Intellectual Property Law

Payless Shoesource's Insurer Balks at Paying $305M Verdict

By Michael Atkins

As the Trademark Blog reports, American Guarantee & Liability Insurance Co. is balking at the prospect of paying any part of the $305M judgment Adidas America, Inc., obtained against Payless Shoesource, Inc., earlier this year. The insurer filed suit on July 24 in the District of Kansas for a declaration that it is not liable under any of its policies. 

Here’s a sampling of the reasons why the insurer says it need not pay Payless’ claim:

• “The jury’s verdict in favor of adidas in the Underlying Lawsuit is not for damages for ‘advertising injury’ or ‘personal advertising injury under any of the American Guarantee Excess Policies as defined in the relevant policy provisions.”
• “None of the damages awarded by the jury are damages caused by advertising, Advertising Injury or Personal Advertising Injury; thus the awarded damages do not have the necessary causal connection to be covered under the policies.”
• “The jury’s specific findings in favor of adidas on its claims for dilution of both trademark and trade dress and on its claims for unfair and deceptive practices, as well as its finding that Payless acted willfully and its award of Payless’ profits to adidas, and its award of punitive damages to adidas, all establish that the jury found Payless’ conduct to be knowing and intentional within the meaning of [the policies’] exclusions.”
• “The jury’s findings and verdict in favor of adidas in the Underlying Lawsuit was for infringement of adidas’s trade dress and trademark rights and are therefore excluded under the Policies.”
• “The jury’s findings and verdict in favor of adidas in the Underlying Lawsuit arises out of and relates to infringing conduct by Payless that began, at the latest, in 1994 when adidas sued Payless for infringement and reached a settlement of that litigation, and Payless was producing two-stripe and four-stripe shoes,” so the award is not covered under the “known-loss doctrine.”
• “Even if the jury’s verdict in favor of adidas in the Underlying Lawsuit fell within the insuring provisions for ‘advertising injury’ or ‘personal and advertising injury’ and was not excluded by any relevant policy provisions under the American Guarantee Policies or barred from coverage by the known-loss doctrine or public policy, the award of damages, when properly allocated among the policy periods, does not trigger any American Guarantee Policy.”

I’m tempted to be quite snarky about how insurance companies never seem to be there when you need them (to put it politely), but if Payless intentionally ripped off Adidas’ trademark, I don’t see why an insurer should be required to foot the bill. Assuming its policies excluded intentional acts, of course.

The case cite is American Guarantee & Liability Ins. Co. v. Payless Shoesource, Inc., No. 08-2337 (D. Kan.).

Full post as published by Seattle Trademark Lawyer on July 28, 2008 (boomark / email).