Court Opinion

ID: 9848585
Source: CourtListenerOpinion
Date Created: 2023-09-24 04:22:48.980877+00
Date Added: 2024-06-11T09:18:26.892500
License: Public Domain

GEER, Judge,
dissenting.
While an insurer has a duty to defend whenever pleadings “disclose a mere possibility that the insured is liable (and that the poten*37tial liability is covered),” Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 691 n.2, 340 S.E.2d 374, 377 n.2 (1986), this obligation is not so expansive as to require defense based upon references in a complaint immaterial to that action. That is, however, precisely the result of the majority opinion’s holding. When, as required by Waste Management, we consider the factual allegations of the S.C. Johnson & Son, Inc. (“S.C. Johnson”) complaint providing the actual basis for imposing liability on defendants,1 I believe, based on an exclusion contained in both of the policies at issue in this case, that “the facts are not even arguably covered by” the policies. Id. at 692, 340 S.E.2d at 378. I would, therefore, hold that Harleysville Mutual Insurance Company and Erie Insurance Company have no duty to defend, and I must respectfully dissent.
I find it unnecessary to address whether the allegations of the S.C. Johnson complaint constitute an “advertising injury” within the meaning of the policies because I believe the policies contain an exclusion that is, in any event, dispositive. The policies of Harleysville and Erie specifically provide that their insurance “does not apply to”: “ ‘Personal and advertising injury’ arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your ‘advertisement.’ ”
S.C. Johnson’s complaint asserted claims for trademark infringement and false advertising under state and federal law. IGT acknowledges that only the allegations relating to false advertising could trigger the duty to defend. At the beginning of the complaint, S.C. Johnson described its false advertising claims as alleging that BOIS and IGT had made “materially false and misleading advertising claims about the efficacy, use, and product attributes of BUZZ OFF Insect Repellent Apparel . ...” In the allegations common to all claims, S.C. Johnson explained: “Because of the potential morbidity of the health problems caused by West Nile virus and other mosquito-borne diseases, any false or misleading claims about the efficacy of insect repellent or insect killing products could have serious public health consequences.”
In the section of the complaint entitled “Allegations Relating to Defendants’ False Advertising,” S.C. Johnson first described “False Efficacy Claims on BOIS’s Website.” It alleged:
*3890. BOIS’s website . . . makes several claims that falsely and unambiguously communicate that (a) by wearing BUZZ OFF Insect Repellent Apparel, consumers can reduce or eliminate the need to apply an insect-repellent product on the skin, (b) BUZZ OFF Insect Repellent Apparel protects uncovered skin from mosquito bites, (c) if you wear BUZZ OFF Insect Repellent Apparel, you will not receive any mosquito bites, and (d) BUZZ OFF Insect Repellent Apparel is equivalent to or superior in performance to topical insect repellents, such as those containing DEET. The BOIS website reinforces these claims by emphasizing the “hassle” of applying “messy” insect-repellent products directly to the skin.
S.C. Johnson then quoted examples of various assertions on the BOIS website that supported this allegation.
S.C. Johnson next alleged that similar claims were made on the websites of companies partnering with BOIS:
92. These websites falsely and unambiguously communicate that (a) by wearing BUZZ OFF Insect Repellent Apparel, consumers can reduce or eliminate the need to apply an insect-repellent product on the skin, (b) BUZZ OFF Insect Repellent Apparel protects uncovered skin from mosquito bites, (c) if you wear BUZZ OFF Insect Repellent Apparel, you will not receive any mosquito bites, and (d) BUZZ OFF Insect Repellent is equivalent to or superior in performance to topical insect repellents, such as those containing DEET. The BOIS Partner websites reinforce these claims by emphasizing the “hassle” of applying “messy” insect-repellent products directly to the skin.
The complaint again quoted examples from the BOIS partners’ websites that supported this allegation. The complaint similarly alleged, with quoted examples, that BOIS partners’ catalog and print advertisements “falsely and unambiguously communicate that, by wearing BUZZ OFF Insect Repellent Apparel, consumers can reduce or eliminate the need to apply an insect-repellent product on the skin and that BUZZ OFF apparel protects uncovered skin.”
