Street Surfing, LLC v. Great American E & S Ins. Company

(First Publication Exclusion in General Liability Policy Applied to Bar Coverage of Trademark Infringement Lawsuit)

In Street Surfing, LLC v. Great American E & S Ins. Co., 752 F.3d 853 (9th Cir. June 10, 2014), the United States Ninth Circuit of Appeals affirmed the district court’s entry of summary judgment in favor of Great American E & S Insurance Company (“Great American”) in connection with a coverage dispute arising out of Street Surfing, LLC’s (“Street Surfing”) tender of an underlying trademark infringement lawsuit. Because the insured first began publishing advertisements, including the infringing trademark, prior to the inception of the Great American policies, the Court of Appeals affirmed the district court’s holding that the “first publication exclusion” in the Great American policies applied to bar coverage of the underlying lawsuit tendered by Street Surfing to Great American. The Court of Appeals analyzed application of the first publication exclusion as follows:

The policies’ prior publication exclusion is triggered only if the insured published allegedly injurious material before the beginning of the policy period. The California Court of Appeal interpreted the scope of an identical exclusion in Ringler by looking to the nature of the potential coverage. See 96 Cal.Rptr. 2d at 147-48 (interpreting the exclusion “in the context of the law of defamation” because “‘advertisement.’” Because this provision specifies the covered injuries in the policies’ own terms, we can interpret the policies’ prior publication exclusion without looking to underlying principles of substantive law.

Here, the Noll action is potentially covered because it alleged that Street Surfing’s advertisements using its “Street Surfing” logo and brand name were wrongful uses of “Streetsurfer” – Noll’s advertising idea. Accordingly, if Street Surfing used its brand name or logo in an advertisement (as defined by the policy) before August 2005, the prior publication exclusion would bar coverage of injuries from the republication of that advertisement after August 2005.

To determine whether Street Surfing used Noll’s advertising idea in its own advertisements before coverage began, the district court looked to the Noll complaint and three items of extrinsic evidence: the affixation of the Street Surfing logo to the Wave, Street Surfing’s website address and the screenshot of Street Surfing’s website content. We conclude that affixing the Street Surfing logo to the Wave was an advertisement using Street Surfing’s brand name and logo. Because the Street Surfing logo was published on the Wave before coverage began, the prior publication exclusion bars coverage of injuries caused by that affixation during the policies’ coverage periods. Accordingly, we need not decide whether Street Surfing’s website address and content also constituted advertisements under the policy.

The Court of Appeals also rejected the insured’s argument that advertising depicting the infringing logo after the inception of the Great American policies was sufficiently different so as to avoid application of the prior publication exclusion. In rejecting the insured’s arguments, the Court of Appeals held that the post-policy advertising was sufficiently similar to the pre-inception policy advertisement so as to merit application of the prior publication exclusion. The Court of Appeals reasoned as follows:

Street Surfing contends that even if the prior publication exclusion bars coverage of liability for pre-coverage advertisements using Noll’s advertising idea, Great American was still obligated to defend the Noll action because Street Surfing published new, post-coverage advertisements using Noll’s advertising idea that were not substantially similar to any advertisements published before the policy period. Even assuming that affixing the Street Surfing logo to the Wave was the only pre-coverage advertisement, we are not convinced.

The Ringler court explained that the prior publication exclusion “barcoverage of republication of any identifiably defamatory ‘material’ whenever the first publication of substantially the same material occurred before the inception of the policy period, without regard to whether or not the defamatory material is literally restated in precisely the same words.” 96 Cal. Rptr. 2d at 150. This concept was further explained in Kim Seng, which held that the prior publication exclusion does not preclude coverage if, during the coverage period, the insured publishes “new matter” constituting “fresh wrongs” in the underlying liability suit. See 101 Cal. Rptr. 3d at 547. That is, “new matter” is material that is not “substantially similar” to the material published before the coverage period. See id.

To assess substantial similarity, courts have not considered all differences between precoverage and postcoverage publications, but have focused on the relationship between the alleged wrongful acts manifested by those publications. A post-coverage publication is “substantially similar” to a pre-coverage publication if both publications carry out the same alleged wrong. See, e.g., Taco Bell, 388 F3d at 1073 (explaining that if an article infringing a copyright was published before coverage, but was republished during the coverage period as part of an anthology, “[t]he anthology would be a different . . . work from the magazine, but the wrongful act – the copying of the copyrighted article without authorization – would be the same and so the prior-publication exclusion would . . . click in”). Focusing on the alleged wrongful acts fulfills the prior publication exclusion’s purpose of barring coverage when “the wrongful behavior had begun prior to the effective date of the insurance policy.” Id. at 1072.

. . .

Street Surfing argues that this case is analogous to Taco Bell because, during the coverage period, it published advertisements for “Lime Green Street Surfing Wheels for the Wave” and the “New Ultimate Street Surfer Wheel Set,” and these advertisements differed from any pre-coverage advertisements. Conversely, Great American contends that this case is indistinguishable from Kim Seng. We conclude that Street Surfing’s post coverage advertisements are substantially similar to its pre-coverage advertisement and therefore that the prior publication exclusion precludes coverage of the Noll action.

Unlike the underlying complaint in Taco Bell, the Noll complaint does not mention any specific advertisements. Instead, it makes general allegations that Street Surfing injured Noll by using the Street Surfing name and logo on the Wave and in its advertisements. In particular, the Noll complaint does not allege that the post-coverage advertisements were separate torts occurring during the policy period. One of the primary grounds for the Seventh Circuit’s decision in Taco Bell is therefore not applicable here. See 388 F.3d at 1073-74.

More importantly, if Street Surfing’s post-coverage publications were wrongful, that would be so for the same reason its pre-coverage advertisement was allegedly wrongful: they used Noll’s advertising idea in an advertisement. Whether that idea was manifested specifically as “Street Surfing” or as “Street Surfer” is not a meaningful differentiation, because the alleged wrong arose out of each term’s similarity to Noll’s advertising idea, “Streetsurfer.” Arguably, “Street Surfer” and “Street Surfing” would each be viewed as a separate, subordinate version of the basic “Streetsurfer” idea. The extreme similarity between all these terms, however, convinces us otherwise. Rather, we are persuaded this is an instance where “a difference between the republished version of an unlawful work and original version so slight as to be immaterial.” Taco Bell, 388 F.3d at 1073.

That the advertisements were for different products is also not a material distinction, because the advertising idea being used was the same regardless of the product. In Taco Bell, the material distinction was not between commercials for tacos and commercials for burritos, but between commercials that infringed one general idea allegedly protected by misappropriation law (“Psycho Chihuahua”) and a separate, more specific idea that was also allegedly protected by misappropriation law (a Chihuahua poking its head through a hole). See id. at 1073. The distinct products being promoted in Street Surfing’s post-coverage advertisements are more akin to the words of product description added to the marks during the policy period in Kim Seng; they differentiate the publications, but not the alleged wrongs, which were the same before and during the policy period. See 101 Cal.Rptr.3d at 547. The difference in products is therefore also not material for purposes of “fresh wrongs” analysis.

Accordingly, we conclude that Street Surfing’s postcoverage advertisements are not fresh wrongs that escape application of the prior publication exclusion.