Insurance Law Alert: Selling High End Goods at Discount Prices Triggers Personal and Advertising Injury Coverage

In Travelers Property Cas. Co. v. Charlotte Russe Holding (filed 6/21/12, No. B232771), the appeals court ruled that allegations the insured harmed the plaintiff by selling its high-end goods at steeply discounted prices triggered coverage under the personal and advertising injury offense for “publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services,” regardless of whether the allegations met all of the elements for trade libel.

The insured had allegedly contracted to become the exclusive sales outlet for the plaintiff’s “People’s Liberation” brand of apparel, which included jeans and knits. The plaintiff identified the People’s Liberation brand as a “premium, high end” brand, claiming that it had “invested millions of dollars developing the brand so that it became associated in the marketplace with high-end casual apparel” to be distributed “exclusively through fine department stores and boutiques.”

The insured allegedly promised to promote the sale of the plaintiff’s premium products in order to encourage customers to purchase such products at a high price point. However, the plaintiff alleged that the insured had offered the People’s Liberation products for sale at steeply discounted prices, resulting in “significant and irreparable damage to and diminution of the People’s Liberation Brand and trademark,” damaging its “marketability and saleability.”

Travelers denied coverage contending that allegations of price discounts do not constitute either product disparagement or false statements, and therefore did not trigger personal injury or advertising injury coverage.

The Travelers policy defined personal and advertising injury as including “oral, written, or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” Travelers contended that “disparagement,” in the insurance context, refers to the tort of trade libel, “a tort that requires pleading and proof of a false statement of fact.” According to Travelers, there was no coverage because the underlying pleadings failed to allege an injurious false statement disparaging the plaintiff’s products.

The court disagreed, stating that the pleadings alleged that the People’s Liberation brand had been identified in the market as premium, high-end goods; and that the insured had published prices for the goods implying that they were not. It therefore pled that the implication carried by the insured’s pricing was false. According to the court, “[t]hat is enough…. [W]e cannot rule out the possibility that [the plaintiff’s] pleadings could be understood to charge that the dramatic discounts at which the People’s Liberation products were being sold communicated to potential customers the implication – false, according to Versatile – that the products were not (or that the [insured] did not believe them to be) premium, high-end goods.”

The court held that “[c]overage is triggered under this policy language by a claim that the insureds published material that disparages a person’s or organization’s goods, products or services, whether trade libel is or is not an element of that claim. Because the [plaintiff’s] claims against the [the insured] could reasonably be interpreted to constitute a claim of product disparagement resulting in damage to their People’s Liberation brand, those claims are sufficient to trigger Travelers’ obligation to provide a defense.”

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July 16, 2012