Ninth Circuit Finds No Coverage Under Advertising Liability Policy for Walmart's Floor Display of Goods and Services Supplied by Insured Apparel Vendor

In Hybrid Promotions LLC v. Federal Insurance Co., the Ninth Circuit Court of Appeals determined that an advertising liability policy issued to Hybrid did not apply to an advertising "arrangement" created by Walmart's placement of Hybrid's goods and signage in close proximity to signage created by the underlying claimant MMA Elite.

Hybrid Promotions LLC supplied Walmart with apparel and associated display racks and signage. Pursuant to its agreement with Walmart, Hybrid indemnified Walmart for certain "advertising injuries" arising out of the materials it supplied. As further required by the agreement, Hybrid obtained a policy from Federal Insurance Co. providing coverage for such advertising injuries. UBM, the owner of the MMA Elite trademark, sued Walmart for trademark infringement, accusing Walmart of violating its trademark by displaying it in close proximity to Hybrid's merchandise. The court found that the "arrangement" created by Walmart violated the MMA Elite trademark due to the "visual similarity" of Hybrid's goods to the MMA Elite trademarked goods. Pursuant to its contractual obligation to defend Walmart for such advertising injuries involving its goods, Hybrid requested Federal defend Walmart, but Federal declined, contending that the policy did not cover the situation.

Hybrid argued that the summary judgment rendered against it was improper because a jury could reasonably conclude that a consumer would view the retail arrangement as "one advertisement," which was provided at least in part by Hybrid, and therefore the policy should apply. The court agreed with Federal to the contrary, finding the undisputed evidence demonstrated that the advertisement was not "Hybrid's advertisement," because "Hybrid did not design, pay for, possess, or set up the combination; Walmart did." "While 'close proximity' of Hybrid's products to the MMA Elite signage arguably may be enough to show that the resulting arrangement was an 'advertisement about Hybrid's goods,' it is not enough to establish that the retail display was Hybrid's advertisement about Hybrid's goods. ... [T]he contribution of materials that are used to make a different composite advertisement does not make that resulting advertisement Hybrid's." Thus, as the Federal policy provided coverage for injuries arising from Hybrid's advertisements, and the relevant advertisement was not a Hybrid advertisement, the policy did not apply.