Value Wholesale, Inc. v. KB Ins. Co.

• Decision Date: 31 March 2020
• Docket Number: 18-cv-5887 (KAM) (SMG)
• Citation: 450 F.Supp.3d 292
• Parties: VALUE WHOLESALE, INC., Plaintiff, v. KB INSURANCE CO. LTD., Defendant.
• Court: U.S. District Court — Eastern District of New York

450 F.Supp.3d 292

VALUE WHOLESALE, INC., Plaintiff,

v.KB INSURANCE CO. LTD., Defendant.

18-cv-5887 (KAM) (SMG)

United States District Court, E.D. New York.

Signed March 31, 2020

Steven Stern, Richard S. Schurin, Stern & Schurin LLP, Garden City, NY, for Plaintiff.

Linda Fridegotto, Matthew David Kraus, The Chartwell Law Offices LLP, New York, NY, for Defendant.

MEMORANDUM & ORDER

Hon. Kiyo A. Matsumoto, United States District Judge

This action concerns the duty of KB Insurance Co., Ltd. d/b/a Kookmin Best Insurance Company (U.S. Branch) f/k/a Leading Insurance Group Insurance Co., Ltd. ("KBIC"), to defend its insured, Value Wholesale, Inc. ("Value"), against the underlying lawsuit captioned Abbott Laboratories v. Adelphia Supply USA , No. 15-cv-5826 (CBA) (LB) (E.D.N.Y.) ("the Abbott Litigation"). Pending before the court are the parties' cross-motions for summary judgment as to whether the Abbott Litigation alleges claims against Value which trigger KBIC's duty to defend under the terms of Value's insurance policy with KBIC. For the reasons set forth below, the court finds that the Value's insurance policy with KBIC covers claims alleged in the Abbott Litigation and, because no exclusions apply, KBIC must defend Value. Accordingly, Value's motion for partial summary judgment is GRANTED and KBIC's motion for summary judgment is DENIED.

Background

Value is a pharmaceutical wholesaler organized and existing under the laws of the State of New York. (See ECF No. 1, Complaint ("Compl."), ¶ 9; ECF No. 11, Answer ("Ans."), ¶ 9.) KBIC is a foreign insurance company which operates in the United States through its manager, Leading Insurance Services, Inc., a New Jersey corporation with its headquarters in Ridgefield Park, New Jersey. (ECF No. 32, Opp. 56.1 Statement.) KBIC is licensed to issue insurance policies in the State of New York. (Id. ; see also Compl. ¶ 16; Ans. ¶ 16.)

I. The Insurance Policy

Value purchased a commercial insurance package from KBIC covering the period from February 4, 2014 through February 4, 2015 and renewed the package for the period from February 4, 2015 through February 4, 2016 (the "Policy"). (Compl. ¶¶ 17-19; Ans. ¶¶ 17-19; ECF No. 33-4, Commercial General Liability Coverage Form, Coverage B, Personal and Advertising Injury ("Pol.")¹ .) The package included a "Commercial General Liability Coverage Part," under which KBIC agreed to defend Value against any lawsuits seeking damages resulting from covered "Personal and Advertising Injuries." (Pol. at 116.)

The Policy provided a very specific definition of "Personal and Advertising Injury." (Id. at 107.) To potentially trigger coverage and, consequently, KBIC's duty to defend, the complaint naming Value as a defendant must allege an injury arising out of one of a number of "qualifying offenses." (Id. ) As is relevant here, Value would be covered it if were sued for an injury allegedly resulting from: (1) "[Value's] use of another's advertising idea in [its] ‘advertisement’ "; or (2) Value "[i]nfringing upon another's copyright, trade dress or slogan in [its] ‘advertisement.’ " (Id. ) Advertisement, as used in these provisions, is broadly defined as "a notice that is broadcast or published to the general public or specific market segments about [Value's] goods, products or services for the purpose of attracting customers or supporters."² (Id. at 105.)

Even if a claim would otherwise be covered, KBIC may not need to provide coverage if one or more policy exclusions apply. Two of these exclusions are at issue here. The "intentional acts exclusions," which preclude coverage against claims arising from Value's intentional conduct, are defined as follows:

a. Knowing Violation Of Rights Of Another

"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."

b. Material Published With Knowledge Of Falsity

"Personal and advertising injury" arising out of oral written publication of material, if done by or at the direction of the insured with knowledge of its falsity.

