Oregon Federal District Court Rejects Coverage for Trademark Infringement Under Coverage B

In Crum & Forster Specialty Insurance Co, v. Willowood USA, LLC, et al., Civ. No. 6:13-cv-01923-MC, 2014 U.S. Dist. LEXIS 153363 (D. Or. Oct. 27, 2014), the district court of Oregon granted summary judgment in favor of Crum & Specialty Insurance Company, Allied World Assurance Company, and Colony Insurance Company, finding that they had no duty to defend Willowood USA, LLC (Willowood).

The underlying suit arose out of a dispute between two companies, Repar and Willowood, in the business of distributing agricultural pesticides.  Repar had obtained a primary trademark registration for technical tebuconazole (TEBUCON), an ingredient in certain agricultural pesticides. In late 2007, Brian Heinze and Repar formed a joint venture where they would exchange confidential business information.  As part of the agreement, a 5-year non-disclosure agreement was also signed.  Around the same time, Heinze met repeatedly with Vijay Mundhra, the owner of Willowood, Ltd. in Hong Kong.  In 2009, Mundhra and Heinze formed Willowood USA with the purpose of distributing agricultural pesticides.  Thereafter, Willowood and Repar entered into an agreement that would allow Willowood to jointly manufacture the liquid and dry formula fungicide, on condition that Willowood purchase tebuconazole for its TEBUCON products from Repar. The dispute developed when Willowood stopped purchasing tebuconazole from Repar, yet still continued to use the TEBUCON mark.  In response, Repar filed suit alleging breach of contract, breach of implied contract, quasi-contract/unjust enrichment, federal trademark infringement and counterfeiting, and federal unfair competition.

Willowood’s insurance providers sought a declaration that they had no duty to Willowood in the underlying lawsuit.  Willowood argued that the Disparagement/Defamation and Advertising Idea offenses under the “personal and advertising injury” coverage applied.  The district court disagreed.  For the “disparagement” claim, the district court analyzed the three torts (trade libel, defamation, and quasi-contract/unjust enrichment) identified by the parties to see if the elements of each were reasonably satisfied.  The district court concluded that none of the torts were reasonably satisfied by imitation or infringement.

Additionally, the district court concluded that there was no coverage under the Advertising Idea offense.  Although a trademark could reasonably constitute an “advertising idea,” there was no causal nexus alleged between the “advertising injury” and the “advertisement activity.”  In particular, since the harm occurred from misuse of the trademark, and not the advertising itself, the district court determined that Willowood could not establish coverage for the “use of another’s advertising idea.”

Alternatively, the district court found that that the “Breach of Contract” and the “Infringement of Intellectual Property” exclusions barred coverage.  The “Breach of Contract” exclusion applied to the implied contract since the ordinary terms “arising out of” and “contract” were very broad according to Oregon law.  Lastly, the Court concluded that since Repar alleged that Willowood used a “confusingly similar imitation” of Repar’s trademark, the “Infringement of Intellectual Property” exclusion barred the federal trademark infringement and counterfeiting and the federal unfair competition claims.

This is a considerable victory for insurers!