Title: West Bend Mutual Insurance Co. v. Ixthus Medical Supply, Inc.

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2019 WI 19 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2017AP909 
COMPLETE TITLE: 
West Bend Mutual Insurance Company, 
          Plaintiff-Respondent-Petitioner, 
     v. 
Ixthus Medical Supply, Inc. and Karl Kunstman, 
          Defendants-Appellants, 
Abbott Laboratories, Abbott Diabetes Care Inc. 
and Abbott Diabetes Care Sales Corp., 
          Defendants-Co-Appellants. 
 
 
 
 
REVIEW OF DECISION OF THE COURT OF APPEALS 
Reported at 381 Wis. 2d 472, 915 N.W.2d 456 
(2018 – unpublished) 
 
 
OPINION FILED: 
February 28, 2019 
SUBMITTED ON BRIEFS: 
      
ORAL ARGUMENT: 
December 11, 2018 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit 
 
COUNTY: 
Racine 
 
JUDGE: 
David W. Paulson 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
      
 
DISSENTED: 
      
 
NOT PARTICIPATING: ZIEGLER, J. did not participate.    
 
 
 
ATTORNEYS: 
 
 
For 
the 
plaintiff-respondent-petitioner, 
the 
initial 
supreme court brief was filed by Kris Bartos and the reply brief 
was filed by Danielle N. Rousset, with whom on the briefs was 
Jeffrey Leavell and Jeffrey Leavell, S.C., Racine. There was an 
oral argument by Jeffrey L. Leavell.  
 
For the defendants-appellants, there was a brief filed by 
Jason Pilmaier, Albert Solochek, and Howard, Solochek & Weber, 
S.C., Milwaukee. There was an oral argument by Jason Pilmaier. 
 
 
 
2
For the defendants-co-appellants, there was a brief filed 
by Michael P. Mayer, Linda T. Coberly, and Winstron & Strawn 
LLP, Chicago, IL. There was an oral argument by Linda T. 
Coberly. 
 
An amicus curiae brief was filed on behalf of Wisconsin 
Insurance Alliance by James A. Friedman, Amber Coisman, and 
Godfrey & Kahn, S.C., Madison.  
 
 
 
 
2019 WI 19
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2017AP909 
(L.C. No. 
2016CV1414) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
West Bend Mutual Insurance Company, 
 
          Plaintiff-Respondent-Petitioner, 
 
     v. 
 
Ixthus Medical Supply, Inc. and Karl Kunstman, 
 
          Defendants-Appellants, 
 
Abbott Laboratories, Abbott Diabetes Care Inc. 
and Abbott Diabetes Care Sales Corp., 
 
          Defendants-Co-Appellants. 
 
FILED 
 
FEB 28, 2019 
 
Sheila T. Reiff 
Clerk of Supreme Court 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
REBECCA GRASSL BRADLEY, J.   In this duty to defend 
case, West Bend Mutual Insurance Company asks us to reverse the 
court of appeals' decision holding that the allegations in 
Abbott Laboratories' complaint against Ixthus Medical Supply, 
Inc. alleged a potentially covered advertising injury, and as a 
result, 
triggered 
West 
Bend's 
duty 
to 
defend 
under 
the 
No. 
2017AP909   
 
2 
 
commercial general liability policy West Bend issued to Ixthus.1  
West Bend argues the court of appeals erred when it determined:  
(1) Abbott's complaint2 alleged a causal connection between the 
advertising activity and injury; and (2) the knowing violation 
exclusion did not apply.  West Bend further contends that the 
criminal acts exclusion applies, thereby removing any duty to 
defend, or alternatively that application of the fortuity 
doctrine, public policy, and the reasonable expectation of an 
insured each independently eliminates its duty to defend. 
¶2 
We hold the allegations in Abbott's complaint fall 
within the initial grant of coverage under the "personal and 
advertising injury liability" provision of the commercial 
general liability insurance policy West Bend issued to Ixthus.  
We further hold that neither the knowing violation nor the 
criminal acts exclusions apply to remove West Bend's duty to 
                                                 
1 For ease of reference, we refer to West Bend Mutual 
Insurance Company as "West Bend."  We refer to Abbott 
Laboratories, Abbott Diabetes Care Inc., and Abbott Diabetes 
Care Sales Corporation collectively as "Abbott."  We refer to 
Ixthus Medical Supply, Inc. and Karl Kunstman collectively as 
"Ixthus." 
The court of appeals opinion in this case was an 
unpublished per curiam decision.  See West Bend Mut. Ins. Co. v. 
Ixthus Med. Supply, Inc., No. 2017AP909, unpublished slip op., 
(Wis. Ct. App. Mar. 28, 2018) (per curiam). 
2 All references to Abbott's "complaint" are to the Second 
Amended Complaint from the underlying lawsuit Abbott filed in 
federal district court in New York against Ixthus and many other 
defendants.  See Abbott Laboratories, et.al. v. Adelphia Supply 
USA, et al., No. 15 Civ. 05826 (E.D.N.Y. Nov. 2015). 
No. 
2017AP909   
 
