Tzumi Electronics LLC v. The Burlington Insurance Company

Background

Tzumi Electronics LLC held a commercial general liability insurance policy issued by The Burlington Insurance Company covering December 19, 2017, through December 19, 2018. The policy included coverage for certain “personal and advertising injury,” including the publication of material that disparages another person’s or organization’s goods, products, or services.

A consumer class action alleged that Tzumi misrepresented the energy capacity of its power banks. The underlying plaintiffs asserted claims under various state consumer-protection statutes and for breach of express warranty. They alleged that Tzumi’s product packaging overstated the power banks’ capacity and that consumers relied on those statements when making purchases.

Burlington denied coverage, stating that the allegations did not involve an offense listed in the policy’s personal-and-advertising-injury coverage. Burlington also asserted that policy exclusions independently barred coverage. After the underlying case settled, Tzumi brought this action seeking a declaration that Burlington had a duty to defend and damages for Burlington’s alleged failure to defend and indemnify it.

The parties filed cross-motions for summary judgment under Federal Rule of Civil Procedure 56. Summary judgment is a decision without a trial when the undisputed facts show that one party is entitled to judgment under the law.

The Court’s Analysis

The court applied New York law to interpret the insurance policy. The parties did not dispute the policy’s meaning, the meaning of “disparages,” or the material facts concerning the allegations in the underlying action.

The court held that the underlying complaint did not expressly allege disparagement. Although Tzumi pointed to the complaint’s references to consumer-protection statutes, the court found that the complaint did not specifically invoke the statutory provision on which Tzumi relied and did not plead a disparagement claim.

The court also rejected Tzumi’s implied-disparagement theory. Under the standard applied by the court, a disparagement claim must include specific unfavorable statements or comparisons concerning a rival product. The underlying complaint discussed only alleged misrepresentations about the capabilities of Tzumi’s own power banks. It did not mention Tzumi’s competitors or their products, and the court found no reasonable basis to infer that Tzumi had disparaged them.

The court rejected Tzumi’s argument that false claims about the superiority of its own products necessarily implied that competing products were inferior. In the court’s view, that theory would improperly treat misleading claims about one company’s products as disparagement of the entire market, without a specific express or implied reference to a competitor.

The court also declined to treat the underlying settlement agreement as evidence establishing coverage. The agreement stated Tzumi’s interpretation that its allegations involved an implicit negative comparison with competitors, but it did not add factual allegations showing that Tzumi made statements about competitors or their products. The court therefore found that the agreement supplied only a characterization of the conduct, not new underlying facts supporting coverage.

Because Tzumi did not establish an initial entitlement to coverage, the court did not decide whether Burlington’s asserted policy exclusions would also have barred coverage. The court concluded that Burlington had no duty to defend Tzumi in the underlying action and properly denied coverage. It also stated that when there is no duty to defend, there is no corresponding duty to indemnify.

Duplicative Claim

Burlington argued that Tzumi’s breach-of-contract claim was duplicative of its claim for declaratory relief. The court agreed. Both claims arose from the same policy, relied on the same factual allegations, and sought the same relief—reimbursement of defense costs and indemnification of settlement payments. The court dismissed the breach-of-contract claim as duplicative.

Disposition

The court granted Burlington’s cross-motion for summary judgment and denied Tzumi’s cross-motion for summary judgment. It dismissed Tzumi’s breach-of-contract claim as duplicative, terminated the pending motions, adjourned the remaining dates, and closed the case.