In Street Surfing, LLC v. Great American E&S Ins. Co., 752 F.3d 853 (9th Cir. 2014), the Ninth Circuit Court of Appeals considered whether “close” was enough when applying a prior publication exclusion. Great American E&S Insurance Company (Great American) insured Street Surfing, LLC under general liability insurance policies, which included advertising injury coverage. Street Surfing began selling a two-wheeled, inline skateboard called the “Wave” to various retail stores in December 2004. By 2007, Street Surfing was also selling advertised accessories for the “Wave,” including “Lime Green Street Surfing Wheels for The Wave,” and the “New Ultimate Street Surfer Wheel Set.” In 2005, Street Surfing applied for coverage with Great American. As part of the application process, Street Surfing certified that its website address was “www.streetsurfing.com” and that the Wave displayed the Street Surfing logo. The application submitted by Street Surfing did not include a picture or any description of the logo. In response to the application, Great American issued general liability insurance to Street Surfing from August 2005 until September 2007. This timeframe spanned two policy periods. Before issuing the second policy, Great American captured a screenshot of Street Surfing’s website and saved a copy of that screenshot to its underwriting file. The policies that were issued by Great American included a standard prior publication exclusion.
In June 2008, Street Surfing was sued by Rhyn Noll, the owner of the registered trademark “Streetsurfer.” The lawsuit claimed trademark infringement, unfair competition and unfair trade practices. Street Surfing had unsuccessfully attempted to purchase the trademark since early 2005 from Noll. Street Surfing tendered the Noll lawsuit to Great American for coverage and a defense. Great American disclaimed coverage citing the intellectual property exclusion in the policy as well as an advertising injury amendment which stated that the insurance did not apply to advertising injury arising out of actual or alleged infringement of intellectual property rights.
The disclaimer letter did not mention the prior publication exclusion, although Great American did reserve “the right to assert any and all other terms, provisions, conditions and/or exclusions set forth in its policy which may be applicable to the Noll action.” The District Court held that the policies’ prior publication exclusion relieved Great American of its duty to defend.
The Ninth Circuit Court of Appeals began its analysis of this issue by noting that, in context of advertising injury coverage, an alleged wrongful advertisement published before the coverage period would trigger application of the prior publication exclusion for injuries arising out of a republication of that prior advertisement, or any substantially similarly advertisement, during the policy period. In that situation, the later publications are considered to be part of a single, continuing wrong that began before the insurance policy went into effect. (Generally, Ringler Associates, Inc. v. Maryland Cas. Co., 80 Cal.App.4th 1165, 96 Cal.Rptr.2d 136, 150 (2000). However, if a later advertisement was not substantially similar to the pre-coverage advertisement, the later advertisement would constitute a distinct, or “fresh,” wrong that did not fall within the prior publication exclusion’s scope. (Kim Seng Co. v. Great American Ins. Co., 179 Cal.App.4th 1030, 101 Cal.Rptr.3d 537, 546-48 (2009).
The Ninth Circuit reviewed the District Court’s evidence supporting its determination of no coverage. The Ninth Circuit noted that the District Court looked to the complaint and three items of extrinsic evidence to make its determination of no coverage: (1) the affixation of the Street Surfing logo to the Wave; (2) Street Surfing’s website address and the screenshot of Street Surfing’s address; and, (3) the screenshot of Street Surfing’s website content. In reviewing this evidence, the Ninth Circuit concluded that by affixing the Street Surfing logo to the Wave that Street Surfing had engaged in an advertisement using Street Surfing’s brand name and logo which was published on the Wave before coverage began and, therefore, the public prior publication exclusion barred coverage. Having made that determination, the Ninth Circuit stated that it did not need to decide whether Street Surfing’s website address and content also constituted advertisements under the policy.
