Watch the full video at https://rumble.com/v2tqizk-no-defense-of-false-advertising.html and at https://youtu.be/PEiGcgzbQPU
L&K Coffee alleged that its various insurers wrongfully denied coverage to defend it against a Lanham Act false advertising lawsuit brought by coffee growers in Hawaii. The district court concluded that the applicable insurance policies did not oblige any defense and granted summary judgment in favor of the insurance companies.
IN L&K Coffee LLC, dba Magnum Roastery; Kevin Kihnke v. LM Insurance Corporation; Liberty Insurance Corporation; Selective way insurance companies; Valley Forge Insurance Company; Continental Casualty Companyno. 22-1727, United States Court of Appeals, Sixth Circuit (June 1, 2023), the Sixth Circuit resolved the coverage dispute.
L&K Coffee, LLC, a Michigan-based company, roasts and sells coffee products throughout the United States. The defendants are insurance companies from which L&K purchased general commercial liability and umbrella insurance.
Coffee growers from the Kona region of the island of Hawai’i sued L&K and other coffee companies for “false designation of origin, false advertising and unfair competition” in violation of the Lanham Act, 15 USC § 1125(a), in the Western District of Washington. These “Kona plaintiffs” alleged that the defendants misrepresented the origin of the coffee they labeled and distributed as “Kona” coffee “when most of the coffee beans in the coffee products came from other regions of the world.”
The Kona plaintiffs’ operative complaint summarized their claims against L&K as follows: “L&K misrepresents the geographic origin of its ‘Kona’ coffee products by prominently placing KONA on the front of the package.”
The misleading marketing was alleged to be designed to mislead consumers into believing that L&K’s Magnum Exotics “Kona” products contain coffee from the Kona district, when in fact the coffee products do not contain a significant amount of Kona coffee, if any. The plaintiffs also alleged that L&K deliberately misled the consumer into believing that L&K’s Magnum Exotics coffee products contain significant amounts of premium quality Kona coffee beans in order to justify the high price L&K charges for what is in fact regular raw coffee.
L&K asked the insurers to defend and indemnify them in that matter under the policies’ “personal and advertising damages” clauses. Personal and advertising injury, in relevant part, is defined as an “injury . . . arising from” (1) a publication that “disparages the goods, products, or services of a person or organization” or (2) “[i]trespass on another’s. . . slogan in your ad.” Based on this language and the Kona plaintiffs’ allegations, the insurers denied coverage because, as one insurer put it, “none of the crimes in the definition of “personal and advertising injury” includes false advertising, and none of the allegations in the complaint fall within any of the crimes in the definition.”
An insurance company’s obligation to provide a defense depends on the allegations in the complaint and extends to allegations that may even be argued to be covered by the insurance coverage. An insurer’s duty to defend does not depend solely on the terminology used in a claimant’s pleadings. Rather, it is necessary to focus on the basis of the injury and not the nomenclature of the underlying claim to determine whether coverage exists.
The term “defamatory” refers to an untrue statement directed at another’s property. A defamatory claim requires a company to make false, disparaging or disparaging communications about a competitor’s product.” (emphasis in the statement)
The Kona plaintiffs alleged that L&K violated the Lanham Act’s prohibition against misrepresentation of its own product. Looks 15 USC § 1125(a)(1). The Sixth Circuit concluded that this is not “derogatory.”
After reviewing the Kona plaintiffs’ complaint, the Sixth Circuit Court agreed with the district court that the complaint does not state a pleading theory of recovery. In the Kona Plaintiffs’ own words, “only coffee grown on farms located within the Kona District of the Big Island of Hawaii . . . may be truthfully marketed, labeled and sold as Kona coffee.” L&K violated the misrepresentation of its product and it was not a covered cause of loss.
It never pays to lie to your customers. When you do harm someone else, you are subject to damages from those your lie harms. By mislabeling its product as “Kona” coffee when L&K claimed its cheap, generic coffee was “Kona” coffee, it was involved in a tort that was not covered by the policies.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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