend.
In this case, Stern & Schurin’s client brought a declaratory judgment action against a competitor after the latter sent it a cease-and-desist letter. The competitor responded with a counterclaim alleging trade dress and patent infringement. In the course of that case, the competitor sought discovery of all advertising, marketing and promotional materials.
Based on the counterclaim and discovery requests, the insured sought a defense from its insurer pursuant to the terms of its General Commercial Liability policies providing coverage for advertising injury. The insurer refused to provide a defense.
After its underlying case was resolved, Stern & Schurin’s client sued for breach of contract. After substantial briefing and argument, on summary judgment United States District Court Judge Katherine Forrest ruled in favor of Stern & Schurin’s client. Judge Forrest agreed with Stern & Schurin that the insurer owed its insured a defense based on the allegations in the counterclaim and the discovery demands.
The insurer then appealed Judge Forrest’s decision to the Second Circuit Court of Appeals. After briefing and oral argument, a three judge panel agreed with Stern & Schurin and Judge Forrest that the insurer had breached its duty to defend, and that Stern & Schurin’s client was entitled to reimbursement of substantial amount of attorney fees and costs that it expended defending the underlying litigation.
Writing for the panel, Judge Rosemary Pooler, agreed that the counterclaim filed did not fall within the convoluted language of the Intellectual Property exclusion. By defining “advertising” broadly to include “offerings for sale,” the Circuit set an important precedent benefitting insureds. In another important aspect of the Court’s decision, the majority opinion held that — Even if the counterclaims standing alone, did not place the insurer on notice of its duty to defend, the discovery demands seeking information related to the paid advertisements place High Point’s advertising squarely at issue.