Kona Coffee Must be From the Big Island of Hawaii
L&K Coffee claimed its various insurance companies erroneously
denied coverage to defend it against a Lanham Act false-advertising
lawsuit brought by Hawaiian coffee growers. The district court concluded
the applicable insurance policies did not obligate a defense and
entered summary judgment in the insurance companies' favor.
In L&K Coffee LLC, dba Magnum Roastery; Kevin Kihnke v. LM Insurance
Corporation; Liberty Insurance Corporation; Selective Way Insurance
Company; Valley Forge Insurance Company; Continental Casualty Company,
No. 22-1727, United States Court of Appeals, Sixth Circuit (June 1,
2023) the Sixth Circuit resolved the coverage dispute.
FACTS
L&K Coffee, LLC, a Michigan-based company, roasts and sells coffee
products throughout the United States. Defendants are insurance
companies from whom L&K purchased general commercial liability and
umbrella insurance policies.
Coffee growers from the Kona region of the Island of Hawai'i sued
L&K and other coffee companies for "false designation of origin,
false advertising, and unfair competition" in violation of the Lanham
Act, 15 U.S.C. § 1125(a), in the Western District of Washington. These
"Kona Plaintiffs" alleged that the defendants falsely designated the
origin of the coffee they branded and distributed as "Kona" coffee "when
most of the coffee beans contained in the coffee products were sourced
from other regions of the world."
The Kona Plaintiffs' operative complaint summarized their contentions as
to L&K as follows: "L&K falsely designates the geographic
origin of its "Kona" coffee products with the prominent placement of
KONA on the front of the packaging."
ANALYSIS
The duty of an insurance company to provide a defense depends upon the
allegations in the complaint and extends to allegations which even
arguably come within the policy coverage. An insurer's duty to defend
does not depend solely upon the terminology used in a plaintiff's
pleadings. Rather, it is necessary to focus on the basis for the injury
and not the nomenclature of the underlying claim in order to determine
whether coverage exists.
The term "disparage" means an untrue statement directed towards
another's property. A disparagement claim requires a company to make
false, derogatory, or disparaging communications about a competitor's
product." (emphasis in the opinion)
The Kona Plaintiffs alleged L&K violated the Lanham Act's
prohibition on false designation of one's own product. See 15 U.S.C. §
1125(a)(1). The Sixth Circuit concluded that this is not
"disparagement."
ZALMA OPINION
It never pays to lie to your customers. When doing so harms someone else
you are subject to damages from those your lie harms. By falsely
designating its product of "Kona" coffee when L&K claimed its cheap,
generic coffee was "Kona" Coffee it was involved in a tort that was not
covered by the policies of insurance.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, is available at http://www.zalma.com and
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