Late Notice of U.S. Trademark Infringement Claim Means No Insurance Coverage for Related Claim in Canada

Mr. Justice Roydon J. Kealey of the Superior Court has granted summary judgment, dismissing the plaintiff’s action in Ideal Roofing Company v. Royal & SunAlliance Insurance Company. Our office acted for Royal, the successful moving party. The basis of the decision was Ideal’s failure to provide prompt notice to Royal of a trademark infringement claim that had been made against it by a U.S. company called “TAMKO”. While Ideal had not notified Royal of a U.S. action against it in 1999, it did advise the insurer shortly after a second action was brought in Canada in 2000. Royal denied coverage for both claims, contending that the American and Canadian actions were related and that it had been prejudiced by Ideal’s failure to advise Royal of the claim in 1999. Justice Kealey held that Royal was justified in rejecting the claim.

In 1999, Ideal was marketing its roofing products in Canada and, in a small way, in the United States. It was using the word “Heritage” in its marketing. TAMKO wrote to Ideal, notifying it that TAMKO had trademarked the word “Heritage” in both Canada and the United States. It took the position that Ideal was infringing these trademarks and demanded that Ideal cease its use of “Heritage” in both countries.

Ideal and TAMKO negotiated during the summer of 1999. Ideal made successive offers to phase out its use of the “Heritage” products, first over a period of two years, then one year, then six months. TAMKO steadfastly insisted that Ideal cease its infringing use immediately.

TAMKO then sued Ideal in the United States, in August of 1999. By May, 2000, the case had proceeded to judgment, which was in favour of TAMKO. Damages, costs and fines were assessed against Ideal. The company had not told its insurer, Royal, anything about the “cease and desist” letters or about the U.S. litigation. According to Ideal, the lawsuit in the United States cost it more than U.S. $1 million.

In May, 2000, as the U.S. litigation was ending, TAMKO started another lawsuit against Ideal, this one in the Federal Court of Canada. That action was based on allegations of Ideal’s infringement of TAMKO’s Canadian trademarks. While the Canadian litigation was still at an early stage (pleadings had been exchanged), Ideal notified Royal of the TAMKO claims (in both countries) and sought coverage under the “advertising liability” coverage of its CGL policy.

Royal refused to entertain the claim, on several grounds. Late notice was one of them. Ideal then brought this action against Royal. It sought indemnification in relation to both the U.S. and Canadian claims. (Ideal actually brought its own motion for summary judgment in 2001 but the motion was dismissed by Associate Chief Justice Douglas Cunningham.)

In 2004, Ideal settled the Canadian litigation with TAMKO, paying $100,000 in exchange for a perpetual licence to use TAMKO’s “Heritage” trademark.

In his reasons, Justice Kealey said:

The law is clear that notice by an insured is a condition precedent to recovery. However, if the failure in this respect was due to inadvertence or is otherwise innocent, then relief from forfeiture may be given, provided there is no prejudice to the insurer in the circumstances. Furthermore, even though the insured believes that it will likely not be found responsible or that the claim is frivolous or vexatious, it must nevertheless give notice.

Ideal argued that even if it had breached the policy, it was entitled to relief from forfeiture under s. 129 of the Insurance Act. However, Kealey J. accepted Royal’s submission, that even if the failure to give notice of the claim had been inadvertent (this was in dispute here), relief from forfeiture was not available where the breach had prejudiced the insurer.

So, the key question was (as it usually is in “late notice” cases) whether Royal had been prejudiced. Kealey J. felt that the loss of the early opportunity to settle constituted irreparable prejudice to Royal:

What is most strongly urged on these facts is the lost opportunity to Royal to resolve all the issues between its insured and Tamko in 1999. Indeed, the record discloses that except for the phase-out period of six months, which Ideal sought, the parties were in agreement. Royal had no opportunity to gauge its chances of success in the threatened action, consider the costs consequences of proceeding or of attempting to otherwise ameliorate the demands of Tamko in order to achieve a sensible compromise. In my opinion, this lost opportunity resulted in obvious and overwhelming prejudice to the insurer. Indeed Ideal doesn’t suggest otherwise, except to say that the Canadian case should stand alone or alternatively a trial is necessary to conclude whether a settlement could have been achieved. To me, the prejudice lies in the lost opportunity to negotiate an early resolution as opposed to speculating as to whether this could or could not have been achieved as the insured suggests. 

Finally, His Honour made it clear that it is not open to an insured to sit back and wait before deciding whether to report a claim to its insurer or to selectively report one claim but not another, when both are related:

Contracts of insurance such as this provide indemnification in relation to “claims”, which may become the subject of litigation. Timely notice of any such claim must be given to the insurer. A policy cannot be resorted to by the insured in regard to one particular lawsuit as distinct from another, when both have a common genesis as is the case here. I cannot agree with the submissions of Ideal’s counsel to the contrary. It is the claim that triggers the notice provisions of the insurance contract, not the Canadian lawsuit, which was simply an extension of rights already litigated in the U.S.A.

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