(Id. at 99.) Furthermore, the "intellectual property exclusion" precludes coverage against claims arising from IP infringement:

i. Infringement Of Copyright, Patent, Trademark Or Trade Secret

"Personal and advertising injury" arising out of the infringement of copyright, patent, trademark, trade secret or other [IP] rights. Under this exclusion, such other [IP] rights do not include the use of another's advertising idea in your "advertisement."

However, this exclusion does not apply to infringement, in your "advertisement," of copyright, trade dress or slogan.

(Id. )

II. The Abbott Litigation

In November 2015, Abbott Laboratories and related companies (collectively, "Abbott") filed a lawsuit in the Eastern District of New York against Value and over one-hundred other pharmaceutical distributers and pharmacies. Abbott v. Adelphia Supply USA , No. 15-cv-5826 (CBA) (LB) (E.D.N.Y.). In March 2016, Abbott field a Second Amended Complaint in that action, which remains the operative pleading.

As background, Abbott alleges that it sells blood glucose test strips for diabetic patients under the FreeStyle® and FreeStyle Lite® trademarks. (ECF No. 33-3, Abbott's Second Amended Complaint ("Abbott Compl."), ¶ 2.) Abbott sells test strips in the domestic and international markets. (See id. ¶ 11.) Abbott uses distinctive packaging, referred to in the complaint as its "FreeStyle Trade Dress," to distinguish its FreeStyle products in the marketplace. (Id. ¶ 345.) Although Abbott's test strips are functionally identical wherever sold, Abbott uses substantially different packaging, labelling, and instructional inserts for the international test strips. (Id. ¶ 11.) Differences include: (i) the presence or absence of an NDC number; (ii) different indicated test sites; (iii) the presence or absence of a U.S. toll free number; (iv) different languages; (v) different symbols; (vi) different units of measurement; (vii) different temperature scales; and (viii) different warnings. (Abbott Compl. ¶¶ 353-67.) Abbott also sells the international test strips at "markedly lower list prices" due to differences between domestic and international insurance, reimbursement, and rebate practices. (Id. ¶ 7.)

Abbott filed its action for "trademark and trade dress infringement, fraud, racketeering, unfair competition, and other illegal and wrongful acts." (Id. ¶ 1.) Abbott alleges that the defendants engaged in a wrongful scheme to "import[ ], advertis[e] and ... distribut[e]" boxes of its international test strips, which are not approved for domestic sale, in the United States. (Id. ¶ 15.) The defendants profited from this scheme by purchasing and selling the cheaper, if functionally identical, international test strips to domestic consumers at U.S. retail prices, and then using product boxes for the approved domestic test strips for insurance reimbursement and manufacturer rebate purposes. (Id. ¶¶ 4-5.) The underlying complaint states that Value purchased diverted international boxes of FreeStyle test strips from several defendants and sold them to several others. (Id. ¶ 422.)

Abbott's complaint alleges that the scheme harmed it both financially and reputationally. Relevant here, the Abbott complaint alleges that Abbott's harm resulted, at least in part, from the defendants' advertising activities:

Defendants' unauthorized importation, advertisement , and subsequent distribution causes, or is likely to cause, consumer confusion, mistake, and deception to the detriment of Abbott.... As a result of Abbott's extensive branding, marketing, sales, and quality control efforts ... patients in the United States expect a certain quality, packaging, and overall image from Abbott for FreeStyle test strips. 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 [as described above], 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.

(Id. ¶ 15 (emphasis added).) Abbott further alleges that:

Using [its] 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.

Defendants then dispense diverted international FreeStyle test strips, and not U.S. FreeStyle test strips. By dispensing diverted international FreeStyle test strips, Defendants are exposing each consumer to the threat of confusion and misuse posed by the material differences between U.S. and international FreeStyle test strips.

(Id. ¶¶ 385-6 (emphasis added); see also id. ¶ 5 ("At the center of this conspiracy are wholesalers (the ‘Distributor Defendants’) who import, market , and distribute large volumes of diverted international FreeStyle test strips for distribution to pharmacies ... throughout the United States." (emphasis added)); id. ¶ 52 (including Value as "Distributor Defendant").)

Abbott also explained in its initial discovery disclosures that its demand for monetary damages is based on "all ill-gotten profits from Defendants' importation, purchase, marketing, advertisement , distribution, sale, offer for sale, and/or use in commerce in the United States of diverted international FreeStyle test strips." (ECF No. 1-7, Initial Disclosures in Abbott Litigation, at 4 (emphasis added).) Abbott, thus, identified the following "subject matter of discoverable information" for each named defendant: "[i]mportation, purchase, marketing, advertisement , distribution, sale, offer for sale, submitting claims for rebates to be paid directly or indirectly by Abbott, and/or use...