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HUDSON UNIVERSAL, LTD. v. AETNA INS. CO.

December 12, 1997

HUDSON UNIVERSAL, LTD., Plaintiff,
v.
AETNA INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: POLITAN

 Dear Counsel:

 This matter comes before the Court on the motion for summary judgment by defendant, Aetna Casualty & Surety Company ("Aetna"). The case involves denial of coverage by Aetna in connection with a claim that was submitted by the plaintiff, Hudson Universal, Ltd. ("Hudson"). The narrow question in this matter is whether Aetna exercised bad faith in its denial of coverage. Oral argument was heard on October 14, 1997. For reasons stated herein, defendant's motion is GRANTED, and plaintiff's bad faith claim is DISMISSED WITH PREJUDICE.

 STATEMENT OF FACTS

 This action arose out of a dispute between the two parties concerning coverage under an insurance policy underwritten by Aetna and issued to Hudson, to cover various losses, including certain advertising injuries. The sequence of relevant events began with a suit initiated by Bausch & Lomb that charged Hudson with patent infringement, trademark infringement, unfair competition, and false designation. The charges were in connection with certain sunglasses that Hudson was marketing and selling with a design "substantially similar" to Bausch & Lomb's sunglasses. After numerous developments which are irrelevant for purposes of this pending motion, the underlying action between Bausch & Lomb and Hudson was finally settled in November 1995 by Hudson's payment of $ 25,000 to Bausch & Lomb together with its agreement to discontinue handling certain sunglasses.

 Hudson sent a demand for coverage to its insurance carrier claiming coverage under the "advertising injury" provision of the insurance policy. Subsequently, Aetna, Hudson's insurance carrier during the underlying period, denied coverage and asserted that such wrongdoings were not covered under the policy. Moreover, Aetna argued that it is not obligated to indemnify Hudson for Bausch & Lomb's claims because the alleged patent design infringement, trademark infringement, unfair competition, and false designation did not fall within the definitions of "advertising injury." *fn1" Furthermore, Aetna maintained that Hudson's alleged acts of infringement did not arise out of Hudson's advertising activities.

 Hudson initiated an action seeking insurance coverage from Aetna pursuant to the insurance agreement. In effect, both parties sought a court's interpretation of the language of the Insurance Agreement.

 The Insurance Agreement provides that it will cover the loss which the insured becomes legally obligated to pay as damages because of advertising injuries.

 By the terms of the Insurance Agreement:

 
"Advertising injury" means injury arising out of one or more of the following offenses:
 
a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
 
b. Oral or written publication of material that violates a person's right of privacy;
 
c. Misappropriation of advertising ideas or style of doing business;
 
d. Infringement of copyright, title or slogan.
 
Such "offenses" must be committed in the course of advertising your goods or products.

 This action was more or less litigated to completion before another judge of this District. On September 27, 1995, an order and accompanying opinion were filed regarding the coverage under the insurance agreement. The judge rejected Hudson's contention that Bausch & Lomb's allegations of patent infringement were covered under the "advertising injury" provision of the policy. However, the judge held the allegations of trademark infringement, unfair competition, and false designation by Bausch & Lomb are covered under the policy provision covering "infringing of slogan or title" or the provision covering "misappropriation of advertising ideas."

 The actual denial of coverage and the subsequent events as illustrated above, coupled with the alleged mishandling of the claim, is the basis for Hudson's claim for bad faith denial of coverage against its insurance carrier. Aetna, to the contrary, points to the prior decision and unsettled law claiming that these coverage issues were "fairly debatable" at the time it disclaimed coverage in December 1991 and indeed are still "fairly debatable." The present motion to dismiss the bad faith claim followed.

 It is Aetna's contention that summary judgment is appropriate because such bad faith allegations in a third-party context are not recognized under the law and, even if they were, they would be limited by the "fairly debatable" standard, under which ...


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