Royal & Sun Alliance Insurance Company of Canada v. Chubb Insurance Company of Canada

[Indexed as: Royal & Sun Alliance Insurance Co. of Canada v. Chubb Insurance Co. of Canada]

Ontario Reports Ontario Superior Court of Justice, Matheson J. June 16, 2016 132 O.R. (3d) 380 | 2016 ONSC 3927

Case Summary

Insurance — Insurer's duty to defend — Commercial insurance policy providing coverage for "advertising injury" but excluding coverage for "expected or intended advertising injury" and advertising injury related to "intellectual property law or right" — Insured sued for trademark [page381] infringement — Intention to injure not necessary element of trademark infringement — Exclusion for "expected or intended advertising injury" not applying despite fact that claim included allegations of intentional as well as unintentional conduct — Plaintiff making claims that fell within definition of "intellectual property law or right" but those claims were separate from trademark infringement claim — "Intellectual property law or right" exclusion not applying — Insurer having duty to defend.

The insured was sued in California for federal trademark infringement and other wrongs. The respondent was the insured's primary liability insurer. Its policy provided coverage for "advertising injury", but excluded coverage for "expected or intended advertising injury" and advertising injury related to "intellectual property law or right". The respondent refused a defence, relying on those exclusions. The applicant, the insured's umbrella insurer, provided a defence and brought an application seeking reimbursement from the respondent for the defence costs incurred.

Held, the application should be allowed.

A claim for trademark infringement does not require that there be an intention to injure. The California claim included allegations of intentional conduct, and treble damages were sought based upon those allegations. However, the claim also included allegations of unintentional conduct, and the plaintiff also sought ordinary damages, for which intentional conduct was not required. The claim for treble damages did not transform the claim of trademark infringement into a claim of intentional trademark infringement only. The exclusion for "expected or intended advertising injury" did not apply.

While the plaintiff made claims that fell within the definition of "intellectual property law or right", the claim that qualified as an advertising injury was a free-standing claim that might give rise to liability and damages separate and apart from the other claims. As a result, the "intellectual property law or right" exclusion did not clearly exclude coverage. As the pleadings in the California action gave rise to at least the possibility of coverage, the respondent had a duty to defend.

Non-Marine Underwriters, Lloyd's of London v. Scalera, [2000] 1 S.C.R. 551, [2000] S.C.J. No. 26, 2000 SCC 24, 185 D.L.R. (4th) 1, 253 N.R. 1, [2000] 5 W.W.R. 465, J.E. 2000-935, 135 B.C.A.C. 161, 75 B.C.L.R. (3d) 1, 18 C.C.L.I. (3d) 1, 50 C.C.L.T. (2d) 1, [2000] I.L.R. I-3810, 96 A.C.W.S. (3d) 479, distd

