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No Coverage for Bogus Fendi Goods under CGL Policy (NY)

May 27, 2016

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Recently, the United States Court of Appeals for the Second Circuit was faced with determining whether a company who sold counterfeit goods was entitled to coverage under the “Personal and Advertising injury” coverage part of its Commercial General Liability insurance policy, which affords some coverage to businesses for copyright infringement and the like.
Fendi had obtained a judgment against Ashley Reed Trading, a company that manufactured and sold counterfeit fashion accessories bearing the Fendi trademarks and which reproduced the appearance of genuine Fendi products. Fendi also commenced a separate lawsuit against Burlington Coat Factory for their sale of counterfeit products that Burlington purchased from Ashley Reed. Fendi and Burlington settled that lawsuit and Burlington obtained a judgment against Ashley Reed.
In <a href="http://www.ca2.uscourts.gov/decisions/isysquery/3326699c-a681-4322-ae52-f33641283af9/11/doc/14-3435_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/3326699c-a681-4322-ae52-f33641283af9/11/hilite/">United States Fidelity &amp; Guaranty Co. v. Fendi Adele S.R.L., et. al.</a>,  Ashley Reed’s insurer then brought an action seeking a declaration that it owed no duty to indemnify Ashley Reed under the policies. The district court granted summary judgment in favor of the insurer and held that the policies did not cover the losses because they were not the result of an “advertising injury.” It determined that the basis of Ashley Reed’s liability was the sale -- not the advertising -- of counterfeit Fendi goods. Thus, there was no basis for indemnification under the applicable insurance policies.
The Second Circuit affirmed, finding that Ashley Reed had not engaged in any advertising of the counterfeit goods, as required to trigger coverage under the insurance policy for advertising injury. The Court also noted that in the underlying complaints, Fendi did not allege it suffered injury because of any advertising activities by Ashley Reed but because of its sale of counterfeit goods. Furthermore, the damages awarded in the underlying actions were based upon the company’s sales activities, not any advertising activities.
Thanks to Jorgelina Foglietta for her contribution to this post and please write to <a href="mailto: mbono@wcmlaw.com">Mike Bono</a> for more information.

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