The Eighth Circuit in AMCO Insurance Co. v. Inspired Technologies, Inc. (2011 U.S. App. LEXIS 16409, Aug. 10, 2011) held that the district court erred in finding that the policy’s knowledge of falsity exclusion precluded a duty to defend the insured for allegations of false advertising.
3M Company had sued Inspired Technologies (“ITI”) for alleged unfair and false advertising in violation of the Lanham Act, the Minnesota Uniform Deceptive Trade Practices Act, and a host of other Minnesota statutes. ITI marketed a painter’s masking tape and allegedly inaccurately depicted 3M tape and incorrectly claimed that certain tests and product demonstrations proved that 3M tape performed poorly in specific respects. In certain discovery responses, 3M stated that ITI’s photos in its marketing materials were manipulated with the intent to deceive. ITI tendered the defense of the lawsuit to AMCO. AMCO filed the instant action seeking a declaration that it did not owe ITI defense or indemnity, based mainly on the knowledge of falsity exclusion. The district court granted summary judgment in favor of AMCO.
The Eighth Circuit reversed, finding that the discovery responses did not apply to all of 3M’s allegations regarding false advertising. In particular, the complaint alleged that ITI failed to ensure the accuracy of its marketing data by following certain methods and practices. The court believed that this allegation could be construed as a negligent act. Further, because an unfair competition claim under the Lanham Act does not require that a plaintiff prove that a defendant knew that its advertisements were false, i.e., intent or willfulness is not required to establish a violation of the Lanham Act, AMCO breached its duty to defend ITI. The Eighth Circuit remanded the case to the district court for further proceedings.
Notably, this case is in accord with the Eleventh Circuit’s ruling in Vector Products, Inc. v. Hartford Fire Insurance Co., 397 F.3d 1316, 1319 (11th Cir. 2005). As such, it appears that the knowledge of falsity exclusion has limited effect on the duty to defend. Since the instant discovery responses regarding manipulation of images were found to insufficiently establish that the complaint was focused on intentional acts by the insured, what types of proof would you expect to find in order to rely on the knowledge of falsity exclusion as a basis for a denial of coverage?