Other cases referred to

Align Technology Inc. v. Federal Insurance Co., 673 F. Supp. 2d 957 (U.S.D.C., N.D. California); Allied Insurance Co. v. Bach, 2007 WL 627635 (U.S.D.C., N.D. Illinois); Blue Sky Bio, LLC v. Federal Ins. Co., 2010 U.S. Dist. LEXUS 133999 (U.S.D.C., N.W. Illinois); Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699, [2001] S.C.J. No. 50, 2001 SCC 49, 204 D.L.R. (4th) 14, 274 N.R. 84, [2002] 2 W.W.R. 438, J.E. 2001-1712, 155 B.C.A.C. 161, 97 B.C.L.R. (3d) 191, 32 C.C.L.I. (3d) 165, [2001] I.L.R. I-3993, 108 A.C.W.S. (3d) 159; Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, [1990] S.C.J. No. 33, 68 D.L.R. (4th) 321, 107 N.R. 321, J.E. 90-643, 39 O.A.C. 63, 45 C.C.L.I. 153, [1990] I.L.R. Â1-2583 at 10058, 20 A.C.W.S. (3d) 699; Orlando Nightclub Enterprises Inc. v. James River Insurance Co., 2007 WL 4247875 (U.S.D.C., M.D. Florida); [page382] Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R. 245, [2010] S.C.J. No. 33, 2010 SCC 33, 293 B.C.A.C. 1, [2010] I.L.R. I-5051, 406 N.R. 182, 323 D.L.R. (4th) 513, 9 B.C.L.R. (5th) 1, EYB 2010-179515, 93 C.L.R. (3d) 1, 2010EXP-3049, J.E. 2010-1683, [2010] 10 W.W.R. 573, 73 B.L.R. (4th) 163, 89 C.C.L.I. (4th) 161, 193 A.C.W.S. (3d) 1292; Quick v. MacKenzie (1997), 33 O.R. (3d) 362, [1997] O.J. No. 1600, 99 O.A.C. 390, 43 C.C.L.I. (2d) 262, [1997] I.L.R. I-3437, 70 A.C.W.S. (3d) 699 (C.A.); Trafalgar Insurance Co. of Canada v. Imperial Oil Ltd. (2001), 57 O.R. (3d) 425, [2001] O.J. No. 4936, 154 O.A.C. 7, 34 C.C.L.I. (3d) 192, [2002] I.L.R. I-4064, 110 A.C.W.S. (3d) 545 (C.A.); Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), 62 O.R. (3d) 447, [2002] O.J. No. 4496, 222 D.L.R. (4th) 655, 166 O.A.C. 233, 43 C.C.L.I. (3d) 174, [2003] I.L.R. I-4137, 118 A.C.W.S. (3d) 719 (C.A.) [Leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 33]

APPLICATION for a declaration that the respondent had a duty to defend the insured and to reimburse the applicant for costs of the defence.

W. Colin Empke, for applicant. David E. Liblong, for respondent.

[1] MATHESON J.: — This is a duty to defend application, in which the applicant asserts that the respondent wrongly denied a defence in a lawsuit against the insured, Marc Anthony Cosmetics Inc.

[2] Marc Anthony was sued in California. The respondent, Chubb Insurance Company of Canada, was Marc Anthony's primary liability insurer. It refused a defence, relying on two exclusions in the applicable Chubb policy.

[3] The applicant, Royal & Sun Alliance Insurance Company of Canada ("RSA"), was Marc Anthony's umbrella insurer. RSA provided a defence to the California litigation. That litigation has since been settled. RSA now brings this application to seek reimbursement of $6 million from Chubb for the defence costs incurred in the California litigation.

Background to Application

[4] On April 19, 2013, Moroccanoil Inc. issued a complaint 1 in the United States District Court in the Central District of California, Western Division. The California complaint named Marc Anthony as a defendant.

[5] The California complaint pleads that Moroccanoil is a California corporation that distributes hair and body care products in the United States and internationally. Marc Anthony is [page383] a Canadian corporation that markets and sells its hair care and other products in Canada and elsewhere.

[6] Moroccanoil alleged that Marc Anthony infringed its trademarks and its trade dress. Marc Anthony had used the phrase "Oil of Morocco" on the packaging for a line of hair care products, among other alleged points of similarity.

[7] The California complaint asserted four claims against Marc Anthony:

(1) federal trademark infringement in relation to registered trademarks; (2) federal trademark infringement and unfair competition in relation to unregistered trademarks; (3) common law trademark infringement and unfair competition; and (4) California statutory unfair competition and false advertising.

[8] Marc Anthony tendered the California complaint to Chubb and asked that it be defended. In its letter dated August 2, 2013, Chubb took the position that while the first of the above four claims could be within the liability coverage, two exclusions in the policy operated to remove any potential coverage. Chubb therefore took the position that it had no duty to defend Marc Anthony in the California complaint.

