Vitamin Energy, LLC v. Evanston Ins. Co.

22 F.4th 386

VITAMIN ENERGY, LLC, Appellant

v.EVANSTON INSURANCE COMPANY

No. 20-3461

United States Court of Appeals, Third Circuit.

Argued September 21, 2021

Filed: January 5, 2022

Patrick K. Gibson, Ippoliti Law Group, 1225 N. King Street – Suite 900, Wilmington, DE 19801, George Schooff [ARGUED], 18530 Mack Avenue – Suite 481, Grosse Point Farms, MI 48236, Counsel for Appellant

Michael E. DiFebbo, Jr. [ARGUED], Gavin Fung, Kennedys CMK, 1600 Market Street – Suite 1410, Philadelphia, PA 19103, Counsel for Appellee

Before: JORDAN, PORTER, and RENDELL, Circuit Judges

OPINION OF THE COURT

JORDAN, Circuit Judge.

Pennsylvania law imposes on insurers a broad duty to defend lawsuits brought against those they insure. Vitamin Energy, LLC, obtained a policy from Evanston Insurance Company and was subsequently sued by a competitor, the owners of the 5-hour Energy brand, for publishing certain comparative claims and infringing the 5-hour Energy mark in advertising and packaging. The District Court decided Evanston had no duty to defend. We think otherwise. An insured's burden to establish its insurer's duty to defend is light, and Vitamin Energy has carried it. Read liberally in favor of coverage, as is required, the 5-hour Energy complaint and the insurance policy impose on Evanston a duty to defend Vitamin Energy in the underlying suit, at least until there is no possibility that 5-hour Energy could prevail against Vitamin Energy on a claim covered by the policy. Likewise, the coverage exclusions raised by Evanston are construed in favor of coverage, and we cannot say, at this point, that they eliminate the duty to defend. Accordingly, we will vacate and remand.

I. BACKGROUND

A. The Underlying 5-hour Energy Lawsuit Against Vitamin Energy

This case stems from a separate lawsuit in which Vitamin Energy, the plaintiff-appellant here, is the defendant. In June 2019, Vitamin Energy was sued in the United States District Court for the Eastern District of Michigan by International IP Holdings, LLC, and Innovation Ventures, LLC, the owners of trademarks for 5-hour Energy liquid energy shots.¹ In that lawsuit, 5-hour Energy asserts claims against Vitamin Energy under the Lanham Act for trademark infringement, false designation of origin, false advertising, and trademark dilution. It also makes claims under Michigan law for trademark infringement, indirect trademark infringement, and unfair competition.

Among the wrongs Vitamin Energy has allegedly committed is "false and misleading comparative advertising" about the benefits of Vitamin Energy's products relative to competing products, including 5-hour Energy's, as shown in the following chart from paragraph 40 of 5-hour Energy's complaint:

(J.A. at 280-81 ¶ 40.)² According to paragraph 46 of the 5-hour Energy complaint, the comparative advertisement is "literally false and/or misleading [and] has a tendency to deceive a substantial portion of consumers" in "represent[ing] that [Vitamin Energy's] products contain 1000 MG of Vitamin C and 100% Daily Value of Vitamin B[.]" (J.A. at 283 ¶ 46.)³ And beyond that, the complaint alleges in paragraph 48 that the comparative advertisement "is intended to leave, and does leave, the false and/or misleading impression that, among other things, all of [Vitamin Energy's] Products have 1000 MG of Vitamin C and more Vitamin B Vitamins than [5-hour Energy's] Products and that [Vitamin Energy's] Products are superior to other products in the market, including [5-hour Energy's] Products." (J.A. at 283 ¶ 48.)⁴

5-hour Energy also complains of another Vitamin Energy advertisement, one that promises steroid-like performance without the accompanying risks, with this text:

Many factors influence performance. VitaminEnergy® contains performance-enhancing supplements like Vitamin B12 that help in the production of red blood cells, caffeine to provide energy and CBD as an anti-inflammatory. The synergy provided by these nutrients allow VitaminEnergy® to deliver improved performance without the use of harmful steroids or steroid-like compounds.

(J.A. at 281 ¶ 40.) Like the complained-of comparative advertisement, those claims of "steroid-like" performance are, according to 5-hour Energy, false and misleading, and they deceive consumers.

Finally, 5-hour Energy alleges that Vitamin Energy uses a statement promoting the ability of its products to provide "up to 7 HOURS of Energy" and does so in language and stylized script that is confusingly similar to, and hence infringes on, 5-hour Energy's registered trademarks. (J.A. at 275-80.) 5-hour Energy offers a comparison of several of its products to the "7 HOURS of Energy" statement to make its point:

(J.A. at 275 ¶ 22, 276-77 ¶ 29.)⁵

B. Vitamin Energy's Lawsuit Against Evanston

Vitamin Energy believes that the 5-hour Energy lawsuit is covered by its insurance policy with Evanston ("the Policy"). As detailed below, the Policy generally imposes on Evanston a duty to defend claims for an "Advertising Injury[,]" subject to certain coverage exclusions. (J.A. at 184-85.) A few days after 5-hour Energy filed its lawsuit, Vitamin Energy's insurance agent notified Evanston of the suit and requested coverage under the Policy. Evanston disclaimed coverage. It said that the 5-hour Energy complaint does not allege an Advertising Injury or any other injury covered by the Policy, and that, even if it did, certain coverage exclusions apply that excuse coverage.