S.C. Johnson also alleged that BOIS and its partners made the false and misleading claim (1) “that BUZZ OFF Insect Repellent Apparel is highly effective through 25 washings” and (2) “that BUZZ OFF Insect Repellent Apparel contains a version of a natural insecticide that is derived from chrysanthemum flowers” causing customers to be deceived “into believing that BUZZ OFF Insect Repellent *39Apparel, or its active ingredient, is a natural product rather than a synthetic chemical, when it in fact is the latter.” After quoting examples of these claims, S.C. Johnson explained that BOIS was falsely communicating “to consumers that BUZZ OFF Insect Repellent Apparel is a more natural option than traditional insect-repellent products, like those marketed under SC Johnson’s OFF! brand, which contain chemical repellents, such as DEET. This claim also falsely communicates that BUZZ OFF Insect Repellent Apparel and/or the active ingredient in the apparel is made from chrysanthemums or is natural.” S.C. Johnson then continued:
113. The claim exploits the desire of consumers for natural products, including insect repellents. Consumers who rely on such misleading and deceptive statements are likely to use BUZZ OFF Insect Repellent Apparel to the exclusion of DEETcontaining products such as OFF!, despite the fact that BUZZ OFF Insect Repellent Apparel provides protection from mosquitoes that is clearly inferior to the protection provided by topical repellents containing DEET, and thus potentially endangers the user’s health.
114. Consumers could also be encouraged by these false and misleading claims to ignore the safe storage and disposal instructions required by law to be disclosed on BUZZ OFF apparel.
The S.C. Johnson complaint concluded its false advertising allegations with a series of allegations under the heading of “The Falsity of the Claims on Websites and in the Print Advertising”:
121. The BOIS website, BOIS Partner websites, websites of companies that are upon information and belief, BOIS Partner Affiliates and the BOIS Partner catalogs and other print advertisements intentionally mislead, confuse and deceive consumers by communicating that (a) by wearing BUZZ OFF Insect Repellent Apparel, consumers can reduce or eliminate the need to apply an insect-repellent product on the skin, (b) BUZZ OFF Insect Repellent Apparel protects uncovered skin from mosquito bites, (c) if you wear BUZZ OFF Insect Repellent Apparel, you will not receive any mosquito bites, and (d) BUZZ OFF Insect Repellent Apparel is equivalent to or superior in performance to topical insect repellents, such as those containing DEET.
122. These claims are materially false and deceptive, and pose a significant health and safety risk to consumers because *40wearing BUZZ OFF Insect Repellent Apparel does not reduce or eliminate the need to apply an insect-repellent product on the skin, BUZZ OFF Insect Repellent Apparel does not protect adjacent, uncovered and untreated skin from mosquito bites, BUZZ OFF Insect Repellent Apparel does not prevent consumers who wear it from receiving mosquito bites, and BUZZ OFF Insect Repellent Apparel is not equivalent to or superior in performance to topical insect repellents, such as those containing DEET.
123. The BOIS website, BOIS Partner websites, websites of companies that are upon information and belief, BOIS Partner Affiliates and the BOIS Partner catalogs and other print advertisements also intentionally mislead, confuse and deceive consumers by communicating that BUZZ OFF Insect Repellent Apparel is effective through 25 washings.
124. This claim is materially false and deceptive, and poses a significant health and safety risk to consumers because BUZZ OFF Insect Repellent Apparel does not prevent mosquito bites on covered skin through 25 washings.
125. The BOIS website, BOIS Partner websites, websites of companies that are upon information and belief, BOIS Partner Affiliates and the BOIS Partner catalogs and other print advertisements also intentionally mislead, confuse and deceive consumers by communicating that the active ingredient in BUZZ OFF Insect Repellent Apparel is made from chrysanthemum flowers and/or contains a version of a natural insect repellent that is derived from chrysanthemum flowers and/or is a more natural option than traditional repellants such as SC Johnson’s OFF! Brand, which contain the chemical DEET.
126. These claims are materially false and deceptive because the active ingredient in BUZZ OFF Insect Repellent Apparel is a synthetic chemical that is not derived from chrysanthemum flowers nor does it contain a version of a natural insect repellent that is derived from chrysanthemum flowers, nor is it a more natural option than topical repellents containing DEET.