[9] Marc Anthony was also sued in Canada for trademark infringement and other claims, by an action commenced in the Federal Court in October 2013. The plaintiffs in that action were two Moroccanoil companies related to the California plaintiff company. Chubb did provide Marc Anthony with a defence to that litigation, under the same insurance policy. RSA submits that the Canadian claim arises from the same product and trademark issues and ought to be considered when construing the Chubb policy for the purposes of this duty to defend application.

Analysis

[10] The issue before me is whether either or both of the exclusions relied upon by Chubb preclude the possibility of coverage for the California complaint, ruling out the duty to defend.

[11] There is also a brief reference in Chubb's submissions that challenges RSA's entitlement to bring this application, stepping into Marc Anthony's shoes. This submission was not the subject of any argument beyond the statement of the proposition itself, and was not supported by any authority or other analysis. In the absence of any submissions providing [page384] a foundation for the position, I have assumed that this point was not being seriously pursued.

Applicable Legal Principles

[12] The core legal principles that apply to the determination of whether or not there is a duty to defend under an insurance policy are well settled. Those principles are set out in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R. 245, 2010 SCC 33, at paras. 19-20, and are as follows:

(a) An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim. (b) The pleadings govern the duty to defend. However, in examining the pleadings, the parties are not bound by the labels selected by the plaintiff. It is the true nature or substance of the claim that is determinative. (c) It is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. (d) Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or because it is excluded by an exclusion clause, there will be no duty to defend.

[13] The widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy: Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, at p. 812 S.C.R.; Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699, 2001 SCC 49, at para. 31.

[14] Further, where the pleadings are not framed with sufficient precision to determine whether the claims are covered by a policy, the insurer's obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred: Monenco, at para. 31.

[15] The onus is on the insured to establish that the pleadings fall within the initial grant of coverage. The onus then shifts to the insurer to establish that an exclusion applies: Trafalgar Insurance Co. of Canada v. Imperial Oil Ltd. (2001), 57 O.R. (3d) 425 (C.A.), at para. 18.

[16] There is also no issue about the required approach to interpreting an insurance policy. The Supreme Court of Canada has summarized the interpretive principles for insurance policies in Progressive Homes, at paras. 22-24, as follows:

(i) when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole; (ii) when the language is ambiguous, the court should rely on general rules of contract construction; and (iii) when the rules of construction fail to resolve the ambiguity, the court will construe the policy contra proferentem against the insurer -- coverage provisions are interpreted broadly and exclusion provisions narrowly.

[17] Exclusion clauses must use language that clearly expresses the extent and scope of the exceptions and limitations imposed and, insofar as they fail to do so, the language of the coverage obtains: Quick v. MacKenzie (1997), 33 O.R. (3d) 362 (C.A.), at para. 18.

[18] American decisions interpreting the same policy language have been found to be of assistance where the American courts have applied rules of construction that are not materially different from our own: Zurich Insurance Co v. 686234 Ontario Ltd. (2002), 62 O.R. (3d) 447 (C.A.), at para. 34, leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 33. Both parties have put forward American cases in support of their positions on this application.

Chubb Policy

[19] In the relevant time period, Chubb insured Marc Anthony pursuant to a commercial insurance package. It provided a wide range of coverages. The Chubb policy was issued to Marc Anthony in Ontario and is governed by Ontario law.

[20] The Chubb policy provided that it had the duty to defend Marc Anthony against a suit, subject to the terms and conditions of the policy.

[21] The Chubb policy contained an insuring agreement entitled "Advertising Injury and Personal Injury Liability Coverage". There is no dispute that this is the relevant insuring agreement within the Chubb policy as regards the California complaint. [page386]

[22] Chubb agrees that there is the possibility of coverage for the first claim in the California complaint. In other words, Chubb accepts that the first claim, which is for trademark infringement arising from an advertisement, is possibly an "advertising injury" under the policy. The relevant insuring agreement provides as follows (defined terms bolded in original):

Coverages . . . Advertising Injury And Personal Injury Liability Coverage

Subject to all of the terms and conditions of this insurance, we will pay damages that the insured becomes legally obligated to pay by reason of liability:

-- imposed by law; or -- assumed in an insured contract;

for advertising injury . . . to which this coverage applies.

