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Insurance may have coverage gaps

Minnesota businesses rely on insurance policies to provide financial protection in accidents and commercial disputes. A recent decision from the federal Eighth Circuit Court of Appeals, with jurisdiction over Minnesota, revealed that insurance policies may not provide this coverage when it is most needed during litigation.

State law requires insurers to defend lawsuits and indemnify their insureds for financial losses in lawsuits. The duty to defend is broader than the duty to provide indemnification. If there is no duty to defend, then there is no duty to indemnify.

Minnesota law requires interpretation of insurance policies governing defense and indemnification in accordance with the parties' intent. Any ambiguities are resolved in the insured's favor. However, courts interpret unambiguous language in a policy according to its plain and ordinary meaning.

In its decision -- issued in late March -- the Court of Appeals ruled on an insurance company's refusal to defend a company that sells light-emitting diode flameless candles and commercial lighting systems which was sued for trademark infringement under the Latham Act. The company used the name "Smart Candle" and another company claimed that this use was an infringement of its name and trademark.

The insurance company disclaimed coverage and claimed that its policy governed infringement of another copyright, trade dress or slogan in an advertisement. It argued that the lawsuit pertained only to alleged trademark infringement and not to a slogan.

The Court ruled, based on its interpretation of the policy's plain and ordinary language, that a slogan is a brief attention-getting phrase or is used to express a characteristic position or goal. The term Smart Candle imparted no information about a product, a goal to be achieved, or education about safe promotion of the product. Because the duty to defend was not triggered, the insurance company had no responsibility to pay indemnification for the lawsuit.

The insurance company also had no obligation to review matters outside Excel's legal complaint to determine whether it had to defend the lawsuit. The pleadings in the case did not raise a claim that required insurance coverage.

Minnesota companies should seek legal assistance to help assure that insurance policies govern reasonable risks and commercial disputes that arise. Legal advice can help assure that businesses do not engage in trademark infringement and avoid intellectual property disputes.

Source: U.S. Eighth Circuit Court of Appeals, "Selective Insurance Company v. Smart Candle, LLC, No. 14-1356 (8th Cir. 2015)," Retrieved May 8, 2015

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