3 
 
defend.  Finally, we do not address West Bend's argument that 
the fortuity doctrine, public policy, and the reasonable 
expectation of an insured eliminate its duty to defend because 
West 
Bend 
failed 
to 
adequately 
raise 
or 
develop 
these 
contentions.3  We affirm the decision of the court of appeals. 
I.  BACKGROUND 
¶3 
Ixthus is a medical supply company operating in 
Wisconsin.  At all times relevant to this action, Ixthus was 
insured under a commercial general liability insurance ("CGL") 
policy with West Bend, which provided coverage for "personal and 
advertising injury."  Specifically, the CGL policy provided: 
COVERAGE B PERSONAL AND ADVERTISING INJURY LIABILITY 
1. Insuring Agreement 
a.  We will pay those sums that the insured becomes 
legally obligated to pay as damages because of 
"personal and advertising injury" to which this 
insurance applies.  We will have the right and 
duty to defend the insured against any "suit" 
seeking those damages.  However, we will have no 
duty to defend the insured against any "suit" 
seeking damages for "personal and advertising 
injury" 
to 
which 
this 
insurance 
does 
not 
apply . . . . 
                                                 
3 See State v. Dowdy, 2012 WI 12, ¶5, 338 Wis. 2d 565, 808 
N.W.2d 691 ("As a general rule, issues not raised in the circuit 
court will not be considered for the first time on appeal."); 
Wirth v. Ehly, 93 Wis. 2d 433, 443, 287 N.W.2d 140 (1980) ("It 
is the often repeated rule in this State that issues not raised 
or considered in the trial court will not be considered for the 
first time on appeal."); Raasch v. City of Milwaukee, 2008 WI 
App 54, ¶8, 310 Wis. 2d 230, 750 N.W.2d 492 (appellate court 
justified in rejecting undeveloped arguments). 
No. 
2017AP909   
 
4 
 
b.  This 
insurance 
applies 
to 
"personal 
and 
advertising injury" caused by an offense arising 
out of your business but only if the offense was 
committed in the "coverage territory" during the 
policy period. 
"SECTION 
V——DEFINITIONS" 
of 
the 
CGL 
policy 
defines 
"advertisement" and "personal and advertising injury" as: 
1.  "Advertisement" means a notice that is broadcast or 
published to the general public or specific market 
segments about your goods, products or services for 
the purpose of attracting customers or supporters.  
For the purposes of this definition: 
a.  Notices that are published include material 
placed on the Internet or on similar electronic 
means of communication; and 
b.  Regarding web-sites, only that part of a web-
site that is about your goods, products or 
services for the purposes of attracting customers 
or supporters is considered an advertisement. 
 . . . . 
14.  "Personal and advertising injury" means injury, 
including consequential "bodily injury," arising out 
of one or more of the following offenses: 
    . . . . 
   f. The use of another's advertising idea in your 
advertisement," or 
   g. Infringing upon another's copyright, trade dress 
or slogan in your "advertisement."   
Under "COVERAGE B," the CGL policy contains exclusions for both 
"Knowing Violation of Rights of Another" and "Criminal Acts":  
2. Exclusions 
This insurance does not apply to: 
a. Knowing Violation of Rights of Another 
No. 
2017AP909   
 
5 
 
"Personal and advertising injury" caused by or at 
the direction of the insured with the knowledge that 
the act would violate the rights of another and 
would inflict "personal and advertising injury." 
 . . . . 
d. Criminal Acts 
"Personal and advertising injury" arising out of a 
criminal act committed by or at the direction of the 
insured. 
¶4 
Abbott is a health care company that manufactures and 
sells blood glucose test strips in both the domestic and 
international markets.  Abbott's strips are trademarked under 
the name "FreeStyle."  The test strips are functionally 
identical regardless of the intended market, but the labeling 
and instructional inserts as well as price and available rebates 
are 
substantially 
different 
between 
the 
domestic 
and 
international packaged boxes.  For a variety of reasons, Abbott 
sells test strips for use in international markets at a much 
lower cost. 
¶5 
In November 2015, Abbott filed a lawsuit in New York 
federal court against Ixthus and over 100 other defendants 
asserting thirteen federal statutory and common law claims for 
relief 
based 
on 
its 
belief 
that 
the 
defendants 
were 
"import[ing], advertis[ing] and subsequent[ly] distribut[ing]"  
boxes of Abbott's international test strips in the United 
States.  The thirteen claims alleged were:  (1) Federal 
Trademark Infringement under Section 32 of the Lanham Act; 15 
U.S.C. § 1114(1); (2) Federal Unfair Competition under Section 
43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(i)(A); (3) Common 
No. 
2017AP909   
 