This coverage applies only to such advertising injury . . . caused by an offence that is first committed during the policy period.

[23] The term "advertising injury" is defined as follows:

Advertising injury means injury, other than bodily injury, property damage or personal injury, sustained by a person or organization and caused by an offence of infringing, in that particular part of your advertisement about your goods, products or services, upon their:

-- copyrighted advertisement; or registered collective mark, registered service mark or other registered trademarked name, slogan, symbol or title.

[24] The term "Advertisement" is defined as follows:

Advertisement means an electronic, oral, written or other notice, about goods, products or services, designed for the specific purpose of attracting the general public or a specific market segment to use such goods, products or services.

Advertisement does not include any e-mail addresses, Internet domain name or other electronic address or metalanguage.

[25] Chubb accepts that the first claim in the California action gives rise to the possibility of coverage, as a claim of advertising injury (the "advertising injury"). It submits, however, that the possibility of coverage is foreclosed by two exclusions in the Chubb policy. It accepts that it has the burden of proving that the exclusions apply.

[26] The two exclusions relied upon are as follows: [page387]

(1) an exclusion entitled "Expected or Intended Advertising Injury or Personal Injury"; and (2) an exclusion entitled "Intellectual Property Law Or Right".

(1) Expected or intended advertising injury or personal injury

[27] The exclusion for "Expected or Intended Advertising Injury or Personal Injury" provides as follows:

Expected Or Intended Advertising Injury Or Personal Injury

This insurance does not apply to advertising injury . . . :

-- intended by the insured; or that would be expected from the standpoint of a reasonable person in the circumstances of the insured.

[28] The issue regarding this exclusion is whether the advertising injury alleged in the first claim in the California complaint was "intended by the insured" and therefore excluded. Chubb takes the position that this exclusion applies because the California complaint alleged that Marc Anthony intended the advertising injury. RSA disagrees, submitting that the true nature of the claim at issue is trademark infringement, and it is not limited to intentional infringement. This dispute therefore relates to the true nature of the claim, rather than the construction of the exclusion in the Chubb policy.

[29] The California complaint includes allegations of intention to cause harm, as well as other allegations that do not refer to the intention to cause harm.

[30] The complaint has an introductory section that pleads that Marc Anthony's products "infringe Moroccanoil's trademarks and trade dress, and confuses customers". It also pleads that the packaging was both intentionally and deceptively similar.

[31] The complaint then sets out allegations in common to all four causes of action. The common allegations also include allegations that plead intention and allegations that do not do so. The common allegations allege trade mark infringement and also allege that Marc Anthony "brazenly" misappropriated the plaintiff's trade dress.

[32] The complaint then has a section for each of the four causes of action (or claims). Each section incorporates the common allegations and goes on to plead the claim. The first cause of action alleged is the focus of this application. The claim is for trademark infringement under 15 U.S.C. 1114. [page388]

[33] The pleading of the first claim also includes allegations that plead intention and allegations that do not do so. It alleges that the defendants infringed the plaintiff's trademark, as follows: "Defendants have infringed this trademark by using aeOil of Morocco' for advertising, distribution and sale of the Marc Anthony Products without Moroccanoil's authorization." Not surprisingly, the parties agree that a claim for trademark infringement under 15 U.S.C. 1114 does not require an intention to injure. The pleading goes on to allege that the defendants committed the acts of infringement with the intent to cause confusion and mistake and to deceive the public, causing the plaintiff damage.

[34] The pleading then goes on to plead for certain remedies. There is first a paragraph pleading for damages caused by the alleged infringement, then a paragraph pleading for an accounting, then a paragraph pleading for injunctive relief and lastly a paragraph pleading for treble damages and attorney's fees.