The complaint contains no other allegations regarding BOIS’ and IGT’s advertising.
IGT argues that S.C. Johnson’s allegations constitute “advertising injury,” as defined by the policies, because those allegations essentially assert that BOIS and IGT disparaged S.C. Johnson’s products by *41making false comparisons between the BOIS/IGT products and S.C. Johnson’s products. When, however, it comes time to consider the applicability of the failure to conform exclusion, IGT overlooks the fact that S.C. Johnson contended that the comparisons were false and misleading because BOIS and IGT were making false assertions about the BOIS/IGT products. Review of S.C. Johnson’s actual allegations reveals no contention by S.C. Johnson that BOIS and IGT were making false statements about S.C. Johnson’s products, contrary to the assertion otherwise in the majority opinion.
S.C. Johnson alleged in its complaint that BOIS and IGT were falsely asserting that their apparel protected uncovered skin, eliminated the need for topical insect repellents, resulted in no mosquito bites, was effective for 25 washings, and was a natural product. S.C. Johnson also expressed concern that these false claims of the efficacy of BOIS/IGT products could create a public health hazard. These allegations all relate to the quality and performance of BOIS/IGT apparel. I cannot see how these allegations can be viewed as anything other than a claim that S.C. Johnson was injured by “the failure of [BOIS/IGT] goods, products or services to conform with any statement of quality or performance made in [BOIS/IGT’s] ‘advertisement.’ ” The allegations thus fall squarely within the exclusion in the carriers’ policies for non-conforming products.
I note that IGT asserts generally that the S.C. Johnson complaint “references multiple allegedly false and disparaging statements regarding S.C. Johnson products and topical repellents (which IGT does not manufacture),” but does not cite specifically to the complaint, choosing instead to refer back to another section of its brief. In that other section — discussing “advertising injury” — IGT primarily relies upon S.C. Johnson’s quotations of actual advertisements following each of the above allegations.2 Even if those quoted advertisements could be viewed by someone as making false statements about S.C. Johnson’s products, the fact remains that S.C. Johnson did not make that claim. Its lawsuit was based on its contention that BOIS and IGT were making false claims about the quality and performance of BOIS/IGT’s products. These false claims in turn made it seem like BOIS/IGT’s products were superior to and eliminated the need for S.C. Johnson’s products. No actual allegations of S.C. Johnson’s complaint suggested that S.C. Johnson was asserting *42any injury from false claims by BOIS and IGT regarding S.C. Johnson’s products.
I know of no authority that imposes a duty to defend a lawsuit simply because the plaintiff in that lawsuit could have relied upon certain facts as a basis for recovery, but chose not to do so. See Superformance Int’l, Inc. v. Hartford, Cas. Ins. Co., 332 F.3d 215, 223 (4th Cir. 2003) (refusing to conclude that underlying complaints alleged claim of product disparagement when, even though the insured’s marketing of its motor vehicles “could possibly be seen as a form of deceit underlying false advertising, the complaint does not allege false advertising but rather trademark infringement, trade dress infringement, trademark dilution, and related unfair competition”); Winklevoss Consultants, Inc. v. Fed. Ins. Co., 991 F. Supp. 1024, 1033 (N.D. Ill. 1998) (in determining whether a duty to defend existed, noting “[although we must construe the [underlying] complaint liberally in favor of [the insured], we cannot read into it words or claims that do not appear”). Plaintiffs not infrequently include in complaints background material providing a context for a dispute or other allegations extraneous to the merits of the dispute. If those allegations are not relied upon as a basis for recovery, I do not see how they can trigger a duty to defend when there is no potential for liability based on those immaterial allegations.
Our Supreme Court stated in Waste Mgmt., 315 N.C. at 691, 340 S.E.2d at 377 (emphasis added): “When the pleadings state facts demonstrating that the alleged injury is covered by the policy, then the insurer has a duty to defend, whether or not the insured is ultimately liable.” Here, S.C. Johnson’s complaint alleged an injury because BOIS and IGT’s advertising made false claims about the quality and performance of BOIS/IGT’s products. Given the exclusions of the policies, that injury is “not even arguably covered by the policies],” and, therefore, the carriers had no duty to defend. Id. at 692, 340 S.E.2d at 378.
