Insurer Ordered to Clean Up Robot Vacuum Cleaner’s IP-Related Suit
On November 19, 2020, a Delaware judge ruled in Indian Harbor Ins. Co. v. SharkNinja Operating LLC, et al., that insurer Indian Harbor must defend SharkNinja against underlying patent infringement and false advertising claims despite a patent infringement exclusion.
In 2019, iRobot, best known for its Roomba robot vacuum cleaner, sued SharkNinja in federal court. SharkNinja designs and distributes home devices and appliances, including vacuum cleaners. In its complaint, iRobot alleged that SharkNinja infringed on several patents and falsely advertised the capabilities of its “Shark IQ” vacuum cleaner to the detriment of iRobot’s products and goodwill.
SharkNinja notified Indian Harbor of the pending action and requested a defense and indemnification for any settlement or adverse judgment under two commercial general liability policies. The policies provided primary coverage for “personal and advertising injury” liability, including claims arising out of slander, libel, and copyright infringement. Indian Harbor denied coverage and refused to defend. The insurer stated that the false advertisement claim did not rise to a covered “personal and advertising injury” because it did not allege “disparagement” of iRobot’s products. In the alternative, Indian Harbor argued that the “failure to conform” and “IP infringement” exclusions clearly barred coverage.
A general liability insurer’s duty to defend is broader than its duty to indemnify and is generally triggered when the underlying complaint’s allegations raise a potential for coverage. Here, the court applied Massachusetts law to determine whether the underlying iRobot action was “reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms.” The court found the allegations could be reasonably interpreted as disparaging iRobot particularly since SharkNinja’s statements seemingly sought to lower iRobot’s products in rank and estimation.
The court also found that Indian Harbor failed to meet its burden in proving that these specific types of injury were excluded. The insurer argued the “failure to conform” exclusion applied because the allegations concerned SharkNinja’s own products and the exclusion bars a defense when the insured falsely advertises about its own products. Resolving any uncertainty in favor of the policyholder, the court rejected this argument since some of the allegations concerned iRobot’s competing products. Second, Indian Harbor claimed the “IP infringement” exclusion plainly excluded the patent infringement claims. The judge explained, however, that given the policies’ broad defense obligation, “Indian Harbor must defend against the patent infringement counts–even if it normally wouldn’t–because it must defend against the false advertising count.” Thus, the fact that the patent infringement claims may be excluded did not absolve the insurer of its defense obligations.
Indian Harbor Ins. Co. v. SharkNinja serves as a reminder of the broad nature of the duty to defend. An insurer is obligated to defend an entire action whenever there is a potential for coverage. This is true even though some of the claims may fall outside coverage, as can be the case in matters involving intellectual property violations, which often get intermingled with claims implicating advertising and/or personal injury coverages. Here, however, the court correctly saw through the insurer’s blanket denial of coverage and held the insurer to its contractual duty. Policyholders should remember that insurers owe a duty to defend against the entire action wherever there is potential for coverage.
Casey L. Coffey contributed to this article.