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INSURERS - Duty to defend

Wednesday, August 07, 2019 @ 8:04 AM  

Lexis Advance® Quicklaw®
Appeal by the insurer from an order that it had a duty to defend the respondents, and from an award of special costs. The respondents manufactured and distributed wood products. The appellant issued two commercial liability policies to the respondents. Each policy included an agreement that provided for coverage for advertising liability. The respondents were the subject of a Washington state lawsuit that primarily alleged misappropriation of trade secrets and confidential information. The pleadings included allegations of false representations to regulators and the public concerning the characteristics and approvals of certain products. The appellant took the position that statements made to acquire product certification did not involve advertising liability. The respondents brought a petition seeking a declaration that the appellant had a duty to defend them under the policies. The judge found that the litigation involved a claim for unfair competition that included the respondents' use and disclosure of the plaintiff's trade secrets through their promotion, advertising and sale of the allegedly misappropriated product as their own. The judge found that the advertising allegations were central rather than coincidental to the claim, thus giving rise to a duty to defend. The respondents were awarded special costs. The insurer appealed the duty to defend ruling and the costs award.

HELD: Appeal allowed as to costs and otherwise dismissed. The judge did not err in concluding that the underlying litigation pled a sufficient causal connection between the respondents' alleged liability and their advertising activities. The allegations that the respondents used misrepresentations to market and sell its products by representing them as identical to its competition had a sufficient causal link between the alleged injury and advertising activities. The conclusion that the appellant had a duty to defend the respondents was reinforced in other aspects of the policies and pleadings. The judge's ruling did not involve any mischaracterization of the pleadings in concluding that the allegation of trade secret misappropriation was a claim for unfair competition covered by the policies. The award of special costs was varied and replaced by an award of ordinary costs based on recent appellate jurisprudence that was not available to the parties at the time of the initial decision.

Blue Mountain Log Sales Ltd. v. Lloyd's Underwriters, [2019] B.C.J. No. 1200, British Columbia Court of Appeal, H. Groberman, N.J. Garson and G. Dickson JJ.A., June 28, 2019. Digest No. TLD-August52019005