On Friday, August 15, The 6th Circuit Court of Appeals upheld an order from the Eastern District of Kentucky, granting Liberty Corporate Capital Limited’s declaratory judgment determining it has no duty to indemnify or defend the plaintiff firearms retailer.
Security Safe Outlet (SSO), a firearms retailer in Kentucky, acquired BudsGunShop.com LLC’s (the website) customer information database through their employee, Matthew Denninghoff, who previously worked in IT for the website. Denninghoff allegedly maintained a copy of the website’s customer database and supplied it to his new employer, SSO, who was created its own firearms retail website in direct competition with BudsGunShop.com.
SSO was sued for misappropriation of trade secrets, breach of the Lanham Act, and breach of Licensing Agreement for its acquisition of the client database and for operating under the same name as the website after its license was terminated. SSO sought defense and indemnity from Liberty Corporate Capital under its commercial general liability policies, which extended coverage for advertising injury liability and property damage. Liberty denied coverage, claiming SSO’s actions giving rise to litigation neither constituted property damage nor advertising injury.
SSO claimed that the misappropriated client directory should be covered as an “advertising idea.” The policy contained no definition for the term itself, thus the 6th Circuit ruled the term “advertising idea” ambiguous and defined it as “encompass[ing] a company’s plan, scheme, or design for calling its products or services to the attention of the public.” SSO acquired a client database containing names, addresses, and other information in order to generate mass-email advertisements directed at BudsGunShop.com customers. The stolen information did not contain any plan or scheme utilized by the website in furthering marketing objectives. As such, the court determined the misappropriation of trade secrets claim to not be covered by the policy.
SSO also sought coverage for the Lanham Act violation and for breaching the licensing agreement it had with the website, claiming such an allegation is covered as property damage. By breaching the licensing agreement for using the plaintiff-website’s name, SSO allegedly harmed its identity and reputation by creating confusion in the marketplace. The court held that property damage required physical injury to tangible property and affirmed the lower court’s denial of coverage.