Texas Court Finds That Trademark Infringement Claims Involve Interrelated Wrongful Acts

The United States District Court for the Western District of Texas, applying Texas law, has held that an insured is not entitled to coverage under a claims-made-and-reported policy because the tendered lawsuit was interrelated with earlier patent petitions, and thus deemed a single claim made before the relevant policy period. Rey Feo Scholarship Found. v. Scottsdale Indem. Co., 2024 WL 3305750 (W.D. Tex. July 3, 2024).

In May 2022, a third party filed petitions with the U.S. Patent and Trademark Office that sought to cancel two of the insured’s registered trademarks. The insured sued the third party for service mark misappropriation, and the third party filed a counterclaim in October 2022. The insured sought coverage for the counterclaim under its professional liability policy that ran from July 6, 2022, to July 6, 2023. The insurer denied coverage on the grounds that the counterclaim arose out of the same wrongful acts or interrelated wrongful acts as the earlier filed petitions, and was thus a single claim first made at the time the petitions were filed, which occurred before the policy period.

In the ensuing coverage litigation, the court agreed with the insurer and found that the lawsuit and petitions involved interrelated wrongful acts. The court emphasized that Texas courts interpret the meaning of “interrelated wrongful acts” broadly and “regularly hold that separate proceedings constitute a single claim . . . even when those proceedings involve different parties, different causes of action, and different or additional allegations.” The court also pointed out that the policy defined “interrelated wrongful acts” to include a common nexus of any—rather than all—facts, circumstances, situations, events, or transactions. In this case, the court found sufficient that the lawsuit and petitions arose out of the third party’s contention that the insured misused its trademark. Accordingly, the court concluded that the underlying lawsuit and the petitions involved interrelated wrongful acts and were thus deemed a single claim first made when the petitions were filed. Because the petitions were filed before the policy period, the court concluded that there was no coverage under that policy, and it granted summary judgment in favor of the insurer.