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State Auto Property and Casualty Ins. Co. v. Travelers Indemnity Company of America, et al.

Insurer Obligated To Defend Insured Against Trademark Infringement And Dilution Claims Arising Out Of Use Of Mark In Website's Domain Name As Advertising Injury

Vacating the decision of the court below, the Fourth Circuit Court of Appeals holds that defendant Travelers Indemnity Company of America ("Travelers") is obligated under an insurance policy it issued to defend Nissan Computer Corporation ("NCC") in a trademark infringement and dilution suit brought by Nissan Motor Company ("Nissan") arising out of NCC's use of the "Nissan" mark in the domain names of NCC's web sites. NCC had used the "Nissan" mark, which is also the last name of NCC's owner, on web sites which contained advertisements for both competitors' automobiles and NCC's own hosting and internet access services.  The Fourth Circuit held that Travelers was obligated to defend NCC against Nissan's claims under an insurance policy which protected NCC from any "advertising injury" sustained by a third party which was caused by an  "offense [NCC] committed in the course of advertising NCC's goods, products or services."

Nissan Sued For Using Trademark In Domain Names Of Websites That Contain Advertisements

Nissan Computer Corporation is in the business of computer sales and services.  NCC registered the domain names Nissan.com and nissan.net, at which it operated web sites that contained advertisements for both the automobiles of competitors of Nissan, and NCC's own Internet access and hosting services.  NCC's web sites also utilized the word Nissan in the logo of its site, in typeface allegedly similar to that used by Nissan to present its own mark.

Nissan Motor Corporation brought suit, claiming that NCC's use of its mark in this manner constituted trademark infringement and dilution, as well as domain name piracy and false designation of origin.

NCC promptly gave notice of this suit to its insurance carriers, and sought their assistance.  Plaintiff State Auto Property and Casualty Insurance Company ("State Insurance"), which had issued insurance to NCC that protected it from "advertising injuries" agreed to defend NCC under a reservation of rights.  Travelers, however, which had issued subsequent insurance policies that provided NCC with the same protection from losses arising out of "advertising injuries" as was contained in State Insurance's policy, refused to defend.  As a result, State Insurance brought this action, seeking a declaratory judgment that Travelers was obligated to defend NCC. 

Claims Covered As Advertising Injuries Within The Meaning Of Insurance Policy

The District Court granted Traveler's summary judgment, and dismissed State Insurance's claim.  The Fourth Circuit vacated this decision, and held that Travelers was indeed obligated to defend NCC.

Insurance policies are to be liberally construed in favor of the policy holder.  Thus "the provisions in a policy which extend coverage to the insured must be construed liberally so as to afford coverage whenever possible by reasonable construction."  In addition, "any ambiguity as to the meaning of a policy term 'must be resolved in favor of the policy holder … and against the company."

To be entitled to coverage under its policies, NCC had to show that injuries for which Nissan sought redress in its complaint were "advertising injuries" within the meaning of the policies at issue, and that these injuries were caused by acts committed by NCC in the course of advertising NCC's own services.

The Fourth Circuit held that the injuries complained of were "advertising injuries" within the meaning of Travelers policy.  That policy included within the definition of "advertising injury" injuries arising from the "misappropriation of advertising ideas or style of doing business."  Travelers argued that this provision only provided protection when the plaintiff, here Nissan, complained that it was the victim of the common law tort of misappropriation.  As trademark infringement and dilution claims did not fall within the ambit of that tort, Traveler's asserted that the claims at issue were not covered under its policy.  The Court rejected this argument, holding instead that the term "misappropriation" encompasses the wrongful acquisition of property, and thus could cover trademark claims.  In reaching this result, the Court held that the term "misappropriation" was ambiguous and thus must be interpreted in a reasonable manner that favored the policy holder.  The Court's decision was in accord with those of several other courts, which had interpreted this clause in a similar fashion.  The court also relied, in reaching this result, on the interpretation afforded the same policy language by State Insurance.  Said the Court:

[P]erhaps most compelling, the insurance companies involved in this coverage dispute disagree on the interpretation to be accorded the term "misappropriation" in this context.  Although the State Auto Policy and the Travelers Policy define "advertising injury" identically, State Auto acknowledges that it is obligated to defend NCC against the Nissan Complaint, while Travelers takes the contrary position.  Under North Carolina law, such an ambiguity must be "resolved in favor of the policyholder."

The Court further held that a trademark, such as Nissan, was an "advertising idea," because it "plays an important part in advertising a company's products."  As such, concluded the Court, Nissan had alleged in its complaint that it had sustained an "advertising injury" arising out of NCC's alleged improper misappropriation of Nissan's mark for its own profit. 

Because this "advertising injury" was sustained "in the course of advertising [NCC's] goods, products or services," NCC was entitled to a defense under the Travelers policy.  The Court held such a conclusion was warranted both because the complaint alleged that NCC used the marks in its domain name, as well as in the logo of its sites.  Both uses, held the Court, constituted a use of the mark "in the course of advertising."

The logo easily qualifies as a graphic statement and, because it was on the www.nissan.com website, where NCC was soliciting business for itself and for others, it was utilized in connection with the solicitation of business.  As a result, any injuries that Nissan suffered by virtue of NCC's use of the logo on the www.nissan.com web site were injuries that occurred "in the course of advertising."

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[Moreover] the use of a domain name to lead consumers to advertisements on NCC's web sites is clearly an act that occurs "in the course of" advertising.

Finally, the Court held that these uses of Nissan's mark were in support of NCC's advertising of its own services, because advertisements therefor were found on the sites NCC created at this challenged domain.  Because the injuries Nissan claimed to have suffered were "advertising injuries" caused by NCC in the course of advertising its own services, NCC was entitled to a defense under its policies with Travelers.

In reaching its conclusion, the Court rejected Travelers' claim that it was not obligated to provide coverage both because NCC had failed to timely notify Travelers of the occurrence which gave rise to the claims at issue, and because of various policy exclusions Travelers claimed applicable.   Most notably, Travelers argued that its policies excluded coverage for "advertising injuries" when the policy holder's "business is advertising."  Because NCC sold ads on its site, Travelers argued, it was not entitled to coverage.  Again, the court rejected this contention, holding that the clause only excluded coverage for companies "whose principal or primary business is advertising."  Because NCC's principal business was computer sales and service, it was entitled to coverage even though it sold advertising on its web site.