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West Bend Mutual Insurance Co v. Ixthus Medical Supply, Inc.

Supreme Court of Wisconsin

February 28, 2019

West Bend Mutual Insurance Company, Plaintiff-Respondent-Petitioner,
v.
Ixthus Medical Supply, Inc. and Karl Kunstman, Defendants-Appellants, Abbott Laboratories, Abbott Diabetes Care Inc. and Abbott Diabetes Care Sales Corp., Defendants-Co-Appellants.

          Submitted on Briefs: December 11, 2018

         REVIEW OF DECISION OF THE COURT OF APPEALS Reported at 381 Wis.2d 472, 915 N.W.2d 456

          Circuit Court: Racine County, L.C. No. 2016CV1414 David W. Paulson Judge

          For the plaintiff-respondent-petitioner, the initial supreme court brief was filed by Kris Bartos and the reply brief was filed by Danielle N. Rousset, with whom on the briefs was Jeffrey Leavell and Jeffrey Leavell, S.C., Racine. There was an oral argument by Jeffrey L. Leavell.

          For the defendants-appellants, there was a brief filed by Jason Pilmaier, Albert Solochek, and Howard, Solochek & Weber, S.C., Milwaukee. There was an oral argument by Jason Pilmaier.

          For the defendants-co-appellants, there was a brief filed by Michael P. Mayer, Linda T. Coberly, and Winstron & Strawn LLP, Chicago, IL. There was an oral argument by Linda T. Coberly.

          An amicus curiae brief was filed on behalf of Wisconsin Insurance Alliance by James A. Friedman, Amber Coisman, and Godfrey & Kahn, S.C., Madison.

          REBECCA GRASSL BRADLEY, J.

         ¶1 In this duty to defend case, West Bend Mutual Insurance Company asks us to reverse the court of appeals' decision holding that the allegations in Abbott Laboratories' complaint against Ixthus Medical Supply, Inc. alleged a potentially covered advertising injury, and as a result, triggered West Bend's duty to defend under the commercial general liability policy West Bend issued to Ixthus.[1]West Bend argues the court of appeals erred when it determined: (1) Abbott's complaint[2] alleged a causal connection between the advertising activity and injury; and (2) the knowing violation exclusion did not apply. West Bend further contends that the criminal acts exclusion applies, thereby removing any duty to defend, or alternatively that application of the fortuity doctrine, public policy, and the reasonable expectation of an insured each independently eliminates its duty to defend.

         ¶2 We hold the allegations in Abbott's complaint fall within the initial grant of coverage under the "personal and advertising injury liability" provision of the commercial general liability insurance policy West Bend issued to Ixthus. We further hold that neither the knowing violation nor the criminal acts exclusions apply to remove West Bend's duty to defend. Finally, we do not address West Bend's argument that the fortuity doctrine, public policy, and the reasonable expectation of an insured eliminate its duty to defend because West Bend failed to adequately raise or develop these contentions.[3] We affirm the decision of the court of appeals.

         I. BACKGROUND

         ¶3 Ixthus is a medical supply company operating in Wisconsin. At all times relevant to this action, Ixthus was insured under a commercial general liability insurance ("CGL") policy with West Bend, which provided coverage for "personal and advertising injury." Specifically, the CGL policy provided:

COVERAGE B PERSONAL AND ADVERTISING INJURY LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply . . . .
b. This insurance applies to "personal and advertising injury" caused by an offense arising out of your business but only if the offense was committed in the "coverage territory" during the policy period.

         "SECTION V--DEFINITIONS" of the CGL policy defines "advertisement" and "personal and advertising injury" as:

1. "Advertisement" means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters. For the purposes of this definition:
a. Notices that are published include material placed on the Internet or on similar electronic means of communication; and
b. Regarding web-sites, only that part of a website that is about your goods, products or services for the purposes of attracting customers or supporters is considered an advertisement.
14. "Personal and advertising injury" means injury, including consequential "bodily injury," arising out of one or more of the following offenses:
f. The use of another's advertising idea in your advertisement," or
g. Infringing upon another's copyright, trade dress or slogan in your "advertisement."

         Under "COVERAGE B," the CGL policy contains exclusions for both "Knowing Violation of Rights of Another" and "Criminal Acts":

         2. Exclusions

         This insurance does not apply to:

a. Knowing Violation of Rights of Another
"Personal and advertising injury" caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ...

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