6 
 
Law Unfair Competition (New York law); (4) Federal Trademark 
Dilution under Section 43(c) of the Lanham Act, 15 U.S.C. 
§ 1125(c); (5) State Law (New York) Trademark Dilution; (6) 
State Law (New York) Deceptive Business Practices; (7) Unjust 
Enrichment; (8) Violation of Federal RICO, 18 U.S.C. § 1962(c); 
(9) Conspiracy to Violate Federal RICO, 18 U.S.C. § 1962(d); 
(10) Importation of Goods Bearing Infringing Marks under 15 
U.S.C. § 1124; (11) Fraud and Fraudulent Inducement; (12) Aiding 
and 
Abetting 
Fraud; 
and 
(13) 
Contributory 
Trademark 
Infringement.4 
¶6 
Upon being served, Ixthus tendered its defense to West 
Bend.  In a March 2016 letter to Ixthus, West Bend denied 
Ixthus's tender, and explained why it took the position that the 
Abbott lawsuit was not covered by the CGL policy.  In August 
2016, West Bend filed a complaint in the circuit court seeking a 
declaratory judgment that West Bend had no duty to defend or 
indemnify Ixthus in Abbott's lawsuit.  In March 2017, West Bend 
filed a motion for summary judgment.  The circuit court granted 
West Bend's motion, concluding that although the allegations in 
Abbott's complaint fell within the initial grant of coverage, 
the knowing violation exclusion applied, thereby eliminating any 
duty West Bend had to defend Ixthus.5 
                                                 
4 It is undisputed that the federal district court dismissed 
the two RICO claims and the unjust enrichment claim, leaving  
ten alleged claims. 
5 The Honorable David W. Paulson of Racine County Circuit 
Court presiding. 
No. 
2017AP909   
 
7 
 
¶7 
Both Ixthus and Abbott appealed to the court of 
appeals, which reversed the circuit court's decision.  The court 
of appeals agreed with the circuit court that the allegations in 
Abbott's complaint fell within the initial grant of coverage, 
but disagreed with the circuit court as to the applicability of 
the knowing violation exclusion.  See West Bend Mut. Ins. Co. v. 
Ixthus Med. Supply, Inc., No. 2017AP909, unpublished slip op., 
¶¶10, 12-14 (Wis. Ct. App. Mar. 28, 2018) (per curiam).  The 
court of appeals concluded the knowing violation exclusion did 
not apply because several of the claims alleged in the complaint 
could be established without having to prove Ixthus's actions 
were intentional; therefore, the court of appeals held that the 
complaint asserted potentially covered claims not consumed by 
the knowing violation exclusion.  Id.  Accordingly, the court of 
appeals concluded West Bend had a duty to defend Ixthus.  Id., 
¶20. 
¶8 
West Bend petitioned for review by this court, which 
we granted. 
II.  STANDARD OF REVIEW 
¶9 
"We independently review a grant of summary judgment 
using the same methodology of the circuit court and the court of 
appeals."  Water Well Sols. Serv. Grp., Inc. v. Consolidated 
Ins. Co., 2016 WI 54, ¶11, 369 Wis. 2d 607, 881 N.W.2d 285.  
"Summary judgment is appropriate when there is no genuine 
dispute of material fact and the moving party is entitled to 
No. 
2017AP909   
 
8 
 
judgment as a matter of law."  Id. (citing Wis. Stat. 
§ 802.08(2) (2013-14)).6  Declaratory judgments determining 
whether an insurer has a duty to defend require interpretation 
of the insurance policy, which also presents questions of law 
reviewed de novo.  Water Well Sols. Serv. Grp., 369 Wis. 2d 607, 
¶12; Air Eng'g, Inc. v. Industrial Air Power, LLC, 2013 WI App 
18, ¶9, 346 Wis. 2d 9, 828 N.W.2d 565.7 
III.  ANALYSIS 
A.  General Insurance Principles——Advertising Injury 
¶10 The sole issue presented is whether West Bend has the 
duty to defend its insured, Ixthus, under the terms of the CGL 
policy——specifically 
the 
"Personal 
and 
Advertising 
Injury 
Liability" provision.  In assessing whether a duty to defend 
exists, we "compare the four corners of the underlying complaint 
to the terms of the entire insurance policy."  Water Well Sols. 
Serv. Grp., 369 Wis. 2d 607, ¶15.  In doing so, "a court must 
liberally construe the allegations contained in the underlying 
complaint, assume all reasonable inferences from the allegations 
made in the complaint, and resolve any ambiguity in the policy 
                                                 
6 All subsequent references to the Wisconsin Statutes are to 
the 2017-18 version unless otherwise indicated. 
7 The final order from the circuit court both "adjudged and 
declared" that West Bend had no duty to defend.  This judgment 
followed West Bend's motion for summary judgment within a 
declaratory judgment action.  The circuit court merged the 
summary judgment and declaratory judgment into a single order, 
granting West Bend's summary judgment motion by issuing a 
declaration. 
No. 
2017AP909   
 
9 
 
terms in favor of the insured."  Id.  The purpose of the 
analysis is to determine whether the allegations in the 
complaint contain any claims, which if proven true, would be 
covered by the policy.  See id., ¶¶16-17 & n.11.  Stated 
otherwise, if there are any potentially covered claims——any 
allegations in the complaint that "give rise to the possibility 
of coverage"——the insurer has a duty to defend.  See Fireman's 
Fund Ins. Co. v. Bradley Corp., 2003 WI 33, ¶¶19, 26, 261 
Wis. 2d 4, 660 N.W.2d 666.  The duty to defend is "necessarily 
broader than the duty to indemnify because the duty to defend is 
triggered by arguable, as opposed to actual, coverage."  Id., 
¶20. 
¶11 We use a three-step process in duty-to-defend cases: 
(1) 
"First, a reviewing court determines whether the 
policy language grants initial coverage for the 
allegations set forth in the complaint.  If the 
allegations set forth in the complaint do not 
fall within an initial grant of coverage, the 
inquiry ends."   
(2) 
Second, "if the allegations fall within an 
initial 
grant 
of 
coverage, 
the 
court 
next 
considers whether any coverage exclusions in the 
policy apply." 
(3) 
Third, "[i]f any exclusion applies, the court 
next considers whether an exception to the 
exclusion applies to restore coverage." 
Water Well Sols. Serv. Grp., 369 Wis. 2d 607, ¶16 (internal 
citations omitted). 
¶12 Additionally, in analyzing the first step of the duty-
to-defend analysis when an insured seeks coverage under the 
advertising provision of a CGL policy, we ask three questions to 
No. 
2017AP909   
 