[35] It is the last of the remedy paragraphs that is the centerpiece of the respondent's position. It seeks the additional remedy of treble damages and attorney's fees under 15 U.S.C. 1117, based upon alleged intentional conduct. It alleges that the defendants, "in engaging in the conduct described herein, knowingly, intentionally and willfully intended to trade on the reputation and goodwill of [the plaintiff, it's trademarks, trade dress and products] and to cause injury to [the plaintiff]".

[36] In focusing narrowly on this treble damages pleading, and in turn narrowly on a few words in it, the respondent fails to take the required approach to determining a duty to defend.

[37] The widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy coverage. The parties are not bound by the labels selected by the plaintiff. It is the true nature or substance of the claim that is determinative.

[38] The true nature and substance of the first claim in the California complaint is trademark infringement. A claim for trademark infringement does not require that there be an intention to injure. Accordingly, this is not a case where intention to injure is a necessary part of the pleaded causes of action, in contrast to Non-Marine Underwriters, Lloyd's of London v. Scalera, [2000] 1 S.C.R. 551, 2000 SCC 24, at para. 37 (per McLachlin J., as she then was).

[39] Considering the entirety of the California complaint, its structure and allegations, it is apparent that it is not limited to intentional trademark infringement, and that the plaintiff seeks a number of remedies, only one of which is a statutory remedy of [page389] treble damages and attorney's fees. In the context of that one remedy, there is an allegation that all that took place was intentional. However, the plaintiff also sought ordinary damages, for which intentional conduct is not required.

[40] If intentional conduct had been a necessary element of the cause of action, the exclusion would apply: Non-Marine Underwriters, at para. 37. However, if an allegation is unnecessary to a finding of liability, it would unduly restrict the duty to defend to allow that unnecessary allegation to limit the duty. This would be contrary to the overarching and well-settled principle that the duty to defend is broader than the duty to indemnify.

[41] Although I do not find it necessary to rely on the U.S. cases put forward on this point, they do illustrate this principle: Allied Insurance Co. v. Bach, 2007 WL 627635 (U.S.D.C., N.D. Illinois); Orlando Nightclub Enterprises Inc. v. James River Insurance Company, 2007 WL 4247875 (U.S.D.C., M.D. Florida).

[42] I conclude that the wording of the claim for treble damages does not transform the first cause of action from a claim of trademark infringement into a claim of intentional trademark infringement only. Quite the contrary, throughout the structure of the pleadings, there are allegations of both intentional and unintentional conduct. The true nature of the claim is not limited to intentional infringement.

[43] If, however, one saw some uncertainty due to the wording in that remedial paragraph, the outcome is the same. Where the pleadings are not framed with sufficient precision to determine whether the claims are covered by a policy, the insurer's obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred: Monenco, at para. 31. If it were necessary to do so, a claim for ordinary trademark infringement without intentional conduct ought to be inferred, bearing in mind the entirety of the California complaint.

[44] I therefore conclude that the first exclusion does not apply to exclude a duty to defend.

(2) Intellectual property laws or rights

[45] The exclusion for "Intellectual Property Laws Or Rights" provides as follows (defined terms bolded in original):

Intellectual Property Laws Or Rights

This insurance does not apply to any actual or alleged . . . advertising injury . . . arising out of, giving rise to or in any way related to any actual or alleged: [page390]

-- assertion; or -- infringement or violation;

by any person or organization (including any insured) of any intellectual property law or right, regardless of whether this insurance would otherwise apply to all or part of any such actual or alleged injury or damage in the absence of any such actual or alleged assertion, infringement or violation.

This exclusion applies, unless such injury:

is caused by an offence described in the definition of advertising injury; and does not arise out of, give rise to or in any way relate to any actual or alleged assertion, infringement or violation of any intellectual property law or right, other than one described in the definition of advertising injury.

