Trade Dress Label no Bar to Christmas Light Slogan Coverage

The appellate court in Santa's Best Craft, et. al v. St. Paul Fire and Marine Ins. Co., 611 F.3d 339, 346 (7th Cir. (Ill.) 2010)affirmed a judgment that St. Paul owed $1.3 million to defend companies sued in Ohio for alleged infringement of a competitor's slogans used on packages of Christmas lights ("Patent-pending ‘Stay-on' feature keeps bulbs lit," "New Technology," "String Stays Lit even if a bulb is loose or missing!" and "worry-free lighting.").
Despite a trademark exclusion, St. Paul, had a duty to defend its insured, Santa's Best Craft, in a Lanham Act trademark infringement suit by a competitor. The competitor alleged that Santa's Best Craft had copied the competitor's packaging design for Christmas lights and sold them using false and deceptive language. An exception to the exclusion provided coverage for suits claiming an "[u]nauthorized use of ... any slogan ... of others in your advertising."  St. Paul claimed that the competitor's claim for unauthorized use of a slogan was merely background for its trade dress infringement claim, which was excluded under the IP exclusion and not included in the advertising-slogan exception. The court disagreed - because the allegations in the complaint could potentially give rise to a claim for unauthorized use of a slogan. Finding a duty to defend, the court noted that even if the complaint framed its claim as one for trade dress infringement, what mattered was the substance of the allegations," not the legal labels attached to them."

The case was remanded to consider requiring St. Paul reimburse the settlement paid by the insureds upon proof that the primary focus of the settlement was on claimspotentially covered under the policy. The court also remanded for consideration of prejudgment interest for late defense payments and settlement reimbursement.