After some further fruitless efforts to get Evanston to acknowledge coverage, Vitamin Energy took its insurer to court. Filing in the Pennsylvania Court of Common Pleas, it sought a declaratory judgment that the 5-hour Energy complaint alleges an Advertising Injury as defined by the Policy and that no coverage exclusions apply. It also asserted a breach-of-contract claim and a claim of bad-faith denial of coverage under 42 Pa. Cons. Stat. § 8371. Evanston removed the case to the District Court, and Vitamin Energy then filed two amended complaints, which Evanston answered. After the parties cross-moved for judgment on the pleadings, the District Court granted Evanston's motion, holding that 5-hour Energy's complaint does not allege an Advertising Injury within the meaning of that term in the Policy.

Vitamin Energy has timely appealed.

II. DISCUSSION⁶

A. Advertising Injury

Under Pennsylvania law,⁷ "[a]n insurer's duty to defend is broader than its duty to indemnify[.]" Erie Ins. Exch. v. Moore , 228 A.3d 258, 265 (Pa. 2020) ; see also Am. & Foreign Ins. Co. v. Jerry's Sport Ctr., Inc. , 606 Pa. 584, 2 A.3d 526, 541 (Pa. 2010) (observing that the duty to defend extends not only to "meritorious actions" but also to "groundless, false, or fraudulent" ones). The duty to defend exists "if the factual allegations of the [underlying] complaint on its face encompass an injury that is actually or potentially within the scope of the policy." Babcock & Wilcox Co. v. Am. Nuclear Insurers , 635 Pa. 1, 131 A.3d 445, 456 (Pa. 2015) (citation omitted). "Whether a claim is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the [underlying] complaint." Moore , 228 A.3d at 265 (internal quotation marks and citation omitted). We must read the policy "as a whole" and construe terms according to their "plain meaning[.]" Ramara, Inc. v. Westfield Ins. Co. , 814 F.3d 660, 676 (3d Cir. 2016) (internal quotation marks and citation omitted). Although the insured bears the burden of establishing coverage, Nationwide Mut. Ins. Co. v. Cosenza , 258 F.3d 197, 206 (3d Cir. 2001) (applying Pennsylvania law), the underlying complaint's allegations are assumed to be true and are liberally construed in favor of coverage. Ramara , 814 F.3d at 673-74 ; Moore , 228 A.3d at 265.

Starting with "the four corners of the insurance contract[,]" Moore , 228 A.3d at 265 (citation omitted), the Policy here provides that Evanston "shall have the right and duty to defend and investigate any Claim to which coverage under this policy applies." (J.A. at 192.) One such covered claim is an "Advertising Injury[.]"⁸ (J.A. at 184-85.) The Policy defines Advertising Injury as an injury "arising out of oral or written publication of material that libels or slanders ... a person's or organization's products, goods or operations or other defamatory or disparaging material, occurring in the course of the Named Insured's Advertisement." (J.A. at 185.) The parties here agree that the term "disparaging material," as used in the Policy, includes, at a minimum, an injurious false statement about another's goods. See Pro Golf Mfg., Inc. v. Trib. Rev. Newspaper Co. , 570 Pa. 242, 809 A.2d 243, 246 (Pa. 2002) (observing that "the publication of a disparaging statement concerning the business of another is actionable where[,]" in addition to other elements, "the statement is false" and "pecuniary loss does in fact result").⁹

Their disagreement lies in whether 5-hour Energy's complaint alleges that Vitamin Energy's comparative advertising contains a false or misleading statement about 5-hour Energy's products or only a falsehood about Vitamin Energy's own products. Vitamin Energy argues that 5-hour Energy's complaint includes an allegation that the comparative advertising asserts a falsehood about 5-hour Energy's products. That particular allegation is that Vitamin Energy's "representation that its products contain ... 100% Daily Value of Vitamin B is intended to leave, and does leave, the false and/or misleading impression that, among other things, all of [Vitamin Energy's] Products have ... more Vitamin B Vitamins than [5-hour Energy's] Products[.]" (J.A. at 283 ¶ 48.) The focus of that allegation is the comparative chart referenced above, but it is also consistent with 5-hour Energy's other allegations in paragraph 48, as well as those in paragraph 46, of its complaint.¹⁰ Evanston argues, however, that the allegation refers only to Vitamin Energy's products. Similarly, Evanston asserts that...