South-Western Legal Studies in Business

Insurer Not Responsible for Defending Insured for Claim of False Label on Shipment
Description Michigan high court held that a general liability policy did not require the insurer to defend the insured who was sued by a competitor for trademark infringement for shipping the competitor’s product with a label from the insured. That action falls outside of the scope of the policy.
Topic Insurance
Key Words

General Liability, Duty to Defend, Trademark Infringement; Advertising Injury

C A S E   S U M M A R Y
Facts Pro-Seal is a Michigan company that sells and repairs mechanical seals used in oil producing facilities in Alaska. It has a commercial general liability (CGL) policy with Citizens Insurance. Pro-Seal’s major competitor is Flowserve. A Flowserve employee discovered that two Flowserve seals that had been repaired by Pro-Seal were shipped to a customer in Alaska in the original Flowserve container, with the name Pro-Seal attached to the outside of the container. Flowserve sued Pro-Seal in federal court in Alaska, claiming that it created confusion in the marketplace by infringing on its trademarks by using its packaging, which thereby misrepresented Pro-Seal seals as being Flowserve seals. Pro-Seal requested that Citizens defend it in the suit. Citizens refused, contending that the Flowserve suit was beyond the scope of the policy. Citizens filed suit for a declaration in Michigan court that it was not required to defend Pro-Seal. The trial court held for Citizens. The Court of Appeals reversed for Pro-Seal. Citizens appealed.
Decision

Reversed and remanded. First, there was no trademark infringement here as contended by Flowserve. Shipping a Flowserve in its container with a label indicating it came from Pro-Seal, which is where it was repaired, did not involve using Flowserve’s mark improperly or provide false information. The only possible link to the CGL policy is a claim of “advertising injury.” But when Pro-Seal affixed its name to the package for shipment, that was not an advertisement and so could not result in advertising injury. The policy specified that advertising is as we normally think of it—information broadcast to the public or a specific market to attract customers. The plain meaning of advertising, as covered in the policy, does not include the shipment that occurred here, so Citizens need not defend Pro-Seal.

Citation Citizens Insurance Co. v. Pro-Seal Service Group, 730 N.W.2d 682 (Sup. Ct., Mich., 2007)

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