Court Opinion

ID: 805508
Source: CourtListenerOpinion
Date Created: 2012-07-30 20:18:20+00
Date Added: 2024-06-11T18:00:15.995075
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                 JUL 30 2012

                                                                          MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

SAFETY DYNAMICS, INC., a Delaware                No. 11-15798
corporation,
                                                 D.C. No. 4:09-cv-00695-CKJ
              Plaintiff - Appellant,

  v.                                             MEMORANDUM*

GENERAL STAR INDEMNITY
COMPANY, a Connecticut corporation,

              Defendant - Appellee.

SAFETY DYNAMICS, INC., a Delaware                No. 11-15929
corporation,
                                                 D.C. No. 4:09-cv-00695-CKJ
              Plaintiff - Appellee,

  v.

GENERAL STAR INDEMNITY
COMPANY, a Connecticut corporation,

              Defendant - Appellant.

                   Appeal from the United States District Court
                            for the District of Arizona

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                     Cindy K. Jorgenson, District Judge, Presiding

                          Argued and Submitted July 19, 2012
                              San Francisco, California

Before: PAEZ and BYBEE, Circuit Judges, and VANCE, Chief District Judge.**

       Safety Dynamics, Inc. (“Safety Dynamics”) brought this declaratory action

against its insurer, General Star Indemnity Company (“General Star”), seeking a

judgment that General Star had a duty to defend Safety Dynamics in a lawsuit (“the

underlying action”) brought under the Lanham Act by one of Safety Dynamic’s

competitors, ShotSpotter, Inc. (“ShotSpotter”). We have jurisdiction under 28

U.S.C. § 1291 and we reverse.

       On cross motions for summary judgment, the district court determined that

the underlying action did not fall within the insurance contract’s coverage

provision for “injury . . . arising out of . . . publication . . . of material that . . .

disparages a[n] . . . organization’s goods, products or services,” and alternatively

that the contract’s exclusion for non-conforming goods applied. The district court

also found that an exception for suits alleging “unfair competition” did not bar

coverage because that exclusion was contained under a heading referencing

intellectual property (“IP”) claims, and that all remaining claims were moot. Our

        **
             The Honorable Sarah S. Vance, Chief District Judge for the U.S.
District Court for the Eastern District of Louisiana, sitting by designation.

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review is de novo. Travelers Prop. Cas. Co. of Am. v. ConocoPhillips Co., 546

F.3d 1142, 1145 (9th Cir. 2008).

      We hold that the underlying action was one for product disparagement.

General Star contends that Safety Dynamics must rely on the definition of product

disparagement under the Lanham Act in order to prevail on its claim. Because the

underlying action only alleges that Safety Dynamics made misrepresentations

about its own product, General Star argues, it does not satisfy the Lanham Act’s

requirement of “misrepresent[ing] . . . another person’s goods [or] services.” 15

U.S.C. § 1125(a)(1)(B). Insurance contracts, however, “are to be construed in a

manner according to their plain and ordinary meaning.” Sparks v. Republic Nat’l

Life Ins. Co., 647 P.2d 1127, 1132 (Ariz. 1982). Disparagement is “[a] derogatory

comparison of one thing with another,” or “[a] false and injurious statement that

discredits or detracts from the reputation of another’s . . . product.” Black’s Law

Dictionary 538 (9th ed. 2009). The complaint alleges that Safety Dynamics’s false

claims about its own product had the result of misleading consumers because it

made Safety Dynamics’s product look better versus ShotSpotter’s. This is

sufficient to state a covered claim for product disparagement, at least in the context

of the duty to defend. See United Servs. Auto. Ass’n v. Morris, 741 P.2d 246, 250

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(Ariz. 1987) (the duty to defend is triggered by “any claim potentially covered by

the policy” (emphasis added)).

      The non-conforming goods exception does not apply because ShotSpotter’s

injury claimed in the underlying action does not arise out of the failure of Safety

Dynamics’s product to conform to its advertisements. Rather, it is a competitive

injury. This exception “is directed to the failure of goods, not the failure of

advertising.” 4 Jeffrey E. Thomas, New Appleman on Insurance Law Library

Edition § 30.08[2][a] (2009).

      The “unfair competition” exclusion does not apply because it falls under a

heading referencing IP claims, indicating that the “unfair competition” claim must

relate to IP law in order to be excluded under this section. For example, the tort of

“passing off” one’s product as a competitor’s is an IP-related unfair competition

claim. See Fairway Constructors, Inc. v. Ahern, 970 P.2d 954, 956 (Ariz. Ct. App.

1998). At the very least, the heading renders the exclusion ambiguous, as it is an

illogical placement for such an exclusion if indeed it has nothing to do with

“intellectual property rights violations.” We must construe any ambiguity against

the insurer. Sparks, 647 P.2d at 1132.

      We find that there is no genuine dispute of material fact as to whether

General Star had a duty to defend Safety Dynamics in the underlying action. We

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remand to the district court for adjudication of the bad faith claim and a calculation

of damages.

      REVERSED AND REMANDED.

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