Duty to defend principles are generally well-settled in most jurisdictions: If the allegations in an underlying complaint potentially fall within the scope of coverage, the insurer must defend. In many – but not all – jurisdictions, the insurer must defend the entire suit as long as it alleges any potentially covered claims. Once implicated, the duty may be negated if the allegations against the insured fall entirely within a policy exclusion.

While ingrained in courts and insurance practitioners alike, applying these principles is often less than straightforward in practice. But such was not the case in a recent decision by the U.S. Court of Appeals for the Eleventh Circuit, which held that an intellectual property exclusion squarely negated any duty to defend underlying trademark infringement claims, as well as non-infringement claims clearly predicated on the insured’s allegedly infringing conduct. See Land’s End At Sunset Beach Community Association, Inc. v. Aspen Specialty Ins. Co., Case No. 17-14948 (11th Cir. Aug. 9, 2018).

The Two ‘Ends’

Land’s End at Sunset Beach Community Association (“Plaintiff”) operates a condominium in Florida, and was using “Land’s End” to advertise the property for short-term vacation rentals.

Land’s End Acquisition Group (LEAC) owns and operates a hotel in Alaska. It also owns the “LAND’S END” trademark (the “Mark”), which it uses in promoting the hotel.

After LEAC demanded that Plaintiff stop using “Land’s End” for marketing purposes, Plaintiff brought an action against LEAC (the “Lawsuit”), seeking a declaration that it was not infringing on LEAC’s trademark. LEAC responded to the Lawsuit by asserting five counterclaims: (I) trademark infringement under the Lanham Act; (II) false designation of origin under the Lanham Act; (III) common law trademark infringement; (IV) common law unfair competition; and (V) a declaratory judgment that Plaintiff held no common law rights in the Mark.

Despite asserting causes of action not facially sounding in trademark infringement, LEAC’s core complaint was that Plaintiff’s conduct was infringing. Specifically, LEAC alleged that Plaintiff used an identical phrase, for the same or similar services, and to target the same customers. It also claimed that Plaintiff used “Land’s End” alone – as a trademark – not merely to describe the name of its property. Count I asserted that Plaintiff’s use of the Mark was deceptive, created a likelihood of confusion, and was therefore infringing. Counts II–IV were premised on the same conduct as Count I, each alleging that the “above-cited acts” constituted false designation of origin, common law infringement, and unfair competition, respectively. Count V sought declaratory relief on the same grounds.

Plaintiff tendered LEAC’s counterclaims to defendant Aspen Specialty Insurance Co. (“Aspen”), its general liability carrier, and requested a defense and indemnity in the Lawsuit. Aspen denied coverage, however, citing the policy’s intellectual property (IP) exclusion.

The IP exclusion applied to “‘personal and advertising injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” “Personal and advertising injury” was defined as including injury “arising out of … [t]he use of another’s advertising idea in your ‘advertisement.’” Aspen maintained that the IP exclusion precluded any possibility of coverage for LEAC’s counterclaims since any injury LEAC may have sustained “arose out of” acts of alleged trademark infringement.

As a result, Plaintiff filed this action in the U.S. District Court for the Middle District of Florida, seeking a declaration that LEAC’s counterclaims implicated Aspen’s duty to defend. The district court disagreed, however, finding all of LEAC’s causes of action were indeed dependent upon alleged infringement, and thus fell entirely within the IP exclusion. The Eleventh Circuit affirmed.

It’s All About Infringement

The Eleventh Circuit’s analysis began by acknowledging that, at least for purposes of this appeal, LEAC had alleged “personal and advertising injury” as defined in the Aspen policy, such that coverage under the policy was potentially available in the first instance. Having alleged covered injury, it was also assumed that Aspen had a duty to defend Plaintiff against LEAC’s claims unless they fell entirely within the scope of the IP exclusion. In other words, if only some of the claims were encompassed by the exclusion, Aspen would still have a duty to defend. In addition, because it was beyond question that the policy barred coverage for the trademark infringement claims, the court framed the dispositive issue as whether the false designation and unfair competition claims “arose out of” trademark infringement, in which case they too would be excluded. On this latter point, the court did not hesitate to hold these claims were not covered.

Like many jurisdictions, the Eleventh Circuit interprets “arising out of” language broadly to mean “originating from,” “having its origin in,” “growing out of,” “flowing from,” “incident to” or “having a connection with.” On this basis, the court rejected the notion that LEAC’s false designation and unfair competition claims did not “arise out of” Plaintiff’s allegedly infringing conduct. The court observed that LEAC’s counterclaims made no mention of any act other than trademark infringement, and that LEAC explicitly incorporated the “above-cited acts” into every non-infringement cause of action. As such, it was clear to the court that trademark infringement was and could be the only basis for LEAC’s non-infringement claims. The court also found it irrelevant that these other causes of action could in theory be sustained without allegations of trademark infringement. In this case, the court held, it was dispositive that all of LEAC’s claims depended on, and thus arose out of, allegations that Plaintiff infringed LEAC’s trademark.

Citing similarly decided cases from other U.S. Circuit Courts of Appeal, the Eleventh Circuit declared that Aspen had no duty to defend Plaintiff against LEAC’s counterclaims, as they all fell entirely with the IP exclusion in the Aspen policy.