10 
 
determine whether the allegations in the complaint fall under 
the initial grant of coverage.  See Acuity v. Bagadia, 2008 WI 
62, ¶16, 310 Wis. 2d 197, 750 N.W.2d 817; Fireman's Fund Ins. 
Co., 261 Wis. 2d 4, ¶26; see also Air Eng'g, Inc., 346 
Wis. 2d 9, ¶11; Acuity v. Ross Glove Co., 2012 WI App 70, ¶9, 
344 Wis. 2d 29, 817 N.W.2d 455.  This three-question test, 
unique to advertising injury cases, assesses whether the 
allegations in a complaint "give rise to the possibility of 
coverage under the CGL insurance polic[y's] advertising injury 
provision."  Fireman's Fund Ins. Co., 261 Wis. 2d 4, ¶26.  The 
three questions are:  (1) Does the complaint allege a covered 
offense under the advertising injury provision? (2) Does the 
complaint allege that the insured engaged in advertising 
activity? and (3) Does the complaint allege a causal connection 
between the plaintiff's alleged injury and the insured's 
advertising activity?  Id.  Answering yes to all three questions 
completes the first step in the duty-to-defend analysis, the 
policy provides an initial grant of coverage, and the court 
proceeds to the second and third steps in the process. 
¶13 The 
second 
part 
of 
the 
duty-to-defend 
analysis 
involves determining whether any of the insurance policy's 
exclusions apply.  Water Well Sols. Serv. Grp., 369 Wis. 2d 607, 
¶16.  "Exclusions are narrowly or strictly construed against the 
insurer if their effect is uncertain."  American Family Mut. 
Ins. Co. v. American Girl, Inc., 2004 WI 2, ¶24, 268 Wis. 2d 16, 
673 N.W.2d 65.  Only if a policy exclusion removes coverage does 
the court proceed to the third step of the duty-to-defend 
No. 
2017AP909   
 
11 
 
analysis, which entails consideration of whether an exception to 
the exclusion restores coverage.  Water Well Sols. Serv. Grp., 
369 Wis. 2d 607, ¶16. 
¶14 "If the policy, considered in its entirety, provides 
coverage for at least one of the claims in the underlying suit, 
the insurer has a duty to defend its insured on all the claims 
alleged in the entire suit."  Water Well Sols. Serv. Grp., 369 
Wis. 2d 607, ¶16.  Stated otherwise, if even one covered offense 
alleged in the underlying complaint, if proven, would give rise 
to recovery under the terms of the policy, the insurance company 
has a duty to defend.  Id.; Fireman's Fund Ins. Co., 261 
Wis. 2d 4, ¶21; Air Eng'g, Inc., 346 Wis. 2d 9, ¶10; Ross Glove 
Co., 344 Wis. 2d 29, ¶19. 
B.  Application 
¶15 West Bend argues:  (1) the complaint does not allege a 
causal connection and (2) even if it does, exclusions in the 
policy apply to eliminate its duty to defend.  Because West Bend 
does not challenge the court of appeals' answers to the first or 
second questions of the advertising injury test, we need not 
specifically analyze whether the complaint alleges a covered 
offense under the advertising injury provision or whether the 
complaint alleges that the insured engaged in advertising 
activity.  The court of appeals correctly held that the 
complaint sufficiently alleged both a covered offense and that 
Ixthus engaged in advertising activity.  We adopt the court of 
No. 
2017AP909   
 
12 
 
appeals' analysis on those two questions.8  See West Bend Mut. 
Ins. Co., No. 2017AP909, unpublished slip op., ¶¶12-13. 
1.  Advertising Injury Coverage——Causal Connection 
¶16 West Bend asserts the complaint lacks any allegations 
suggesting a causal connection between Abbott's injury and 
Ixthus's actions.  Specifically, West Bend argues the complaint 
does not allege any advertising activity by Ixthus that caused 
injury to Abbott.  Instead, West Bend insists that the 
allegations 
in 
the 
complaint 
against 
Ixthus 
focused 
on 
importation and distribution, not advertising.  Therefore, West 
Bend says the complaint's allegations as to Ixthus do not fall 
within the initial grant of coverage under the insurance 
policy's 
advertising 
provision. 
 
