When settling, a “primary focus” of the claims settled must be a potentially covered loss (burden on insured)
Plaintiff, Santa’s Best Craft, received a cease-and-desist letter from JLJ, Inc. demanding that they change the packaging of its “Stay-On” lights. JLJ claimed that SBC’s light boxes copied the look and slogan of JLJ’s Stay Lit lights. SBC sent the letter to their insurer, Defendant St. Paul Fire and Marine Ins. Co. St. Paul, stating that their coverage policy did not cover the claims set forth in the letter and owed no duty to defend SBC. JLJ filed suit and St. Paul denied coverage, which lead to SBC eventually settling with JLJ for $3.5 million. SBC brought suit against St. Paul alleging they owed a duty to defend them and breached that duty; therefore, St. Paul should reimburse SBC for the $3.5 million paid to JLJ.
The court concluded that St. Paul was not required to reimburse SBC for the $3.5 million settlement because SBC could not establish that it settled an otherwise covered loss in reasonable anticipation of personal liability. If it can be established that the claims were not even potentially covered, the insurer is not required to reimburse the settlement. The only possible covered claim is infringement of slogan, which means that SBC has to show that the primary focus of settlement was payment for a covered infringement claim.
The court found that JLJ had a strong likelihood of success on its trademark claim, no success on its infringement of slogan claim, and no likelihood of success on its false advertising claim. Therefore it was concluded that the trademark infringement claim was the primary focus of the settlement.
Santa’s Best Craft, LLC v. St. Paul Fire and Marine Insurance Company,2011 WL 1456747 (N.D.Ill)
