Potential for Coverage Requires Insurer to Defend
The key to the duty to defend is an analysis whether the plaintiff seeks damages from a cause that could potentially be covered by the policy. There is no need to plead an absolutely covered event. All that is necessary is a potential for coverage.
In Holyoke Mutual Insurance Company In Salem & another v. Vibram USA, Inc., SJC-12401, Supreme Judicial Court of Massachusetts (September 12, 2018) an appeal that arsoe from an insurance coverage dispute between the insured, Vibram USA, Inc. (Vibram) and two insurers: Holyoke Mutual Insurance Company in Salem and Maryland Casualty Company, which had issued several general commercial liability policies (the policies) to Vibram, came to the Supreme Judicial Court to determine if the insurers are required to defend Vibram from suit brought by the heirs of the late, famed marathon runner Abebe Bikila.
The heirs sued Vibram in Federal court for improperly using the name “Bikila” to advertise Vibram’s running shoes. Vibram tendered the defense to the insurers, who denied coverage on the ground that a provision in the policies covering improper use of another’s advertising idea did not cover the claims raised in this action. The insurers, however, agreed to fund Vibram’s defense under a reservation of rights.
FACTUAL BACKGROUND AND PROCEDURE
Between 2009 and 2011, Vibram, a producer of minimalistic shoes that simulate walking and running barefoot, purchased from the insurers the policies, which, among other things, provide coverage for “personal and advertising injury liability.” With certain enumerated exceptions, the policies state that the insurers have a duty to defend Vibram from any suit seeking damages for covered losses, particularly for claims seeking damages against Vibram for “advertising injury.”
The particular form of advertising injury at issue in this case is the one described in clause (f) of the policies as “[t]he use of another’s advertising idea in your ‘advertisement.'” The policies do not define the term “advertising idea.”
The Underlying Action
In 2015, while the policies were in effect, the living heirs of Abebe Bikila (Bikila family), the famed runner who won the 1960 Olympic marathon while running barefoot, sued Vibram in the United States District Court for the Western District of Washington. The Bikila family’s complaint alleges that Vibram had misused their late relative’s name in advertising and promoting Vibram’s “‘FiveFingers’ line of minimalist running shoes . . . [that are designed] to mimic biomechanical properties of barefoot running while providing the protection of a conventional shoe.” The complaint contends that Vibram’s “Bikila model shoes are named after Abebe Bikila and are intended to associate [Vibram’s] commercial footwear with Abebe Bikila’s legendary barefoot Olympic feats.”
The Bikila family operated commercial uses of the name Bikila in various methods producing income for the family. The suit alleged four counts:
- a violation of the Washington Personality Rights Act;
- Washington Consumer Protection Act claims;
- a claim of false designation and Federal unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a); and
- a claim that Vibram had been unjustly enriched by its unauthorized use of Abebe Bikila’s name.
After denying that they had a duty to defend Vibram and agreeing to fund the defense under a reservation of rights, the insurers commenced an action in Superior Court, seeking a declaration that they did not have a duty to defend Vibram in the underlying action because the complaint did not raise claims covered by the policies. Following cross motions for summary judgment, the motion judge agreed with the insurers. Specifically, the judge concluded that the complaint did not raise a claim that Vibram had used another’s advertising idea in Vibram’s advertisement. According to the judge, the complaint only raised claims implicating a “personality right” — an intellectual property right, and a claim that is excluded from coverage under the policies.
The issue before the Supreme Court was whether the allegations in the complaint raise a claim that is potentially covered under the policies, thus triggering the insurers’ duty to defend Vibram. It is settled that an insurer’s duty to defend is independent from, and broader than, its duty to indemnify. A liability insurer’s duty to defend is determined by comparing the allegations in the third-party complaint against the provisions of the insurance policy. The underlying complaint need only show, through general allegations, a possibility that the liability claim falls within the insurance coverage. There is no requirement that the facts alleged in the complaint specifically and unequivocally make out a claim within the coverage. Accordingly, a duty to defend does not turn on the specific cause of action enunciated by the pleader or require that the complaint mirror the policy’s coverage language.
Vibram’s principal contention is that the Superior Court judge erred in concluding that the complaint did not assert a claim that it had used the Bikila family’s advertising idea when it advertised its running shoes. According to Vibram, the advertising idea alleged in the complaint was the Bikila family’s intentional association of their family name with Abebe Bikila’s legacy and desirable qualities, and their use of the name “Bikila” to advertise the family’s running-related commercial ventures.
The phrase “advertising idea” has been described as not having a single, plain and clear meaning; however, myriad other jurisdictions have interpreted “advertising idea” in these circumstances a broad definition. It is not surprising that given this broad definition, courts have concluded that a wide variety of concepts, methods, and activities related to calling the public’s attention to a business, product, or service constitute advertising ideas.
The Superior Court judge’s decision relied, at least in part, on the conclusion that the Bikila family had not actually used the name “Bikila” as an advertising idea, and thus there was no claim that Vibram used another’s advertising idea. Instead, the judge interpreted the complaint as alleging that Vibram had infringed Abebe Bikila’s personality rights, a claim not covered under the policies.
As an initial matter, it is uncontested that Vibram’s use of “Bikila” to advertise its minimalist FiveFingers running shoes constituted an advertising idea. Vibram used the name of a legendary barefoot marathon runner for purposes of calling attention to its running shoes that simulated barefoot running.
The Supreme Court concluded that the complaint reasonably may be interpreted as claiming that the Bikila family intentionally created a connection between their family name and Abebe Bikila’s legacy and desirable qualities for purposes of using “Bikila,” and everything it conveyed, to attract customers to their running-related commercial ventures.
In other words, the Bikila family’s advertising idea was using the name Bikila, and the legacy that name conveyed, to attract business to each of their ventures. Because the allegations in the complaint generally allege that the Bikila family used the Bikila name to advertise and promote their various running-related ventures, the Supreme Court noted that the trial judge erred in concluding that the Bikila family had not actually used the name Bikila as an advertising idea.
Given the standard under which appellate courts analyze insurance coverage disputes, the complaint generally asserts that the Bikila family intentionally and specifically connected the name to running-related ventures, and the name itself conveys a “barefoot dedication to succeed under any circumstances,” a desirable quality for any of these ventures.
Accordingly, the grant of summary judgment in favor of the insurers was reversed.
The key to every duty to defend case is the word “potential.” If there is a potential for coverage the insurer must defend. In this case the potential was clear – the Bikila family used the name of the great runner to promote various money making operations like television ads in Japan and an annual Marathon, among other things. When Vibran used the Bikila name to sell shoes it infringed the family’s right and was entitled to a defense from its insurers. Interestingly, by so arguing in the declaratory relief action, Vibram seems to admit that in infringed on the rights of the Bikila family. The insurers should have defended under its reservation of rights and allowed the defense to go to judgment before considering the declaratory relief action.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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