Archive for June, 2016

Friendly Societies in Bermuda: Driving Without Insurance?

Wednesday, June 22nd, 2016

Friendly Societies in Bermuda have their origins in Britain’s industrial revolution in the 18th and 19th centuries, when mutual self-help organizations were first established to provide affordable welfare benefits and financial assistance to their members, including unemployment benefits, health insurance, pension benefits, and funeral expenses.

Although Friendly Societies may still have a role to play in 21st century Bermuda, the Supreme Court of Bermuda recently ruled that their role does not stretch so far as the unregulated provision of liability insurance for third-party motor risks, on a true interpretation of section 1 of Bermuda’s Friendly Societies Act 1868 and section 57(1)(a) of Bermuda’s Insurance Act 1978, and taking into account Bermuda’s status as a “financially sophisticated” insurance/reinsurance market.

In his recent judgment in the case of Bentley Friendly Society v Director of Transport Control Department [2016] SC (Bda) 65 Civ, dated 15 June 2016, Mr. Justice Hellman held that the provision by a Friendly Society of motor vehicle insurance with respect to third-party motor liability risks is “insurance business” within the meaning of the Motor Car Insurance (Third-Party Risks) Act 1943 and, therefore, it must be authorized by the Governor of Bermuda in compliance with that Act.

In the Judge’s view, it would be for the Governor of Bermuda — when determining whether or not to grant approval — to consider public policy matters such as whether a Friendly Society would be able to satisfy any reasonably foreseeable third-party claims, and whether the interests of third parties would be adequately protected.  The Court noted, however, that the Bentley Friendly Society had not produced any audited financial statements (making it difficult for the Governor of Bermuda to assess its ability to satisfy third-party claims), and that it had not yet been authorized to conduct insurance business by the Governor.  The Court also pointed out that any person who conducts “insurance business” without proper authorization commits an offence.

The Court’s judgment upheld the position taken by the Government of Bermuda in April 2014, that approximately 50 motor insurance policies issued by the Bentley Friendly Society were legally invalid, as the Governor of Bermuda had not authorized the plaintiff to undertake such insurance business when the liability policies were issued.

The Bermuda Monetary Authority previously had recommended a repeal of section 57(1)(a) of the Insurance Act 1978 by its Consultation Papers dated June 2014 and October 2014, with a view to bringing Friendly Society insurance business into the regulatory, prudential, and legislative framework set out in the Insurance Act 1978, and under the supervision of the Bermuda Monetary Authority.  The Bermuda Monetary Authority’s proposed amendments have not yet been enacted, although the Court’s judgment has highlighted the need for regulatory reform in this area.  The Court noted, however, that different standards of regulatory oversight might apply to Friendly Societies with respect to first-party risks because, unlike third parties, “the members have the opportunity to inform themselves … and take an informed decision.”

For Real: The Second Circuit Says No Coverage for Purveyors of Fake Goods

Thursday, June 9th, 2016

By Timothy D. Kevane, Sedgwick New York

The U.S. Court of Appeals for the Second Circuit recently held that there is no “advertising injury” coverage for claims against insureds caught selling counterfeit goods.  United States Fidelity and Guaranty Co. v. Fendi Adele S.R.L., — F.3d. —, 2016 WL 2865578 (Second Circuit, May 17, 2016).

Claims arising from the sale of counterfeit products, typically fakes of high-end brands, have at times triggered coverage under the advertising injury provisions of a general liability policy, citing provisions that extend coverage for copyright and/or trade dress infringement in the insured’s advertising.  But the scope of this coverage has its limits, and the insured in Fendi pushed the envelope (or the handbag, as it were) too far in this instance.  It sold counterfeit products that displayed Fendi trademarks and otherwise mimicked the appearance of genuine Fendi products.  That did not sit well with the Italian luxury fashion giant, which sued the insured for trademark counterfeiting, false designation of origin, trademark dilution and unfair competition.  The policy’s advertising injury coverage extended to the use of another’s advertising idea in advertising, as well as infringement of another’s copyright, trade dress or slogan “in your advertising.”  Critically, the Court found that the insured did not engage in any advertising of the counterfeit goods nor did Fendi allege any such advertising.  The Court stressed that Fendi was awarded $35 million in damages based on the sales – not advertising – of the fake goods.

The court rejected the insured’s argument that the use of the Fendi mark constituted “advertising,” which the policy defined as attracting the attention of others for the purpose of seeking customers.  Under no reasonable reading of the policy would coverage have been expected for the mere sale of counterfeit goods.  The Court opined that “common sense” draws a difference between using a counterfeit mark on the fake product versus soliciting customers through printed advertisements or other media.  Thus, the insured’s use of the Fendi logo was merely to identify the product, not an advertisement in and of itself.  Furthermore, having profited from the sale of knock-offs, the insured could not have reasonably expected any insurance for the return of its ill-gotten gains pursuant to well-settled New York law prohibiting such coverage.

The case is an important reminder that the courts will enforce a basic requirement for advertising injury coverage – that the infringing conduct must occur in the course of “advertising.”  Thus, the bare allegation of a copyright or trade dress infringement, especially in lawsuits centering on the sale of fake goods, will not suffice to trigger coverage.

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