[46] "Intellectual property law or right" is defined as follows:

Intellectual property law or right means any:

certification mark, copyright, patent or trademark (including collective or service marks); right to, or judicial or statutory law recognizing an interest in, any trade secret or non-personal confidential or proprietary information; other right to, or judicial or statutory law recognizing an interest in, any expression, idea, likeness, name, slogan, style of doing business, symbol, title, trade dress or other intellectual property; or other judicial or statutory law concerning piracy, unfair competition or other similar practices.

[47] The California complaint claims trademark infringement and makes other claims that also fall within the definition of "intellectual property law or right" in the policy.

[48] In oral argument, counsel to Chubb agreed that the exclusion, as interpreted by Chubb, severely limits the coverage for an "advertising injury". In Chubb's submission, the exclusion would remove coverage altogether in any case where there was an "advertising injury" that falls within the coverage but also allegations of other related intellectual property claims.

[49] RSA submits that applicable legal principles require that the exclusion be interpreted to apply only where the alleged claims are interdependent. It submits that the clause is unclear and ambiguous at best, and the lack of clarity must be resolved in favour of the insured, especially in regard to the duty to defend. Further, RSA submits that if the exclusion did mean [page391] what Chubb submits it means, it nullifies coverage to such an extent that it is repugnant and unenforceable.

[50] Among other things, the parties rely on conflicting U.S. decisions dealing with the same exclusion clause. RSA relies upon Align Technology Inc. v. Federal Insurance Co., 673 F. Supp. 2d 957 (U.S.D.C., N.D. California). Chubb relies on Blue Sky Bio, LLC v. Federal Ins. Co., 2010 U.S. Dist. LEXUS 133999 (U.S.D.C., N.W. Illinois). Although there is some discussion in each case that one side or the other finds helpful, neither case presents a full analysis of the exclusion clause.

[51] To some extent, each side also relies on the position taken by Chubb regarding the Moroccanoil claim against Marc Anthony that was brought in Canada. Although not suggesting that it determines the issues on this application, RSA relies on Chubb's Canadian position letter to illustrate an interpretation of the exclusion clause that is more favourable to the insured. Chubb points to the Canadian claim to show that there could still be a duty to defend notwithstanding its very broad exclusion clause. However, I find that Chubb's current position regarding the proper interpretation of the exclusion clause is inconsistent with the position it took in its letter regarding the Canadian claim.

[52] In the Moroccanoil claim brought in Canada, three causes of action were alleged: registered trademark infringement in an advertisement, passing off and unfair competition, regarding the same product packaging that was at issue in the California complaint. Applying Chubb's interpretation of the exclusion that was presented to me, there would be no duty to defend because the passing off and unfair competition claims are intellectual property claims. However, Chubb agreed to provide a defence in Canada. It first acknowledged that the Canadian statement of claim gave rise to the possibility of coverage for advertising injury arising from trademark infringement in an advertisement, the same possible coverage as with the California complaint. But then the letter provided as follows:

. . . while the Statement of Claim seeks relief for contravention of the "unfair competition" provisions in the Trade-mark Act and expressly asserts allegations of "passing off", it does not appear that the Statement of Claim expressly alleges any conduct on the part of Marc Anthony to support the "unfair competition" and "passing off" assertions which is separate and apart from the infringement of the MOROCCANOIL Trademarks.

(Emphasis added)

[53] In other words, the factual basis for all three claims was the same. This is equally true for the California complaint.

[54] The Chubb letter went on to say that if it was "ultimately determined" that the insured was liable for any conduct other [page392] than that which infringed upon the plaintiff's trademarks, the exclusion would apply and remove all coverage at that point. Thus, Chubb's position regarding this exclusion did not rule out the possibility of coverage. Chubb agreed to provide a defence.

