This was the appeal and cross-appeal of a summary judgment in which the lower court held that the insurer had no duty to defend Innopex in a U.S. intellectual property action. At issue was an action commenced against the insured and its employee by Gucci for trademark infringement and other infringement claims. The Court of Appeal held that there was a duty to defend, and the lower court made an improper inquiry into the evidence in the underlying infringement action.

Halifax Insurance Co. of Canada v. Innopex Ltd., [2004] O.J. No. 4178, Ontario Court of Appeal

On a summary judgment motion with respect to whether Halifax had a duty to defend Innopex, the lower court found in favour of the insurer, holding that it did not have a duty to defend its insured against a trademark infringement claim in a U.S. court. At issue was a policy providing coverage for “advertising liability”, but excluding coverage for “infringement of trademark, service mark or trade name, other than titles or slogans …”.

The motions court reviewed the pleadings of the underlying action, and received evidence from both parties with respect to whether the sale at issue was advertising and/or use of a trademark or title. Counsel for the insurer adduced evidence about the activities at issue in the underlying suit, including evidence about Innopex’s marketing and sales, to form the facts upon which he argued that the activity was not advertising and therefore not covered. The court made an inquiry into the interpretation of “advertising” and “infringement of title”, their use in American parlance, and their interpretation in the U.S. case law. The motions court held that the activities of the insured were not advertising and therefore they triggered the exclusion for infringement of a trademark, and the activities did not fall into the excepted activity of “infringement of title”.

The Court of Appeal criticized the approach of the motions court. Borins J. held that by making an inquiry into the underlying facts and activities of the insured, the motions court failed to address the fundamental question of whether Halifax had a duty to defend on the basis of the pleadings alone, read with the relevant provisions of the insurance policy. An inquiry into whether the insured had, in fact, engaged in the conduct complained of should not be part of the inquiry on the duty to defend application. By making an inquiry into the “true facts” rather than looking only at the pleadings and the policy, the motions court erroneously based its decision on extrinsic evidence.

The Court of Appeal held that on the pleadings and the policy alone, there was a duty to defend the Gucci complaint. It found that the facts as pleaded came within the coverage in the policy, because portions of the pleadings referred to false descriptions and false representation in the marketing, distribution, and sale of goods. The Court of Appeal held that such a claim fell within the coverage for “advertising liability” in the policy.

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