We 
reject 
West 
Bend's 
contentions and hold the complaint sufficiently alleges the 
required causal connection. 
                                                 
8 The court of appeals concluded both that Abbott's 
complaint alleged a covered offense under the advertising 
provision and that Ixthus engaged in an advertising activity:   
[T]he complaint alleges a covered offense because it 
alleges that Abbott suffered an advertising injury 
caused 
by 
an 
offense 
arising 
out 
of 
Ixthus's 
business. . . . The complaint alleges that the test 
strips are functionally the same whether for domestic 
or international sale but that the diverted ones are 
not labeled to comply with FDA requirements and that 
there 
are 
numerous 
material 
differences 
between 
packaging intended for international and domestic 
markets.  Packaging itself is an advertisement. 
See West Bend Mut. Ins. Co., No. 2017AP909, unpublished slip 
op., ¶¶12-13. 
No. 
2017AP909   
 
13 
 
¶17 The test for whether a causal connection has been 
sufficiently alleged focuses not on "whether 'the injury could 
have taken place without the advertising,'" but whether the 
allegations sufficiently assert that "the advertising did in 
fact contribute materially to the injury."  Fireman's Fund Ins. 
Co., 261 Wis. 2d 4, ¶52 (quoting R.C. Bigelow, Inc. v. Liberty 
Mut. Ins. Co., 287 F.2d 242, 248 (2d Cir. 2002) (citations 
omitted)).  With this causation test in mind, we examine the 
complaint's allegations relevant to causation. 
¶18 First, in paragraphs 5 and 6, the complaint alleges 
that the "Defendants" "caused——and continue to cause——Abbott to 
pay out, wrongfully, millions of dollars in rebates."  Second, 
in paragraph 15, the complaint alleges: 
Defendants' unauthorized importation, advertisement 
and subsequent distribution causes, or is likely to 
cause, consumer confusion, mistake, and deception to 
the detriment of Abbott . . . .  When such patients 
encounter the diverted international FreeStyle test 
strips, which bear certain of Abbott's trademarks but 
which are materially different from what U.S. patients 
expect, they are likely to be confused and, indeed, 
disappointed. . . .  And the advertisement and sales 
of diverted international FreeStyle test strips cause 
great damage to Abbott and the goodwill of Abbott's 
valuable trademarks. 
Third, in paragraph 385, the complaint alleges:  "Using Abbott's 
trademarks and trade dress, Defendants advertise to consumers 
and the marketplace their ability and willingness to sell 
FreeStyle test strips.  These advertisements are made through, 
inter alia, websites, emails, facsimiles, point-of-sale displays 
and other media." 
No. 
2017AP909   
 
14 
 
¶19 West Bend admits that the complaint's references to 
"Defendants" include Ixthus, but contends that Ixthus was not 
really an "advertising" defendant——but instead a "distributing" 
defendant who did not advertise or sell products directly to end 
users.  As a result, West Bend argues that these causation 
paragraphs are insufficient to connect Ixthus's activity to the 
coverage afforded in the advertising provision of the CGL 
policy.  West Bend's post-hoc spin on these causation paragraphs 
cannot eliminate coverage at the duty-to-defend stage.  The 
insurer in Ross Glove Co. advanced a similar argument in that 
case, suggesting that the manufacturer of infringing packaged 
products could not also be viewed as having advertised those 
goods.  The court of appeals rightly rejected this argument, 
concluding that the complaint alleged the manufacturer engaged 
in 
covered 
advertising 
activity 
because 
its 
packaging 
constituted a "published advertisement" notwithstanding the 
advertising activity of other defendants in the case.  Ross 
Glove Co., 344 Wis. 2d 29, ¶16.  Just like the manufacturer in 
Ross Glove Co., Ixthus need not be "the first, last or only, 
entity" alleged to advertise in order to be engaged in covered 
advertising activity.  Id. 
¶20 The allegations in Abbott's complaint very plainly 
allege that Ixthus, as a "Defendant," engaged in advertising 
that caused substantial injury to Abbott.  Fleshing out the 
factual allegations at trial may affect indemnification under 
the policy, but at the duty-to-defend stage, we liberally 
construe the allegations in the complaint, and make all 
No. 
2017AP909   
 
15 
 
reasonable inferences from the allegations.  See Water Well 
Sols. Serv. Grp., 369 Wis. 2d 607, ¶15.  Further, "advertising 
need not be the sole cause of harm.  Rather, the advertising 
activity must merely 'contribute materially' to the harm."  
Bagadia, 
310 
Wis. 2d 197, 
¶50 
(emphasis 
added; 
citation 
omitted). 
¶21 We conclude the allegations in the complaint are 
sufficient to satisfy the test for causation.  The complaint 
says the "Defendants" (including Ixthus) engaged in advertising 
activity that caused a variety of injuries to Abbott.  The 
complaint alleges the defendants used Abbott's trademarks and 
trade dress in advertising to consumers and the marketplace 
through websites, emails, facsimiles, point-of-sale displays and 
other media.  The complaint alleges the defendants caused a 
variety of serious injuries to Abbott including loss of millions 
of dollars in rebates, great damage to Abbott's goodwill and 
valuable trademarks, and consumer confusion, mistake, and 
disappointment. 
 
Consumer 
confusion 
alone 
satisfies 
the 
"contribute 
materially" 
causation 
test. 
 
