Harleysville Mut. Ins. Co. v. Shield

• Decision Date: 15 April 2010
• Docket Number: No. 272A08.,272A08.
• Court: North Carolina Supreme Court
• Parties: HARLEYSVILLE MUTUAL INSURANCE COMPANYv.BUZZ OFF INSECT SHIELD, L.L.C., a North Carolina limited liability company; International Garment Technologies, L.L.C., a North Carolina limited liability company; Erie Insurance Exchange; and Erie Insurance Company.

364 N.C. 1

692 S.E.2d 605

HARLEYSVILLE MUTUAL INSURANCE COMPANYv.BUZZ OFF INSECT SHIELD, L.L.C., a North Carolina limited liability company; International Garment Technologies, L.L.C., a North Carolina limited liability company; Erie Insurance Exchange; and Erie Insurance Company.

No. 272A08.

Supreme Court of North Carolina.

April 15, 2010.

COPYRIGHT MATERIAL OMITTED

Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel of the Court of Appeals, 190 N.C.App. 28, 664 S.E.2d 317 (2008), affirming an order on cross-motions for partial summary judgment entered on 24 May 2007 and an order denying motions to alter, amend, or vacate judgment entered on 25 June 2007, both by Judge John O. Craig, III in Superior Court, Guilford County. On 9 October 2008, the Supreme Court allowed plaintiff's petition for discretionary review of additional issues. Heard in the Supreme Court on 4 May 2009.

Notes from the Official Reporter

Insurance-exclusion-false advertising claims-statements about own products

A commercial general liability insurance company (CGL) was not required to defend a policyholder (IGT) against an alleged false advertising claim brought by an insect repellant competitor (SCJ). The policy's Failure to Conform clause excludes injuries caused by false statements the insured makes about its own products, which were the only false statements alleged here.

Pinto Coates Kyre & Brown, P.L.L.C., by David L. Brown, Martha P. Brown, and John I. Malone, Jr., Greensboro; and Blank Rome LLP, by Jeremy A. Rist, pro hac vice, Philadelphia, PA; for plaintiff-appellant.

Brooks, Pierce, McLendon, Humphrey & Leonard L.L.P., by Mack Sperling, Greensboro and Latham & Watkins LLP, by J. Scott Ballenger, pro hac vice, Washington, DC; for defendant-appellee International Garment Technologies, L.L.C.

Nelson, Levine de Luca & Horst, LLC, by Michael A. Hamilton, pro hac vice, Blue Bell, PA; and Burton & Sue, L.L.P., by Gary K. Sue, Greensboro, for defendant-appellants Erie Insurance Exchange and Erie Insurance Company.

Nelson Mullins Riley & Scarborough LLP, by Joseph W. Eason and Stephen D. Martin, Raleigh, for Property Casualty Insurers Association of America, amicus curiae.

Maynard & Harris Attorneys at Law, PLLC, by C. Douglas Maynard, Jr., Winston-Salem, for United Policyholders, amicus curiae.

NEWBY, Justice.

This case arose out of a dispute between competing producers of insect repellents. Defendants Buzz Off Insect Shield, L.L.C. (“BOIS”) and International Garment Technologies, L.L.C. (“IGT”) allegedly falsely advertised the attributes of their insect-repellent clothing. S.C. Johnson & Son, Inc. (“SCJ”), defendants' competitor, believed that it was being injured by these advertisements. As a result, SCJ sued BOIS and IGT in federal court to compensate for this injury. The question currently before this Court is whether IGT's commercial general liability (“CGL”) insurance carriers are required to defend it against SCJ's claims. To answer this question, we look to the language of the CGL policies to determine whether injury from a false advertisement is covered. The CGL policies appear to provide coverage for injury resulting from some false statements made in advertisements, but do not cover injury caused by false statements an insured makes about its own products. It is the CGL policies' “Quality Or Performance Of Goods-Failure to Conform to Statements” exclusion (“Failure to Conform exclusion”) that eliminates any coverage for these types of false statements. Thus, the ultimate question we address is what kind of advertisement did SCJ allege as the cause of its injury. Did SCJ allege injury resulting solely from BOIS's and IGT's allegedly false statements about their own products, or did SCJ also include allegations of injury from false statements about SCJ's products? Because SCJ only alleged it was injured by false statements defendants BOIS and IGT made about their own products, the CGL policies' Failure to Conform exclusion dictates that there is no insurance coverage for SCJ's injury, and therefore, the CGL insurance companies are not required to defend their insured IGT against SCJ's claims. As the Court of Appeals concluded the CGL insurance companies were required to defend against SCJ's claims, we reverse that decision and remand this matter to that court.

