COA Splits In Coverage Dispute

Today in the Court of Appeals (COA) split on the issue whether insurance carriers had a duty to defend an insured for an underlying lawsuit. Specifically, they split on the application of an exclusion. The case is Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C. Judge Tyson wrote the majority opinion, joined by Judge Stroud. Judge Geer dissented.

The policies cover "advertising injury" (such the insured's alleged disparagement of another's product), but the exclusion in question eliminates coverage for "'advertising injury' arising out of the failure of goods, products or services to conform with any statement of quality or performance made in [the insured's] 'advertisement.'" Judge Geer, in dissent, believed that the exclusion applied because, she concluded, the underlying lawsuit against the insured complains that the insured was making false assertions about the insured's products--that is, the underlying lawsuit complains that the insured's products were not as advertised.

The majority, however, concluded that the "crux" of the lawsuit's allegations is that the insured disparaged another company's products (the company that sued the insured). The majority thus concluded the exclusion doesn't apply, and therefore the insurers have a duty to defend.

At bottom, this was a dispute about how to read the allegations in the underlying complaint against the insured.