Fifth Circuit Finds No “Personal Injury” or “Advertising Injury” in Trade Secret Misappropriation Suit

In Nationwide Mutual Insurance Co. v. Gum Tree Property Management, LLC, No. 14-60302, 2015 U.S. App. LEXIS 595 (5th Cir. Jan. 14, 2015), the Fifth Circuit affirmed the district court’s grant of summary judgment in favor of Nationwide and certain third-party defendants, finding that Nationwide did not have a duty to defend or indemnify the insureds in the underlying lawsuit.

Lexington Relocation Services, LLC (“Lexington”) brought the underlying lawsuit against three related insureds (“Gum Tree Defendants”) alleging that one of Lexington’s former employees had violated her employment agreement with respect to the disclosure of confidential information.  Specifically, it was alleged that the former employee went to work for the Gum Tree Defendants shortly after leaving Lexington, and she performed the same marketing and sales tasks for the Gum Tree Defendants as she did for Lexington.  The Gum Tree Defendants tendered their defense and indemnity to Nationwide.  Nationwide denied coverage and filed a declaratory judgment action in the United States District Court for the Northern District of Mississippi.

On appeal from summary judgment in favor of Nationwide, the Fifth Circuit determined that the allegations in the complaint did not set forth a claim of “disparagement” or an “invasion of privacy” under the policy coverages for “personal injury” and “personal and advertising injury.”  First, there was no alleged “disparagement” because none of the allegations actually included reference to the bad character or inferior reputation of Lexington.  While the Gum Tree Defendants may have induced customers to leave Lexington, that by itself did not qualify as “disparagement.” Notably, the court, in defining “disparagement,” looked to the dictionary definition rather than the elements of the tort of disparagement

Second, there was no “invasion of privacy” since the policy’s right of privacy offense applied to “persons,” as distinct from businesses like Lexington.  The court found persuasive that the policies used the phrases “persons” and “persons or organizations” in several provisions, thereby indicating that “persons” alone did not include businesses.

Lastly, the Gum Tree Defendants contended that the complaint alleged an advertising injury.  However, the Fifth Circuit summarily rejected that argument since there was no causal connection between any “advertising” and the alleged “advertising injury.”