Urban Outfitters Left Hanging in Navajo Suit

(CN) - Hanover Insurance need not defend Urban Outfitters from claims that the retailer infringed on the Navajo Nation's trademarks with a line of Navajo-themed clothing and accessories, including panties and a flask, a federal judge ruled.

Senior U.S. District Judge Thomas O'Neill, Jr. in Philadelphia ruled that Hanover Insurance Co. is not required to indemnify the retailer because the offending items were allegedly advertised and sold before its insurance policies went into effect.

Last February the Navajo Nation sued Urban Outfitters and its subsidiaries, Anthropologie and Free People, and their websites in New Mexico Federal Court, claiming they falsely advertised and sold clothing, jewelry, footwear, handbags, caps, scarves, gloves, undergarments, flasks and other goods under the "Navaho" and "Navajo" names and marks.

The more than 20 items "evoke the Navajo Nation's tribal patterns, including geometric prints and designs," according to the lawsuit.

The tribe particularly objected to a "Navajo Hipster Panty" and a "derogatory and scandalous" so-called "Navajo Print Fabric Wrapped Flask." The tribe said it "has long banned the sale, manufacture, possession, transport, delivery and consumption of alcohol within its borders."

The Navajo Nation alleged advertising injuries, trademark infringement and dilution, unfair competition, false advertising, and violations of commercial practices laws and the Indian Arts and Crafts Act.

Third-party defendant One Beacon America Insurance Co. had issued Urban Outfitters a "fronting policy" that provided commercial general liability and umbrella liability coverage from 2010 to 2011. Massachusetts-based Hanover Insurance Co. was not only responsible for the fronting policy, but also issued separate policies to Urban Outfitters for 2011 to 2012. Those policies covered any "personal and advertising injury" committed "during the policy period."

Hanover argued that "[b]ecause the offending publications ... allegedly began by at least March 2009, prior to the July 10, 2010 inception date of the One Beacon/Hanover 'fronting policy' and thus also prior to the July 10, 2011 inception date of the Hanover policies which followed, Hanover has no potential duty to indemnify, and thus no duty to defend [Urban Outfitters] in the underlying suit."

It filed suit in Philadelphia Federal Court seeking a declaration that it is not required to defend Urban Outfitters in the underlying lawsuit.

Judge O'Neill agreed and granted the insurer's motion for judgment on the pleadings.

He noted that Urban Outfitters allegedly began using the "Navajo" and "Navaho" names on its products more than a year before the insurance policies were in effect.

"I find that it is clear that the advertising injuries are alleged to have begun prior to the policy inception date and thus are excluded from coverage," he wrote.

As a result, he said, any alleged injuries after the policies kicked in are barred by the "prior publication exclusion" outlined by the 3rd Circuit.

"Because all the claims in the underlying action allege various injuries stemming from advertisements published prior to the policy inception date, those injuries are subject to the prior publication exclusion," O'Neill wrote. "Accordingly, the 'exclusion in the policy prevents [Hanover] from having to defend or indemnify' Urban Outfitters against the underlying action," O'Neill wrote, quoting the appellate decision.

The Hanover Insurance Group Inc. reported net income of $53.4 million for the second quarter of 2013, while Urban Outfitters reported sales of about $2.8 billion in 2012.

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