Insurer’s Mistaken Denial for “Tilt” Arcade Trademark Case

By David A. Gauntlett*

Introduction

Insurers too often deny potential coverage of a lawsuit based on the “gravamen” of the underlying complaint. This is contrary to the basic principle of coverage law nationwide that even a single potentially viable claim is sufficient to trigger an insurer’s duty to defend.[1] Nowhere is this focus more obvious than in intellectual property lawsuits where insurers are quick to deny coverage based on the traditional IP torts being excluded by the standard “Intellectual Property” exclusion. A recent Indiana case exemplifies how insurers are too quick to dismiss the potential for coverage of other causes of action, such as unfair competition, that typically accompany the excluded IP counts like patent, copyright, and trademark infringement.

Western Reserve Mutual Casualty Company v. Noah's Arcade, LLC

In Western Reserve Mutual Casualty Company v. Noah's Arcade, LLC,[2] the insurer filed a declaratory relief action asserting it had no duty to defend. In the underlying action,[3] a competitor alleged that the insured’s use of “FULL TILT” violated the competitor’s rights connected to similar registered trademarks: “TILT,” “TILT STUDIO,” and “TILTED 10.”[4] Critically, the complaint did not limit its asserted damages to a Trademark Infringement count. It also asserted independent damages arising out of Unfair Competition in violation of both state and federal law.

The allegations against the insured claimed it “engaged in the provision, advertising, promotion, offering for sale, and sale of arcade services using [“FULL TILT”],” including on the insured’s website.[5] This marketing was particularly harmful to the underlying plaintiff as the “arcade services Defendants have provided, marketed, advertised, promoted, offered for sale, and sold under the [“FULL TILT”] Mark are identical or highly similar to Plaintiff’s arcade and entertainment facility services.”[6]

In Many Jurisdictions, Use of Trademark Triggers Offense “f” Coverage

The insurer’s denial of potential coverage was erroneous in light of controlling Indiana case law determining that a trademark qualifies as an “advertising idea” as used in a standard Commercial General Liability (“CGL”) policy’s coverage for “use of another’s advertising idea in your ‘advertisement’.”[7]

 [T]he trademark infringement alleged in the underlying complaint against La Oasis and Randhawa more securely falls within the “misappropriation of advertising ideas or style of doing business” category of advertising injury. . . .  “[M]isappropriation of advertising idea” mean[s] “the wrongful taking of the manner by which another advertises its goods or services.” . . . The trademark infringement allegations of the underlying complaint against La Oasis and Randhawa arguably fall under the “misappropriation of advertising ideas” offense.[8]

 Other jurisdictions agree:

 [N]otwithstanding any ambiguity, “[w]hen read in light of the fact that a trademark  infringement could reasonably be considered as one example of a misappropriation, and taking into account that a trademark could reasonably be considered to be part of either an advertising idea or a style of doing business, it would appear objectively reasonable that ‘advertising injury’ coverage could now extend to the infringement of a trademark.”[9]

 Tolkien directly alleged in its underlying complaint that Tolkien and its licensees have “aggressively promoted” the “hobbit” trademark and have used the “hobbit” mark in connection with a wide variety of commercial goods and services. Further, Tolkien's licensees used the theme of travel in the solicitation of business: hobbits were painted on jets to distinguish Air New Zealand as the “Airline to Middle-earth,” and travel packages to other countries were set up to sell theater tickets. One Tolkien representative stated that “a large part of the appeal of the Tolkien mythos, is that Middle Earth is a place that you can travel to,” a main reason why Tolkien used travel as a “marketing point.” Tolkien used the word “hobbit,” its corresponding characters, and travel as an idea to promote the various mediums of its novels to the public, actions that fall within the scope of “advertising idea.”[10]

Western Reserve should have considered this potential for coverage based on the explicit counts for Unfair Competition as that is the typical form in which “advertising idea” misuse manifests as a cause of action.[11] The fact the “FULL TILT” “advertising ideas” also serves as a trademark is of no moment. As demonstrated by the cases above, the two are not mutually exclusive. There is no reason that a phrase claimed as a trademark cannot also be an “advertising idea.”

“Intellectual Property” Exclusion Is No Bar to Potential Coverage

The standard CGL “Intellectual Property” exclusion precludes coverage for “‘[p]ersonal and advertising injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” Critically, however, the exclusion has an explicit exception for offense “f”: “Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your ‘advertisement’.”