[55] There is no difference between the pleadings in the California complaint and those in the Canadian statement of claim that justifies a different outcome regarding the duty to defend. Assuming that Chubb proceeded in good faith in each jurisdiction, and given that it puts forward a different interpretation on this application, this course of conduct suggests that the clause is unclear, though it does not determine that issue.

[56] I have applied the accepted principles of contract interpretation for an insurance policy exclusion. This exclusion clause is cumbersome. It begins by excluding the very advertising injury that forms the basis for coverage under the policy: here, the alleged registered trademark infringement in an advertisement. It then purports to broaden that exclusion by additional wording and by a "regardless" clause. It then provides for an exception to the exclusion, which uses additional wording in relation to the advertising injury and goes on to set out a cumbersome second requirement of the exception.

[57] The wording of the exclusion clause gives rise to a number of issues. I conclude that it does not clearly exclude coverage, as it must do to deny a duty to defend the California complaint.

[58] The clause begins by excluding "any" "advertising injury" (referencing the defined term in the policy), and continues as follows: "This exclusion applies, unless such injury: is caused by an offence described in the definition of advertising injury; . . ." (underlining added). These words provide that the relevant "injury" is an injury "caused by" the "offence". The "injury" therefore refers to the alleged damage and other problems "caused by" the "offence". Otherwise, the words "caused by an offence" are completely unnecessary.

[59] Here, the offence is registered trademark infringement in an advertisement. In the California complaint, it is alleged that this offence caused damage and gave rise to an entitlement to injunctive and other relief. This is the injury that was allegedly "caused by" the "offence".

[60] The second requirement in the exception excludes coverage once again, where the "injury" arises from, gives rise to or relates to any other intellectual property claim other than the advertising injury. However, in the California complaint, each claim is separate, including separate alleged "injury" (such as damage) for the registered trademark infringement claim, and for each of the other claims. As pleaded, they are not interdependent claims. [page393] Given the structure and wording of the exclusion clause, the additional claims pleaded in the California complaint do not necessarily exclude coverage.

[61] Other issues with the wording of the clause were raised. However, I find that the other vagaries of the exclusion clause do not need to be addressed in the particular circumstances of the California complaint, bearing in mind how it is pleaded. The claims as pleaded are not dependent on one another.

[62] Since the claim that qualifies as an advertising injury is a free-standing claim that may give rise to liability and damages separate and apart from the other claims, there is a duty to defend. The duty to defend is broader that the duty to indemnify. As was acknowledged in Chubb's letter regarding the Canadian action, the ultimate determination of the claims could remove the duty to indemnify, but there was the possibility of coverage and therefore a duty to defend.

[63] To the extent that the policy wording may also bear the interpretation advanced by Chubb, there is an arguable ambiguity. However, it is well accepted that any ambiguity must be resolved in favour of the insured.

[64] A number of other issues were raised by the applicant that were generally responsive to the impact of Chubb's proposed interpretation. In the circumstances, I do not find it necessary to deal with the other issues such an interpretation may raise.

Judgment

[65] Since this is a duty to defend application, the insurer bears the onus of demonstrating that the exclusions clearly and unambiguously exclude coverage. Chubb has not done so. The pleadings in the California complaint gave rise to at least the mere possibility of coverage. There was therefore a duty to defend.

[66] I therefore declare as follows:

(1) that Chubb is or was obligated to defend Marc Anthony in the underlying U.S. complaint and to pay all of the defence costs incurred by Marc Anthony and the applicant in the underlying actions; and (2) that Chubb is obliged to reimburse RSA for those sums RSA paid to defend the U.S. complaint and contributed, on Marc Anthony's behalf, towards the costs of implementing the global settlement of the underlying actions. [page394]

[67] In accordance with the submissions of the parties at the hearing, RSA, as the successful party, shall have its costs fixed at $21,000.

Application allowed.

Notes

1 A "complaint" is the document in U.S. litigation that is the equivalent of a statement of claim in Canada.

End of Document