“Personal Injury” Coverage Exclusion Eliminates Coverage

Blog Post 4672

See the full video at https://rumble.com/v3x1wsl-personal-injury-coverage-exclusion-eliminates-coverage.html and at https://youtu.be/XfyWqrSsU3U

AutoDistributors, Inc. and Steven Schneider (collectively “AutoDistributors”) appealed the district court’s order granting judgment on the pleadings in favor of Scottsdale Insurance Company, Nationwide E&S Specialty, Scottsdale Indemnity Company, and National Casualty Company (collectively “Defendants”). In Autodistributors, Inc. et al v. Nationwide E&S Specialty; et al., No. 22-16445, United States Court of Appeals, Ninth Circuit (November 17, 2023) the Ninth Circuit interpreted the insurance policy.

This case arose from an underlying dispute between Sixt Franchise USA, LLC, Sixt Rent a Car, LLC (collectively “Sixt”), and AutoDistributors. Sixt Franchise and AutoDistributors entered into a Franchise Agreement that allowed AutoDistributors to operate a Sixt rental car franchise and use Sixt’s trademarks in connection with that franchise. Sixt sued AutoDistributors claiming it violated the Franchise Agreement by operating a used-car-sales business at the franchise location and using Sixt’s trademarks in connection with that business.

AutoDistributors tendered the suit to its insurer Scottsdale Insurance Company (“Scottsdale”), and Scottsdale refused to defend or indemnify. AutoDistributors sued the Defendants for breach of contract and breach of the implied covenant of good faith and fair dealing. The district court ruled for Defendants, holding that Scottsdale had no duty to defend AutoDistributors.

DUTY TO DEFEND

An insurer must defend a suit which potentially seeks damages within the coverage of the policy. To determine whether there is a duty to defend, the insurer compares the terms of the policy with the allegations of the complaint and any other facts that are reasonably inferable or otherwise known.

Some Of Sixt’s Allegations Clearly Fell Outside The Policy’s Coverage.

Sixt alleged that AutoDistributors breached the Franchise Agreement by “operating the unauthorized Used Car Sales Business at the Store” and “using the Store to facilitate a start-up incubator business.” That alleged conduct did not implicate any of the offenses in the definition of “personal and advertising injury,” so it did not trigger the duty to defend.

Sixt also alleged that AutoDistributors infringed Sixt’s trademarks by using the trademarks in connection with the used car business. Based on these allegations, Sixt alleged claims of trademark infringement and false designation of origin under the Lanham Act, common law trademark infringement, and common law unfair competition. This theory was also part of Sixt’s breach of contract claim because Sixt argued that the Franchise Agreement restricted the use of the trademarks.

Even assuming that trademark infringement would constitute a “personal and advertising injury,” there was no coverage for these claims because of the policy’s IP Exclusion. That exclusion provides that the policy does not cover “personal and advertising injury” arising out of the infringement of “trademark.”