The fact that Trademark Infringement is also alleged is irrelevant. Coverage law principles mandate that only the asserted basis for potential coverage (i.e., the “use of another’s advertising idea in your ‘advertisement’” manifesting as an Unfair Competition count) is fair to evaluate for application of an exclusion.[12] If insurers wish to exclude all claims in a Trademark Infringement suit, alternative policy language that achieves that goal is readily available.[13] Absent that, courts have readily determined that an “Intellectual Property” exclusion is not a bar to a defense if liability for unfair competition is distinctly asserted:

[T]he Prayer for Relief asks that the underlying defendants be enjoined from “engaging in any conduct that tends falsely to represent that, or is likely to confuse, mislead, or deceive Defendants’ customers” into believing that CRI's services were sponsored by Control Risks Group. The prayer also asks for damages resulting from CRI's “unfair activities.”[14] 

Conclusion

As is often the case, the insurer in Noah's Arcade focused solely on the excluded aspects of the underlying complaint and failed to fully evaluate the fact allegations and consider the potential for coverage revealed therein. This is most common in intellectual property lawsuits. Insurers know they are among the most expensive litigation endeavors, so the lesser counts that trigger potential coverage are construed as narrowly as possible to justify a denial and avoid any defense obligation. Expert coverage counsel can assist in clarifying the basis for potential coverage, thereby forcing insurers to accept that a defense is owed or face liability for bad faith if denials continue despite the clarifications.

*David A. Gauntlett is a principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.

[1] Pension Trust Fund for Operating Engineers v. Federal Ins. Co., 307 F.3d 944, 951 (9th Cir. (Cal.) 2002) (“California courts have repeatedly found that remote facts buried within causes of action that may potentially give rise to coverage are sufficient to invoke the defense duty.”)

[2] Western Reserve Mutual Casualty Company v. Noah's Arcade, LLC, Case No. 3:25-CV-00108 (filed Feb. 5, 2025 in U.S.D.C. N.D. Ind.).

[3] Nickels and Dimes Incorporated v. Noah’s Arcade, LLC d/b/a Full Tilt, et al., Case No. 3:23-CV-699-DRL-MGG (filed Sept. 5, 2023 in U.S.D.C. N.D. Ind.).

[4] Nickels and Dimes Complaint, ¶ 26.

[5] Nickels and Dimes Complaint, ¶ 27.

[6] Nickels and Dimes Complaint, ¶ 28.

[7] The term “advertisement” is broadly defined as “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. . . . . [including] that part of a web-site that is about your goods, products or services for the purposes of attracting customers or supporters is considered an advertisement.”

[8] Auto Owners Ins. Co. v. LA Oasis, Inc., No. 2:04 CV 174, 2005 WL 1313684, at *8 (N.D. Ind. May 26, 2005).

[9] Kim Seng Co. v. Great Am. Ins. Co. of New York, 179 Cal. App. 4th 1030, 1037–38 (2009), as modified on denial of reh'g (Dec. 7, 2009) (quoting Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Grp., 50 Cal. App. 4th 548, 565 (1996), as modified on denial of reh'g (Nov. 27, 1996)) (bold emphasis added)

[10] Gen. Cas. Co. of Wisconsin v. Wozniak Travel, Inc., 762 N.W.2d 572, 579–80 (Minn. 2009).

[11] Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Grp., 50 Cal. App. 4th 548, 563, n.10 (1996), as modified on denial of reh'g (Nov. 27, 1996) (“[A]dvertising  ideas are subject to protection under . . . unfair competition laws.”)

[12] Waller v. Truck Ins. Exch., 11 Cal. 4th 1, 16 (1995) (“Before ‘even considering exclusions, a court must examine the coverage provisions to determine whether a claim falls within [the policy terms].’”)

[13] See, e.g. My Choice Software, Ltd. Liab. Co. v. Travelers Cas. Ins. Co. of Am., 823 F. App'x 510, 511 (9th Cir. (Cal.) 2020).

[14] Corp. Risk Int’l v. Assicurazioni Generali, S.p.A., No. 95-1440-A, 1996 U.S. Dist. LEXIS 19720, *8–9 (E.D. Va. Mar. 15, 1996).