See 
id., 
¶56 
("Advertising 
activity 
can 
contribute 
materially 
to 
the 
trademark infringement if the advertising activity likely 
creates consumer confusion."). 
¶22 The third question in the advertising-injury test on 
causation undoubtedly must be answered affirmatively:  the 
complaint alleges a causal connection between Abbott's alleged 
injury and Ixthus's advertising activity.  Given the allegations 
in the complaint, it is reasonable to infer that Ixthus's 
No. 
2017AP909   
 
16 
 
alleged advertising activity contributed materially to Abbott's 
alleged injuries.  Accordingly, the allegations in the complaint 
fall within the initial grant of coverage. 
2.  Exclusions 
¶23 Having concluded the allegations in the complaint fall 
within the initial grant of coverage under the personal and 
advertising provision of the CGL policy, we move to the second 
step in the duty-to-defend analysis to determine whether any of 
the exclusions in the CGL policy apply to eliminate West Bend's 
duty to defend Ixthus. 
¶24 West Bend's policy contains two exclusions it believes 
applies:  (1) knowing violation and (2) criminal acts.  We 
address each in turn. 
a. Knowing Violation 
¶25 West Bend argues the knowing violation exclusion 
applies to preclude its duty to defend because the complaint 
alleges Ixthus acted intentionally and with knowledge that it 
was defrauding Abbott by buying international test strips at the 
lower price and selling them domestically to increase profit.  
West Bend points to the repeated allegations in the complaint 
that the defendants knew what they were doing and that Ixthus 
had done this before. 
¶26 The knowing violation exclusion in Ixthus's CGL policy 
says: 
This insurance [meaning the coverage for personal and 
advertising injury] does not apply to: 
a. Knowing Violation of Rights Of Another 
No. 
2017AP909   
 
17 
 
"Personal and advertising injury" caused by or at   
the direction of the insured with the knowledge 
that the act would violate the rights of another 
and 
would 
inflict 
"personal 
and 
advertising 
injury."  
¶27 The knowing violation exclusion has eluded review in 
this court, but our court of appeals has considered its 
application.  In Acuity v. Ross Glove Co., 344 Wis. 2d 29, the 
court of appeals considered whether the knowing violation 
exclusion in Acuity's CGL policy with Ross Glove Company 
precluded coverage for advertising injury alleged in a third-
party 
complaint 
against 
Ross 
Glove 
for 
"alleged 
patent 
infringements and trade dress infringement."  Id., ¶¶1-2.  
Acuity argued the exclusion applied based on allegations in the 
complaint that Ross Glove's actions were "willful and done with 
the intent to cause harm."  Id., ¶19.  The court of appeals held 
the exclusion did not preclude Acuity's duty to defend because 
the complaint also alleged liability under the Lanham Act, a 
strict liability statute, where "intent is not a required 
element of trade dress infringement, but rather is required only 
to justify a request for enhanced damages or attorney fees."  
Id.  Applying the rule that when "even one covered offense is 
alleged in the underlying complaint, the insurance company has a 
duty to defend" the court of appeals held the exclusion did not 
preclude coverage.  Id. 
¶28 The court of appeals reached a similar conclusion in 
Air Eng'g, Inc. v. Industrial Air Power, LLC, 346 Wis. 2d 9.  
Industrial Air Power had a CGL policy with Acuity that provided 
advertising injury coverage, but also included the knowing 
No. 
2017AP909   
 
18 
 
violation exclusion.  Id., ¶¶1, 12, 23.  Air Engineering sued 
Industrial Air Power alleging various causes of action based on 
"misappropriation and use of Air Engineering's website source 
code and site content and an internet advertising system[.]"  
Id., ¶1.  Acuity argued the knowing violation exclusion in its 
policy eliminated any duty to defend because the complaint 
alleged its insured "knew the misappropriated information was 
confidential, misappropriated it in a willful and malicious 
manner," and did so to obtain business from Air Engineering's 
customers.  Id., ¶23.  Acuity pointed out that "each claim in 
the complaint includes an allegation of conduct that is 'willful 
and malicious.'"  Id.  The court of appeals, relying on Ross 
Glove Co., concluded that "an allegation of willful conduct in a 
complaint . . . does not destroy potential coverage" when the 
complaint contains a covered claim that does not require proof 
of a knowing violation.  Air Eng'g, Inc., 346 Wis. 2d 9, ¶24.  
Because the complaint involved in Air Eng'g, Inc. set forth at 
least three "potentially covered claims that do not base 
liability on a showing of a knowing violation of another's 
rights and infliction of advertising injury," the exclusion did 
not remove Acuity's duty to defend its insured.  Id., ¶25. 
¶29 The court of appeals' analyses in Air Engineering, 
Inc. and Ross Glove Co. were correct.  It properly compared the 
allegations in each complaint to the language of the exclusion.  
The knowing violation exclusion will preclude coverage at the 
duty-to-defend stage only when every claim alleged in the 
complaint requires the plaintiff to prove the insured acted with 
No. 
2017AP909   
 