The Court focused on Street Surfing’s insurance application, which was filed before coverage began, and which certified that “[a]ll products display the Street Surfing logo.” At the time of the initial application, Street Surfing’s only product was the Wave. Street Surfing had earned approximately $600,000 in sales of the Wave to retailers. Affixing of the Street Surfing logo to the Wave broadcast or published that logo to the general public through the displays of the Wave in retail stores. Affixing the logo to the Wave broadcast information about Street Surfing’s products by informing the public of the Wave’s origin for the purpose of attracting future customers who might like what they saw. Therefore, the logo constitute an “advertisement” under the policies. Because the logo advertisement predated coverage and used the term “Street Surfing,” which the underlying complaint alleged was a wrongful use of Noll’s advertising idea, “Street Surfing,” was a prior publication within the exclusion.
Next, the Court turned to the argument made by Street Surfing that even if the prior publication exclusion barred coverage of liability for pre-coverage advertisements using Noll’s advertising idea, Great American, nevertheless, should still be obligated to defend the Noll action because Street Surfing published new, post-coverage advertisements using Noll’s advertising idea that were not substantially similar to any advertisements published before the policy period. Specifically, Street Surfing argued that during the Great American coverage period, it published advertisements for “Lime Green Street Surfing Wheels for the Wave,” and the “New Ultimate Street Surfer Wheel Set,” which differed from any pre-coverage advertisements. The Ninth Circuit was not convinced, however. Citing prior case precedent, the Ninth Circuit began its analysis of the post-coverage publication argument by noting that “the prior publication exclusion ‘bar[s] coverage of republication of any identifiable defamatory ‘material’ whenever the first publication of substantially the same material occurred before the inception of the policy period, without regard to whether or not the defamatory material is literally restated in precisely the same words.’” (Quoting Ringler Associates, Inc. v. Maryland Cas. Co., 80 Cal.App.4th 1165, 96 Cal.Rptr.2d 136, 150 (2000) and Kim Seng Co. v. Great American Ins. Co., 179 Cal.App.4th 1030, 101 Cal.Rptr.3d 537, 547 (2009) (The Court held “that the prior publication exclusion does not preclude coverage if, during the coverage period, the insured publishes ‘new matter’ constituting ‘fresh wrongs’ in the underlying liability suit. … That is, ‘new matter’ is material that is not “substantially similar” to the material published before the coverage period.”)
In assessing substantial similarity, courts do not need to consider all differences between pre-coverage and post-coverage publications, but instead will focus on the relationship between the alleged wrongful acts manifested by those publications. For purposes of the analysis, a post-coverage publication was “substantially similar” to a pre-coverage publication when both publications carried out the same alleged wrong. (Taco Bell Corp. v. Continental Cas. Co., 388 F.3d 1069, 1073 (7th Cir. 2004) (explaining that the focus was on the wrongful act). The Court then found that Street Surfing had used Noll’s advertising idea in its advertisement. Irrespective of whether that advertising idea was manifested specifically as “Street Surfing” or as “Street Surfer,” was not a meaningful differentiation. Although “Street Surfer” and “Street Surfing” could be viewed as separate, subordinate versions of the basic “Streetsurfer” idea, the extreme similarity between all the terms convinced the Court otherwise. It was also immaterial that the advertisements were for different products because the advertising idea being used was the same regardless of the product. Accordingly, the Ninth Circuit Court of Appeals concluded that Street Surfing’s post-coverage advertisements were not fresh wrongs that escaped application of the prior publication exclusion. The Court found that, at its core, the case “involve[d] a company that began a wrongful course of conduct, obtained insurance coverage, continued its course of conduct, then sought a defense from its insurer when the injured party sued. Although “‘a liability insurer owes a broad duty to defend its insured against claims that created potential for coverage,’ [citation omitted] the prior publication exclusion, strictly construed, serves to place reasonable limits on that broad duty.”
There is an old saying that “close enough” only counts when dealing with atomic bombs and playing horseshoes. According to the Ninth Circuit Court of Appeals, the phrase “close enough” also applies to prior publication exclusions.
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