Disparagement of Property not Covered under Commercial General Liability Policy

 January 28, 2013

 The insured filed an action against its insurer alleging breach of commercial general liability (CGL) policy. This case is ProLink Holdings Corporation v. Federal Insurance Company, 688 F.3d 828 (2012).

ProLink and GPS are business competitors, each manufacturing and selling GPS-based gold course distance measurement and course management products. GPS sued ProLink, alleging that ProLink infringed and induced the infringement of a patent, and was guilty of slander of title and unfair competition. ProLink sought defense and indemnity from its insurer, Federal Insurance but the insurer refused to defend ProLink, alleging that the complaint did not fall within the terms of the CGL form. The insured filed a declaratory judgment action against the insurer. The district court ruled in favor of the insurer and the insured appealed.

 The appeals court noted that the district court chose to enter judgment in favor of Federal based on an exclusion in the CGL form pertaining to a personal injury arising out of an offense committed before the beginning of the policy period. The appeals court found that this was not correct and declined to rely on the exclusion in reaching its decision.

 The appeals court looked to the insuring agreement of the policy wherein it stated that the insurer would pay damages that ProLink becomes legally obligated to pay for personal injury, which is defined as "injury, other than bodily injury, property damage, or advertising injury, caused by an offense of electronic, oral, written, or other publication of material that libels or slanders a person or organization (which does not include disparagement of goods, products, property, or service".

 The insurer asserted that the allegations against ProLink do not satisfy the definition because the only thing alleged is disparagement of property. Because disparagement of property is specifically excluded from the definition of personal injury, the insurer had no duty to defend. In contrast, ProLink argued that it is reasonable to infer from the underlying complaint that ProLink implicitly defamed and disparaged GPS. This implicit defamation constitutes libel or slander of an organization, the insured said, and so, it is a covered personal injury.

 The court found that the GPS complaint merely alleges that ProLink claimed rights in and ownership of the patent. There are no allegations that ProLink ever mentioned GPS in its undertakings. Furthermore, the injuries GPS complains of are slander of title and encumbrance of the title to the patent. Thus, every allegation in the complaint speaks to disparagement of property, and this is not covered under the terms of the policy.

 Because the underlying complaint's allegations concern only the disparagement of property, which is not covered under the policy, Federal did not have a duty to defend ProLink. The judgment of the district court was affirmed.

 Editor's Note: The U.S. Court of Appeals, Seventh Circuit, basically held that the insurer could justifiably refuse to defend the insured in this instance because it was clear from the face of the underlying complaint that the allegations set forth in the complaint failed to state facts that brought the case within, or even potentially within, the coverage of the policy. Reliance on an exclusion to deny coverage was not necessary here because the terms of the insuring agreement were not satisfied.

 In other words, the parties to an insurance coverage dispute should always check the insuring agreement first and then, if necessary, proceed to examine any possibly relevant exclusion.