(Article from Insurance Law Alert, March 2019)
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The Wisconsin Supreme Court ruled that a liability insurer was obligated to defend an insured against various federal and common law claims based on the improper distribution of medical supplies, finding that such claims were potentially covered under the “personal and advertising injury” provision. West Bend Mutual Ins. Co. v. Ixthus Medical Supply, Inc., 923 N.W.2d 550 (Wis. 2019).
Abbott Laboratories sued Ixthus, a medical supply company, along with more than 100 other defendants, for allegedly distributing in the United States blood glucose strips that were intended only for international markets. The complaint alleged trademark infringement, Lanham Act violations, and deceptive business practices, among other claims. West Bend refused to defend, arguing that there was no coverage under the personal and advertising injury provision of its policy, and that two exclusions barred coverage. A Wisconsin trial court ruled in West Bend’s favor, finding that the claims fell within the initial grant of coverage, but that the knowing violation exclusion barred coverage. An appellate court reversed, ruling that the exclusion did not eliminate West Bend’s duty to defend because several underlying claims did not require a showing of intentional conduct. The Wisconsin Supreme Court affirmed.
The Wisconsin Supreme Court rejected West Bend’s assertion that “Ixthus was not really an ‘advertising’ defendant—but instead a ‘distributing’ defendant who did not advertise or sell products directly to end users.” The court explained that the underlying complaint sufficiently alleged a covered advertising injury as to Ixthus because it alleged that “Defendants” engaged in advertising activities that resulted in financial harm to Abbott.
In addition, the court held that the knowing violation exclusion did not eliminate West Bend’s duty to defend because certain of the underlying claims (e.g., trademark dilution, deceptive business practices) could be established without proving intentional conduct or a “knowing violation” of Abbott’s rights. The court applied the same reasoning to the criminal acts exclusion and noted that state law was unsettled as to whether the exclusion requires a policyholder to be convicted of a crime or merely charged. Ultimately, the court held that resolution of that issue was unnecessary because at least some underlying claims were not dependent upon criminal conduct.