Daily Blast June 12, 2014

The California Supreme Court issued an opinion in Hartford Casualty Insurance Company v. Swift Distribution, Inc. (June 12, 2014, S207172) __ Cal.4th __, clarifying “the principles governing the scope of a commercial general liability insurer’s duty to defend an insured against a claim alleging disparagement.” (Slip opn., p. 2.) The Supreme Court held “that a claim of disparagement requires a plaintiff to show a false or misleading statement that (1) specifically refers to the plaintiff’s product or business and (2) clearly derogates that product or business. Each requirement must be satisfied by express mention or by clear implication.” (Ibid.)

Hartford Casualty Insurance Company (“Hartford”) issued a commercial general liability policy to Swift Distribution, Inc., doing business as Ultimate Support Systems (“Ultimate”), which sells the Ulti-Cart. The policy covered “personal and advertising injury” and included claims arising from “[oral], written, or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” (Slip opn., pp. 1, 3.) Gary-Michael Dhal (“Dhal”), the manufacturer of the Multi-Cart, sued Ultimate in federal court alleging patent and trademark infringement, false designation of origin, and damage to business, reputation, and goodwill. (Id. at p. 1.) Hartford denied Ultimate’s tender of the defense of the lawsuit “on the ground that the suit did not allege that Ultimate disparaged Dahl or Multi-Cart.” (Ibid.) “Hartford filed a complaint seeking a declaratory judgment that it had no duty to defend or indemnify Ultimate in the Dahl action.” (Id. at p. 4.) The trial court granted Hartford’s summary judgment motion. The Court of Appeal affirmed and concluded that “the Dahl action did ‘not allege that Ultimate’s advertisements specifically referred to Dahl by express mention’ and that ‘Dahl did not allege that Ultimate’s publications disparage Dahl’s organization, products, goods, or services’ by reasonable implication.” (Ibid.)

The Supreme Court granted review and affirmed the judgment of the Court of Appeal. The Supreme Court explained that a “‘[determination] of the duty to defend depends, in the first instance, on a comparison between the allegations of the compliant and the terms of the policy. [Citation.] But the duty also exists where extrinsic facts known to the insurer suggest that the claim may be covered.’” (Slip opn., p. 6 quoting Scottsdale Ins. Co. v. MV Transportation (2005) 36 Cal.4th 643, 654.) The issue in this case was “whether the Dahl action against Ultimate included a claim for disparagement covered by the Hartford policy.” (Slip opn., p. 7.)

The Supreme Court recognized the confusion surrounding the tort of commercial disparagement. (Slip opn., pp. 7-11.) The court ultimately clarified and limited the scope of an insurer’s duty to defend a policy holder against a possible claim of disparagement. The Supreme Court concluded that “disparagement involves two distinct but related specificity requirements. A false or misleading statement (1) must specifically refer to the plaintiff’s product or business, and (2) must clearly derogate that product or business.” (Id. at pp. 11-12.) In this case, Dahl’s lawsuit contained no allegation that Ultimate clearly derogated the Multi-Cart. Thus, the Supreme Court found no claim of disparagement triggering Hartford’s duty to defend. (Id. at p. 22.)

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