Arguments are not Facts

Charging Less for a Product does not Disparage Competitors Product

Post 4955

Tzumi Electronics LLC appealed from a judgment of the USDC for the Southern District of New York granting summary judgment in favor of The Burlington Insurance Company and denying Tzumi's motion for partial summary judgment.

Tzumi sought a declaratory judgment that a commercial general liability policy required Burlington to defend and indemnify Tzumi in an underlying consumer class action lawsuit alleging that Tzumi misrepresented the charging capacity of certain power bank devices that it sold. Burlington denied coverage because the complaint against Tzumi did not allege "disparagement" of any of Tzumi's competitors.

In Tzumi Electronics LLC v. The Burlington Insurance Company, An Illinois Corporation, No. 24-342-cv, United States Court of Appeals, Second Circuit (December 18, 2024) the Second Circuit affirmed the USDC.

THE DISPUTE

Whether the underlying consumer action against Tzumi fell within the insurance policy's coverage of claims for "personal and advertising injury," defined in relevant part to encompass claims "arising out of . . . publication, in any manner, of material that . . . disparages a person's or organization's goods, products or services."

Tzumi interprets the allegations in the Complaint as alleging that Tzumi implicitly asserted that its power products were of significantly higher value but at a lower price than similar products of its competitors, implicitly negatively comparing competing products, implying that competitors' products were overpriced, in an attempt to bring the allegations in the suit into a covered risk of loss.

ANALYSIS

The underlying complaint contains merely a passing citation to the entirety of the California false advertising statute, as part of a longer list of general citations to the consumer protection statutes of eleven states. The misrepresentations at issue did not include any assertions that reflected on competitor products and thus cannot support a claim of disparagement.

The Second Circuit concluded that Tzumi’s allegations shed no light on the actual substance of the underlying complaint.

The Second Circuit agreed with the insurer that Tzumi failed to raise a genuine dispute of material fact as to whether the consumer action fell within the insurance policy's coverage of claims for "personal and advertising injury." The District Court correctly determined that there is no possible factual or legal basis on which the insurer, Burlington, might eventually be obligated to indemnify Tzumi under any policy provision.

ZALMA OPINION

How an insured interprets a policy is not a "fact,"  material or even weak. Argument does not establish that Tzumi had disparaged its competitors products. If a manufacturer could get coverage for disparagement by simply selling a similar product at a lower price every low priced product whether a battery or an automobile, would defeat the intent of the insurance. Insurance is required to provide defense and indemnity for contingent, unknown or fortuitous events. Setting a price lower than that of the competitors is not a fortuitous event. No coverage affirmed.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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