Prior Publication Exclusion Abrogates Duty to Defend

In Capitol Indemnity v. Elston, the insurer, Capitol  Indemnity “(Capitol”), issued a policy to Elston as policyholder. The policy stated that Capitol would pay all sums that Elston became legally obligated to pay as damages because of “advertising injury.”  The policy exclusion at issue involved the prior publication restriction, which stated that the insurance did not apply to advertising injury arising out of oral or written publication of material whose first publication took place before the beginning of the policy period.

A tobacco company, Lorillard, accused Elston of selling counterfeit cigarettes bearing Lorillard’s federal trademark registration, Newport.  Advertising and sales took place long before Capitol’s policy coverage period began, but nothing in the record indicated when Elston started selling counterfeit, rather than genuine, Newport cigarettes.  Elston tendered the underlying complaint to its liability insurer, Capitol. Capitol sought a declaration that it had no duty to defend or indemnify Elston in the underlying suit.

The issue was whether the prior publication exclusion abrogated the insurer Capitol’s duty to defend because, prior to the policy being issued, Elston sold cigarettes that contained packaging and wrapping displaying Lorillard’s marks in a manner that appeared identical to the alleged counterfeits.  The insurer Capitol argued that according to the plain language of the prior publication exclusion, it barred coverage because the same material, i.e., the cigarette packaging and wrapping containing the Newport trademarks, was first published by Elston before the Capitol policy began.  Capitol asserted that the word “material” in the exclusion referred to the words, logo or other content which was published, not the legal effect of the publication.

The court in Capitol Indemnity v. Elston held that there was no ambiguity in the meaning of the exclusion.  The court held that the term “material” in the exclusion referred to “injurious” material and that by its terms, the prior publication exclusion abrogated the insurer’s duty to defend only where it could prove that the insured’s prior publication of the same actionable, injurious material alleged in the underlying complaint occurred prior to the beginning of its policy.  Thus, the court held that Capitol had a duty to defend Elston in the underlying lawsuit and that no exclusions in the policy negated this duty.

Capitol Indemnity Corp. v. Elston Self Service Wholesale Groceries, Inc., 559 F.3d 616 (2009).