In Charter Oak Ins. Co. v. Maglio Fresh Food, No. 12-3967, 2013 U.S. Dist. LEXIS 152741 (E.D. Pa. Oct. 24, 2013) (Baylson, J.), the U.S. District Court for the Eastern District of Pennsylvania addressed the issue of whether claims for unfair competition by a food manufacturer against its competitor were covered as an “advertising injury” under primary and umbrella insurance policies issued to the competitor. The court granted summary judgment in favor of the insurers and entered a declaration that the insurers had no obligation to cover the claims asserted against the insured competitor.
Leonetti’s, a food manufacturer, filed suit against its competitor, Maglio Fresh Food (“Maglio”) based on two allegations related to Maglio’s sale of frozen stromboli. First, Leonetti’s alleged that Maglio impermissibly sold an inferior stromboli product under Leonetti’s brand name, Forte, after the parties terminated a private label agreement (the “Forte brand claim”). Second, Leonetti’s claimed that Maglio sold its own brand of stromboli in boxes that reflected Leonetti’s product information rather than the product information of the actual manufacturer (the “Maglio brand claim”). Leonetti’s asserted claims for tortious interference, unfair competition, trade libel, breach of contract, negligent misrepresentation, and unjust enrichment against Maglio. Maglio tendered the claims to its primary insurance carrier, Charter Oak Insurance Company (“Charter Oak”), which agreed to defend subject to a reservation of rights. The Forte brand claim proceeded to trial on the unfair competition cause of action only, at which the jury returned a general verdict against Maglio and awarded Leonetti’s $660,000 in compensatory damages. The Maglio brand claim also proceeded to trial on the unfair competition count only, at which the jury returned a general verdict against Maglio and awarded compensatory damages of $2,000,000 and punitive damages of $555,000.
Thereafter, Charter Oak filed a declaratory judgment action against Maglio seeking a declaration that it did not owe coverage to Maglio for the underlying claims. Maglio counterclaimed asserting claims for breach of contract and bad faith against Charter Oak. Maglio also filed cross claims against American Guarantee and Liability Insurance Company (“American Guarantee”), which provided excess and umbrella coverage to Maglio, for breach of contract and bad faith.
The Charter Oak policy provided coverage for damages resulting from “advertising injury,” which was defined in the policy, in pertinent part, as: “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….” Similarly, the American Guarantee policy provided umbrella coverage for “personal and advertising injury,” which was defined in the policy as “injury, including consequential bodily injury, arising out of … oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” Both Charter Oak and American Guarantee argued that there was no evidence of disparagement by Maglio and, thus, the underlying claims were not covered as an “advertising injury” or “personal and advertising injury” under their respective policies. Charter Oak and American Guarantee also contended that a Knowledge of Falsity exclusion, which expressly excluded coverage for injury arising out of publication of materials “by or at the direction of the insured with knowledge of its falsity,” precluded coverage under their respective policies.
The court held that Maglio failed to meet its burden to show that the underlying claims were advertising injuries covered by the policies. Specifically, the court found that there was no evidence in the underlying trial record that shows that Maglio disparaged Leonetti’s or its products. Rather, Maglio merely misrepresented its own product. The court also found that, even if the claims were advertising injuries, the Knowledge of Falsity exclusion contained in both policies barred coverage as there was evidence presented in the underlying trial that made clear that Maglio knew the Maglio brand boxes did not accurately represent the product contained within them and that Maglio misled the public by using those boxes. Lastly, the court rejected several equitable arguments made by Maglio, finding that waiver and estoppel did not apply to bar Charter Oak and American Guarantee from contesting coverage.