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knowledge that its actions "would violate the rights of another 
and would inflict 'personal and advertising injury.'"  If the 
complaint alleges any claims that can be proven without such a 
showing, the insurer will be required to provide a defense. 
¶30 West Bend urges us to apply the knowing violation 
exclusion based on the "story" this 156-page complaint tells——
that Ixthus "deliberately and willfully" participated in a 
"fraudulent scheme."  We do not base insurance coverage 
decisions on stories or themes.  We apply the law, and 
applicable law in this case requires us to compare the 
allegations in the complaint to the words of the exclusion to 
ascertain whether Abbott makes any claims that do not base 
liability on a showing of a knowing violation of another's 
rights and infliction of advertising injury.  See Air Eng'g, 
Inc., 346 Wis. 2d 9, ¶25.  Unless an exclusion knocks out every 
pleaded claim, leaving no potentially covered advertising-injury 
claim for which the insured could be liable, the duty to defend 
remains.  See generally Marks v. Houston Cas. Co., 2016 WI 53, 
¶41, 369 Wis. 2d 547, 881 N.W.2d 309 (applying policy exclusions 
at the duty-to-defend stage will not typically relieve an 
insurer of its duty to defend). 
¶31 A review of Abbott's ten remaining claims in the 
complaint quickly reveals that the complaint contains multiple 
claims that fall within West Bend's personal and advertising 
injury coverage provision and do not require proof that Ixthus 
acted with knowledge or with intent to violate Abbott's rights 
and inflict injury. 
No. 
2017AP909   
 
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¶32   Abbott's claim for trademark dilution under Section 
43(c) of the Lanham Act, 15 U.S.C. § 1125(c)(1)——a strict 
liability statute——does not require proof that Ixthus acted 
knowingly or intentionally.  See Ross Glove Co., 344 Wis. 2d 29, 
¶19.  For relief under this section of the Lanham Act, Abbott 
need only show:  (1) Abbott had a "famous mark that is 
distinctive"; and (2) after its mark became distinctive, the 
defendants commenced use of the "mark or trade name in commerce 
that is likely to cause dilution by blurring or dilution by 
tarnishment of the famous mark regardless of the presence or 
absence of actual or likely confusion, of competition, or of 
actual economic injury."  15 U.S.C. § 1125(c)(1). 
¶33 Likewise, Abbott's claim for trademark dilution under 
New York General Business Law § 360-1 does not require Abbott to 
prove Ixthus acted knowingly or intentionally.  Rather, Abbott 
must show "(1) its trademark 'is of truly distinctive quality or 
has acquired secondary meaning' and (2) 'there is a likelihood 
of dilution.'"  N.Y. Gen. Bus. Law § 360-1; West Bend Mut. Ins. 
Co., unpublished slip op., ¶18 (quoting Johnson & Johnson v. 
American Nat'l Red Cross, 552 F. Supp. 2d 434, 447 (S.D.N.Y. 
2008) (citation omitted)). 
¶34 Both Abbott's federal and state law causes of action 
for trademark dilution include allegations that Ixthus infringed 
upon Abbott's trade dress in Ixthus' advertisements, thereby 
alleging covered claims for personal and advertising injury that 
do not require proof of knowing or intentional action on the 
part of Ixthus.  Specifically, in paragraph 385 of the 
No. 
2017AP909   
 
21 
 
complaint, Abbott alleges that "[u]sing Abbott's trademarks and 
trade 
dress, 
Defendants 
advertise 
to 
consumers 
and 
the 
marketplace their ability and willingness to sell FreeStyle test 
strips."  In paragraph 585, Abbott alleges that Ixthus "utilized 
marks that are likely to cause dilution by blurring and/or 
tarnishment of Abbott's famous FreeStyle Marks and FreeStyle 
Trade Dress."  And in paragraph 590, Abbott alleges that Ixthus 
and the other Defendants "have diluted and are continuing to 
dilute the distinctive quality of the FreeStyle Marks and 
FreeStyle Trade Dress, in violation of state law."  Because 
neither cause of action requires proof of intentional conduct, 
the knowing violation exclusion does not apply. 
¶35 Similarly, Abbott's claim alleging deceptive business 
practices under New York General Business Law § 349 does not 
require Abbott to establish "intent to defraud or mislead" to 
prove its case, but allows the district court to award treble 
damages if Abbott proves the defendants' actions were done with 
such intent.  N.Y. Gen. Bus. Law § 349; West Bend Mut. Ins. Co., 
unpublished slip op., ¶19 (citing Oswego Laborers' Local 214 
Pension Fund v. Marine Midland Bank, N.A., 647 N.E.2d 741, 744-
45 (Ct. App. N.Y. 1995)).  Abbott alleges Ixthus' acts——
including the use of Abbott's trade dress to advertise to 
consumers and the marketplace——were "materially misleading" and 
caused injury to Abbott, thereby falling squarely within the 
grant of coverage for "personal and advertising injury" claims.  
Because intent is not an element of this cause of action, the 
knowing violation exclusion does not apply. 
No. 
2017AP909   
 
