This week’s Ninth Circuit decision in Hyundai Motor V. National Union Fire Ins. reminded me that advertising injury insurance coverage should be considered when a claim – that doesn’t seem to fit under any other coverage -- comes in to a business.
The court ruled that the insurer had a duty to defend Hynudai in a patent litigation because the patent infringement claim involved method of advertising used on Hyundai’s web site. Although the court referred to many other cases where advertising injury coverage had been rejected in patent violation claims, it examined the context of the claim and determined that it was implicated in this case. (A jury had found against Hyundai in the underlying case and awarded the patent holder $34,000,000 in damages. This suggests a pretty large defense bill.)
This claim was decided using California law, but the court noted that California law was essentially the same as that of Washington on this point.
It must be pretty distressing for a company that purchased the assets of a boiler business in 1970 to learn that it really purchased the prior owner’s asbestos liability, but that is what OakFabco learned today when the New York Court of Appeals issued its decision in American Standard, Inc. v. OakFabco, Inc.
I know that I’ve been plenty distressed when I’ve read old agreements with internally conflicting language. In this case, my guess is that the current owners wish that more attention had been paid to the “whereas” clause and the agreement to service the seller’s customers when the sale took place forty years ago.
The asset purchase agreement defined the liabilities assumed with the assets as “all the debts, liabilities, obligations and commitments (fixed or contingent) connected with or attributable to [seller] existing and outstanding at the Closing Date.” The purchaser -- relying on this definition -- claimed that tort liabilities, which did not exist as of the closing date, were not part of the transaction.
However, the court did not limit its analysis to the agreement’s definition of liabilities. It read the asset purchase agreement as a whole, including the agreement’s statement of purpose, the definition of liabilities, and the hold harmless provision. The agreement’s statement of purpose stated that the assets were being sold “subject to all debts, liabilities and obligations connected with or attributable to” the business. In addition, the purchaser had agreed to hold the seller harmless against the defined liabilities – in other words those existing and outstanding as of the closing date – but also all warranty, service, repair and return obligations for products sold on or before the transaction closed.
Ouch. Hopefully, insurance was one of the assets purchased. In any event, the decision shows the importance of the language of a “whereas” clause, and that – no matter how great it seems to get access to an existing customer base -- a buyer should be wary of agreeing to service the seller’s customers and warrantees at its own expense.
An interesting procedural point was discussed in the decision. The Appellate Division had enjoined the purchaser from re-litigating the liability issue. The Court of Appeals ruled that an injunction is not the appropriate remedy for stopping repeated litigation. The Court of Appeals vacated the injunction noting that parties may take any position they want in litigation provided it is raised in good faith; however, they might be precluded from doing once it has been decided.
Grace M. Healy is a Seattle-based attorney serving corporate clients throughout Washington and New York states. Her client base consists largely of businesses that do not yet have in-house counsel, or whose legal staff retain her as an adjunct to...More...