Significantly, of the cases relied upon by IGT in contending that the complaint alleges “advertising injury” when it contends that the defendant made false comparisons, only two involved policies containing a similar exclusion to the one at issue in this case. The published decision of DecisionOne Corp. v. ITT Hartford Ins. Group, 942 F. Supp. 1038, 1043 (E.D. Pa. 1996), rejected the carrier’s claim that the allegations by the plaintiff in the underlying action fell within the exclusion for failure of the goods or services of the defendant *43insured to conform with the quality or performance advertised by that defendant. As the district court stressed, however, “[the plaintiff] was not claiming that [the defendant’s] quality did not rise to the level advertised. It was claiming that [the defendant] made misleading and false comparisons with [the plaintiffs] products and services.” Id. (emphasis added). In the unpublished opinion, PCB Piezotronics, Inc. v. Kistler Instrument Corp., 1997 WL 800874, *3 (W.D.N.Y. Dec. 31, 1997), the district court concluded that the exclusion “arguably applies to the fourth counterclaim to the extent that it alleges that [the defendant’s] advertisement misrepresented the nature, characteristics and qualities of [the defendant’s] products, but it is wholly inapplicable to the counterclaim’s allegation that the advertisement was equally misleading with respect to [the plaintiff’s] products.”
In contrast, in this case, according to S.C. Johnson’s complaint, any falseness in the comparison of products arose not out of misstatements in BOIS and IGT’s advertising about S.C. Johnson’s products, but rather solely because the quality and performance of BOIS/IGT products was not as advertised. It thus more closely resembles R.C. Bigelow, Inc. v. Liberty Mut. Ins. Co., 287 F.3d 242 (2d Cir. 2002).
In R.C. Bigelow, Celestial Seasonings, Inc. had sued the Bigelow tea company for a variety of claims, including false advertising based on Celestial’s claim that Bigelow failed to disclose that its teas were artificially flavored and in promoting its teas “convey[ed] the false and misleading impression that those herbal teas were all natural.” Id. at 244. As in this case, the insurance policy at issue excluded claims based on “ ‘[t]he failure of goods, products or services to conform with advertised quality or performance[.]’ ” Id. at 245. The Second Circuit concluded that the false advertising allegations “did not trigger a duty to defend under the advertising injury provision because they concerned allegedly false claims about Bigelow’s products, and such false claims about the insured products are explicitly excluded by the policy.” Id. at 246. See also Superformance Int’l, Inc. v. Hartford Cas. Ins. Co., 203 F. Supp. 2d 587, 598 (E.D. Va. 2002) (holding that false advertising allegations in underlying complaint that insured made false statements suggesting that the vehicles it produced were equivalent to the vehicles that the plaintiff produced fell within exclusion for failure of products to conform with advertised quality or performance), aff’d on other grounds, 332 F.3d 215 (4th Cir. 2003).
*44Like the Second Circuit in R. C. Bigelow, I would conclude in this case that S.C. Johnson’s allegations did not trigger a duty to defend under the advertising injury coverage because those allegations only asserted that BOIS and IGT had made false assertions about their own products — claims expressly excluded from coverage by the policies. See Waste Mgmt., 315 N.C. at 700, 340 S.E.2d at 383 (holding that no obligation to defend arose when the allegations of the pleadings, as supported by a deposition, “fit squarely within the language of the exclusion clause”). As this Court has phrased the test set forth in Waste Management, “if the pleadings allege any facts which disclose a possibility that the insured’s potential liability is covered under the policy, then the insurer has a duty to defend.” Wilkins v. Am. Motorists Ins. Co., 97 N.C. App. 266, 269, 388 S.E.2d 191, 193, disc, review denied, 327 N.C. 145, 394 S.E.2d 189 (1990). In this case, there is no possibility that the “potential liability,” as alleged by S.C. Johnson in its complaint, is covered by the carriers’ policies. I would, therefore, reverse the decision below.

. Buzz Off Insect Shield, LLC (“BOIS”) and International Garment Technologies, LLC (“IGT”).

. With respect to IGT’s citation to the complaint’s allegations, as opposed to supporting quotations, I do not agree that they include false and disparaging statements about S.C. Johnson products and topical repellants.