Absence of Allegations That Insured Disparaged Underlying Plaintiff Doomed Its Bid for Coverage of Lawsuit

April 21, 2017 | Insurance Coverage

A federal district court in Maryland has ruled that an insured was not entitled to “personal and advertising injury” coverage of a lawsuit that did not allege that it had disparaged the underlying plaintiff.

The Case

Sprint Solutions, Inc., and Sprint Communications Company (together, “Sprint”) sued Unwired Solutions, Inc., d/b/a Linq Services, Inc. (“Linq”) and individuals asserted to be Linq agents, alleging that they had perpetrated a “bulk handset trafficking scheme” that took advantage of the fact that Sprint sold phones to its customers for use on the Sprint network at subsidized rates.

Sprint alleged that Linq, which provided services to Sprint customers, had gained control of Sprint customer accounts to acquire subsidized Sprint phones for itself and sell them at a profit. Sprint claimed that Linq was liable for tortious interference with contract and federal trademark infringement.

Linq asked a court to declare that its insurance carrier had a duty to defend Linq in the Sprint suit because the suit’s allegations potentially fell within the scope and limitations of coverage for “personal and advertising injury.”

The parties moved for summary judgment.

The District Court’s Decision

The district court ruled that Linq’s insurer had no duty to defend Linq in the Sprint suit.

In its decision, the district court explained that there was no allegation in the Sprint action that Linq had published material that had “disparaged” Sprint. The district court rejected Linq’s contentions that it was sufficient for the Sprint action to claim that Linq had (i) promoted its services on its website, and that those services had the effect of damaging Sprint’s reputation, or (ii) perpetrated a scheme that had harmed Sprint and that Linq co-conspirators had made statements to advance that scheme.

The district court declared that a “mere allegation of reputational harm” did “not establish disparagement.”

Because the Sprint action had not alleged the publication of disparaging material, the insurer had no duty to defend Linq, the district court concluded.

The case is Unwired Solutions, Inc. v. Ohio Security Ins. Co., No. CCB-16-0405 (D. Md. March 29, 2017).

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