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Natural Organics, Inc. v. OneBeacon America Ins. Co.

Supreme Court of New York, Second Department

January 16, 2013

Natural Organics, Inc., respondent,
v.
OneBeacon America Insurance Co., appellant. Index No. 12763/10

Day Pitney, LLP, Hartford, Connecticut (Joseph K. Scully, pro hac vice, and Matthew J. Shiroma of counsel), and Goldberg Segalla LLP, Buffalo, N.Y., for appellant (one brief filed).

Meyer, Suozzi, English & Klein, P.C., Garden City, N.Y. (Kevin Schlossser of counsel), for respondent.

DANIEL D. ANGIOLILLO, J.P., JOHN M. LEVENTHAL, LEONARD B. AUSTIN, SHERI S. ROMAN, JJ.

DECISION & ORDER

In an action, inter alia, for a judgment declaring that the defendant is obligated to defend and indemnify the plaintiff in an action entitled Nature's Plus Nordic A/S v Natural Organics, Inc., commenced in the United States District Court for the Eastern District of New York under Case No. 2009 Civ. 4256, the defendant appeals (1), as limited by its brief, from so much of an order of the Supreme Court, Nassau County (Warshawsky, J.), dated January 20, 2011, as denied that branch of its motion which was for summary judgment dismissing the complaint and declaring that it is not obligated to defend or indemnify the plaintiff in the underlying action, and (2) from an order and judgment (one paper) of the same court dated April 26, 2011, which granted the plaintiff's motion for summary judgment declaring that the defendant is obligated to defend it in the underlying action and to pay previously incurred defense costs, declared that the defendant is so obligated, and severed the remaining causes of action.

ORDERED that the appeal from the order dated January 20, 2011, is dismissed; and it is further,

ORDERED that the order and judgment dated April 26, 2011, is affirmed; and it is further,

ORDERED that one bill of costs is awarded to the respondent.

The appeal from the intermediate order dated January 20, 2011, must be dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 N.Y.2d 241, 248). The issues raised on the appeal from the order dated January 20, 2011, are brought up for review and have been considered on the appeal from the order and judgment dated April 26, 2011 (see CPLR 5501[a][1]).

The plaintiff Natural Organics, Inc. (hereinafter NOI), is a manufacturer of health supplement products, including those sold under the trade name Nature's Plus. An action was commenced against NOI in the United States District Court for the Eastern District of New York (hereinafter the federal action) in which it was alleged, inter alia, that NOI, after wrongfully terminating its exclusive distributorship agreement with Nature's Plus Nordic A/S (hereinafter NPN), issued a press release announcing the appointment of House of Nature A/S (hereinafter HON), a competitor of NPN, as the exclusive distributor for Nature's Plus products in Norway, Denmark, Sweden, and Finland (hereinafter the Nordic region). The complaint in the federal action asserted causes of action against NOI alleging, inter alia, unfair competition pursuant to the Lanham Act (15 USC § 1125[a]) on the basis that, through the press release, NOI misrepresented to consumers that HON was the sole distributor for Nature's Plus products in the Nordic region when NPN remained the sole distributor for those countries. It alleged that the press release caused confusion and mistake and deceived consumers as to the affiliation, connection, or association of NPN, HON, and NOI, and as to the origin, sponsorship, or approval of NPN's and HON's products, causing a diversion of trade from NPN and harm to its reputation and goodwill.

NOI tendered its defense in the federal action to its insurer, the defendant OneBeacon America Insurance Co. (hereinafter OneBeacon), pursuant to coverage which provided for "personal and advertising injury liability." The OneBeacon policy defined "personal and advertising injury" as injury arising out of "[o]ral or written publication of material that slanders or libels a person or organization" or "[o]ral or written publication of material that disparages a person's or organization's goods, products or services." OneBeacon disclaimed coverage, on the basis that the allegations of the complaint in the federal action did not fall within the definition of "personal and advertising injury, " and further, that the policy contained an exclusion of coverage for personal and advertising injury "arising out of a breach of contract."

NOI commenced this action against OneBeacon seeking damages and a judgment declaring that OneBeacon was obligated to defend and indemnify it in the federal action. NOI moved for summary judgment declaring that OneBeacon is obligated to defend it in the federal action and to pay previously incurred defense costs. OneBeacon moved for summary judgment dismissing the complaint and declaring that it is not obligated to defend or indemnify NOI in the federal action.

In an order dated January 20, 2011, the Supreme Court denied OneBeacon's motion. In an order and judgment dated April 26, 2011, the Supreme Court granted NOI's motion, and declared that OneBeacon had a duty to defend NOI in the federal action and to pay previously incurred defense costs.

An insurer's duty to defend is liberally construed and is broader than the duty to indemnify (see Fieldston Prop. Owners Assn., Inc. v Hermitage Ins. Co., Inc., 16 N.Y.3d 257, 264; Automobile Ins. Co. of Hartford v Cook, 7 N.Y.3d 131, 137). The duty to defend "arises whenever the allegations in a complaint state a cause of action that gives rise to the reasonable possibility of recovery under the policy" (Fitzpatrick v American Honda Motor Co., 78 N.Y.2d 61, 65; see BP A.C. Corp. v One Beacon Ins. Group, 8 N.Y.3d 708, 714). "If the allegations of the complaint are even potentially within the language of the insurance policy, there is a duty to defend" (Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 443; see New York City Hous. Auth. v Commercial Union Ins. Co., 289 A.D.2d 311, 312). Moreover, if "any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action" (Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 N.Y.2d 169, 175). An insurer may be required to defend under the contract "even though it may not be required to pay once the litigation has run its course" (Automobile Ins. Co. of Hartford v Cook, 7 N.Y.3d at 137).

Here, the allegations of the federal complaint fall within the policy's coverage for "personal and advertising injury" arising from product disparagement. The statement that HON had been appointed the exclusive distributor of Nature's Plus products in the Nordic region could imply that NPN's inventory of Nature's Plus products was unauthorized (see Unique Sports Generation, Inc. v LGH-III, LLC, 2005 WL 2414452, *10-11, 2005 U.S. Dist LEXIS 22133, ...


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