I. BACKGROUND

Defendants BOIS and IGT ¹ process clothing manufactured and marketed by others to add an insect repellent to the apparel. During the 1990s, R.A. Lane Corporation, defendant BOIS's predecessor in interest, began developing a process (“the BOIS process”) to treat fabric with the insect repellent permethrin such that the repellent binds to the fabric. Defendant BOIS eventually created the BOIS process and later received approval from the United States Environmental Protection Agency (“EPA”) to apply the BOIS process to consumer apparel. Defendant IGT then marketed the BOIS process by entering into agreements with manufacturers of consumer apparel, such as L.L. Bean, Ex Officio, and Orvis, under which IGT would apply the BOIS process to apparel manufactured by these other entities. Defendants would then affix the BOIS mark, BUZZ OFF ^TM, to the newly treated garments (“BOIS apparel”) and return them to the manufacturer for sale.

It is undisputed that defendants promoted the treated apparel through various advertisements. Specifically, according to SCJ, defendants touted BOIS apparel by stating that it: (1) “reduce[s] or eliminate[s] the need to apply an insect-repellent product on the skin,” (2) “protects uncovered skin from mosquito bites,” (3) prevents wearers from “receiv[ing] any mosquito bites,” (4) “is equivalent to or superior in performance to topical insect repellents, such as those containing DEET,” (5) provides protection against mosquito bites without “the ‘hassle’ of applying ‘messy’ insect-repellent products directly to the skin,” (6) “is highly effective through 25 washings,” and (7) “contains a version of a natural insecticide that is derived from chrysanthemum flowers.” These claims, it seems, appeared on and were disseminated by defendant BOIS's website and the BOIS apparel, the websites and print advertisements of other entities that manufactured clothing to be treated with the BOIS process (“BOIS Partners”), and the advertising materials of various retailers selling the BOIS apparel (“BOIS Partner Affiliates”).

SCJ is a competitor of defendants. SCJ states that it “manufactures, under the trademark OFF and related marks, a variety of personal and area insect repellent products.” Additionally, SCJ owns a prior BUZZOFF mark for use in connection with insect-repellent products. According to SCJ, its “OFF! brand insect repellents are, by far, the largest selling insect repellents in the United States.” However, despite its stated industry-leading status, SCJ contended that it was being unlawfully injured by defendants' marketing and advertising of the BOIS apparel.

In response to its perceived injury, SCJ sued defendants in federal court (“the Underlying Action”) seeking redress for numerous injuries allegedly caused by defendants. In its “First Amended Complaint for Injunctive and Other Relief” (“Amended Complaint”), SCJ included causes of action for: (1) trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114; (2) false advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a); (3) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act; (4) violation of the Illinois Uniform Deceptive Trade Practices Act; (5) violation of the North Carolina Unfair and Deceptive Trade Practices Act; (6) unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a); and (7) unjust enrichment. SCJ requested inter alia, a permanent injunction and monetary damages.

Though denominated under seven causes of action, the Amended Complaint essentially asserted that SCJ had suffered two distinct injuries. First, SCJ claimed defendants caused injury by creating confusion over the origin of BOIS apparel because defendants' BUZZ OFF mark is very similar to SCJ's long-standing OFF!-based and BUZZOFF marks. Second, SCJ alleged damage resulting from defendants' advertisements concerning the efficacy of BOIS apparel, and since those advertisements were purportedly false, SCJ's injury was wrongful and compensable.

For the time period during which the actions alleged by SCJ in its Amended Complaint occurred, defendant IGT was covered by several policies of insurance. In 2003 defendant IGT purchased insurance coverage from Erie Insurance Exchange and Erie Insurance Company (collectively “Erie”) for the policy period from 25 April 2003 to 25 April 2004. The Erie policy was renewed following the initial policy period, but cancelled on 4 July 2004. In 2004 defendant IGT obtained insurance coverage from Harleysville Mutual Insurance Company (“Harleysville”) for the policy period from 20 June 2004 to 20 June 2005.

After denying defendants' requests for assistance in defending the Underlying Action, Harleysville filed a declaratory judgment action against BOIS, IGT, and Erie in Superior Court, Guilford County. Harleysville contended that: (1) it owed no duty to BOIS because BOIS was not its insured; (2) it owed no duty to IGT because the language of its policy either did not provide coverage in the insuring agreement or excluded coverage otherwise granted; and (3) if there was coverage for the allegations in the Underlying Action, Erie alone was responsible for IGT's defense and indemnification. BOIS and IGT answered, counterclaimed against Harleysville, and cross-claimed against Erie, alleging that both policies provided coverage for SCJ's allegations and that the insurers had breached their insurance agreements in bad faith by failing to provide BOIS and IGT with a defense. Erie answered, counterclaimed, and cross-claimed, contending that: (1) BOIS was not an insured under the Erie policy; (2) the Erie...