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¶36 Even though the complaint generally asserts Ixthus 
acted wrongfully and with knowledge that it was defrauding 
Abbott, West Bend is not relieved of its duty to defend because 
this 
complaint 
alleges 
at 
least 
one 
potentially 
covered 
advertising-injury claim, which does not depend on whether 
Ixthus acted with knowledge that it was violating Abbott's 
rights or with knowledge that it was inflicting advertising 
injury.9  When "even one covered offense is alleged in the 
underlying complaint, the insurance company has a duty to 
defend."  Ross Glove Co., 344 Wis. 2d 29, ¶19. 
¶37 Despite 
Abbott's 
general 
allegations 
of 
knowing 
violations, Abbott could prevail on several covered advertising 
injury 
claims 
without 
establishing 
that 
Ixthus 
knowingly 
violated Abbott's rights.  It is this possible coverage that 
triggers West Bend's duty to defend.  "An insurer's duty to 
defend the insured in a third-party suit is predicated on 
allegations in a complaint which, if proven, would give rise to 
the possibility of recovery that falls under the terms and 
conditions of the insurance policy."  Fireman's Fund Ins. Co., 
                                                 
9 We are not persuaded by the argument attempting to 
analogize this case to Talley v. Mustafa, 2018 WI 47, 381 
Wis. 2d 393, 911 N.W.2d 55, Schinner v. Gundrum, 2013 WI 71, 349 
Wis. 2d 529, 833 N.W.2d 685, Estate of Sustache v. American 
Family Mut. Ins. Co., 2008 WI 87, 311 Wis. 2d 548, 751 
N.W.2d 845, or C.L. v. School Dist. of Menomonee Falls, 221 
Wis. 2d 692, 704-05, 585 N.W.2d 826 (Ct. App. 1998).  None of 
those cases involved analysis of whether an insurer had the duty 
to defend its insured under a CGL advertising-injury coverage 
provision. 
No. 
2017AP909   
 
23 
 
261 Wis. 2d 4, ¶19.  While a finder of fact could determine 
Ixthus acted knowingly, thereby relieving West Bend of its 
indemnification 
obligation 
under 
the 
knowing 
violation 
exclusion, the duty to defend is "broader than the duty to 
indemnify because the duty to defend is triggered by arguable, 
as opposed to actual, coverage."  Id., ¶20. 
b. Criminal Acts 
¶38 West Bend also argues the criminal acts exclusion 
precludes 
coverage. 
 
West 
Bend 
contends 
the 
complaint 
specifically alleges some of Ixthus's acts constituted crimes, 
such as illegal mail, wire, and insurance fraud.  The criminal 
acts exclusion precludes coverage for "'Personal and advertising 
injury' arising out of a criminal act committed by or at the 
direction of the insured."  West Bend's policy does not define 
criminal act and this court has not yet decided whether a 
defendant must have been only charged with or actually convicted 
of a crime in order for the criminal acts exclusion to apply.  
This issue of first impression was not fully addressed in the 
courts below and West Bend's motion for summary judgment in the 
circuit court relied solely on the knowing violation exclusion.  
Accordingly, we decline to address it.10 
¶39 The application of the criminal acts exclusion, 
however, can be resolved without deciding the issue of first 
                                                 
10 See Lamar Co., LLC v. Country Side Rest. Inc., 2012 WI 
46, ¶31 n.15, 340 Wis. 2d 335, 814 N.W.2d 159 ("As a general 
rule, we will not consider for the first time on appeal an issue 
not raised in the circuit court[.]"). 
No. 
2017AP909   
 
24 
 
impression.  The complaint alleges claims that are not dependent 
on a showing of criminal conduct.  Lanham Act violations, for 
example, are not criminal.  "[W]hen an insurance policy provides 
coverage for even one claim made in a lawsuit, the insurer is 
obligated to defend the entire suit."  Fireman's Fund Ins. Co., 
261 Wis. 2d 4, ¶21.  Further, allegations in the complaint are 
to be construed liberally in favor of the insured, and any 
doubts as to coverage at the duty-to-defend stage should be 
resolved in favor of the insured.  Id., ¶20.  Because claims not 
premised on a criminal act are alleged in the complaint, the 
criminal acts exclusion does not relieve West Bend of its duty 
to defend Ixthus.11 
IV.  CONCLUSION 
¶40 We hold the allegations in Abbott's complaint fall 
within the initial grant of coverage under the "personal and 
advertising injury liability" provision of the commercial 
general liability insurance policy West Bend issued to Ixthus.  
The claims in the complaint are sufficient to allege a causal 
connection between Ixthus's advertising activity and Abbott's 
                                                 
11  
The 
third 
step 
of 
the 
duty-to-defend 
analysis——
evaluating whether any exceptions to the exclusions apply——is 
not implicated in this case and therefore will not be addressed.  
Because we conclude that Abbott's complaint alleges covered 
claims and no coverage exclusion applies to remove coverage, 
logically we do not consider whether an exception to any 
exclusion would restore coverage.  Once a court determines the 
policy provides an initial grant of coverage, the court must 
consider whether any exclusions apply; if none apply, the 
analysis stops and the insurer has a duty to defend its insured 
against all of the claims asserted in the complaint. 
No. 
2017AP909   
 
25 
 
injuries.  We further hold that neither the knowing violation 
nor the criminal acts exclusions apply to remove West Bend's 
duty to defend because the complaint alleges at least one 
potentially covered claim unaffected by either exclusion.  We 
affirm the decision of the court of appeals. 
By the Court.—The decision of the court of appeals is 
affirmed. 
¶41 ANNETTE KINGSLAND ZIEGLER, J., did not participate. 
 
No. 
2017AP909   
 
 
 
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