On July 13, 2012, the Second Appellate District handed down its decision in Travelers Property Casualty Co. of America v. Charlotte Russe, Case No. B232771 (a copy is available here).  This published opinion is significant because it affirms a carrier’s duty to defend even when the covered claim is only implied by certain allegations and not expressly set forth in the complaint.

In Charlotte Russe, Travelers filed a declaratory relief action against its insured claiming that it had no duty to defend the retailer against accusations from one of its suppliers that it had improperly offered the supplier’s products for sale at severely discounted prices, resulting in “significant and irreparable damage to and diminution” of the supplier’s brand and trademark.  Travelers contended that coverage was unavailable because the complaint did not expressly accuse Charlotte Russe of either product disparagement or false statement and therefore did not trigger the policy’s advertising injury coverage, which applied to claims alleging injury arising out of “oral, written, or electronic publication of material that slanders or libels a person organization or disparages a person’s or organization’s goods, products or services.” 

In rejecting this argument, the court relied on Atlantic Mutual Ins. Co. v. J. Lamb, Inc. 100 Cal. App. 4th 1017 (2002).  There, the insured sought coverage for claims that it had falsely told plaintiff’s customers that the plaintiff’s products were burdened with patents, and that the customers’ purchase of those products would subject them to litigation.  Analyzing the same policy language, the Atlantic Mutual court found that these allegations triggered the duty to defend because they amounted to “disparagement” claims in that they alleged the insured had published “matter derogatory to the plaintiff’s title to his property, or its quality, or to his business in general.”

Applying this same standard, the Charlotte Russe court found the complaint also contained claims of “disparagement” because it alleged that the supplier’s brand had been identified as “premium” and “high-end” and that Charlotte Russe had published prices for its goods that implied that they were not.  The carrier’s duty to defend was triggered even though the supplier had failed to expressly allege “an injurious false statement disparaging” its products.  The court also found that even if the supplier’s claim could not be viable without alleging all of the elements of a trade libel cause of action, the insured was still entitled to a defense because an “insurer’s duty to defend is not conditioned on the sufficiency of the underlying pleading’s allegations of a cause of action.” 

This decision is helpful not only for insureds seeking coverage for disparagement claims, but for all insureds seeking coverage for claims that are only implied by allegations and not expressly set forth in the complaint.  The Charlotte Russe decision also stands for the proposition that a carrier is obligated to defend covered claims even where the complaint fails to allege all of the necessary elements for a particular cause of action.