West Bend Mutual Ins. Co. v. Ixthus Medical Supply, Inc.

2019 WI 19

SUPREME COURT OF WISCONSIN
CASE NO.: 2017AP909
COMPLETE TITLE: West Bend Mutual Insurance Company,
Plaintiff-Respondent-Petitioner,
v.
Ixthus Medical Supply, Inc. and Karl Kunstman,
Defendants-Appellants,
Abbott Laboratories, Abbott Diabetes Care Inc.
and Abbott Diabetes Care Sales Corp.,
Defendants-Co-Appellants.

REVIEW OF DECISION OF THE COURT OF APPEALS
Reported at 381 Wis. 2d 472, 915 N.W.2d 456
(2018 – unpublished)

OPINION FILED: February 28, 2019
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: December 11, 2018

SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Racine
JUDGE: David W. Paulson

JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING: ZIEGLER, J. did not participate.

ATTORNEYS:

For the plaintiff-respondent-petitioner, the initial
supreme court brief was filed by Kris Bartos and the reply brief
was filed by Danielle N. Rousset, with whom on the briefs was
Jeffrey Leavell and Jeffrey Leavell, S.C., Racine. There was an
oral argument by Jeffrey L. Leavell.

For the defendants-appellants, there was a brief filed by
Jason Pilmaier, Albert Solochek, and Howard, Solochek & Weber,
S.C., Milwaukee. There was an oral argument by Jason Pilmaier.
 For the defendants-co-appellants, there was a brief filed
by Michael P. Mayer, Linda T. Coberly, and Winstron & Strawn
LLP, Chicago, IL. There was an oral argument by Linda T.
Coberly.

An amicus curiae brief was filed on behalf of Wisconsin
Insurance Alliance by James A. Friedman, Amber Coisman, and
Godfrey & Kahn, S.C., Madison.

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 2019 WI 19
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2017AP909
(L.C. No. 2016CV1414)

STATE OF WISCONSIN : IN SUPREME COURT

West Bend Mutual Insurance Company,

Plaintiff-Respondent-Petitioner,

v. FILED
Ixthus Medical Supply, Inc. and Karl Kunstman,
FEB 28, 2019
Defendants-Appellants,
Sheila T. Reiff
Clerk of Supreme Court
Abbott Laboratories, Abbott Diabetes Care Inc.
and Abbott Diabetes Care Sales Corp.,

Defendants-Co-Appellants.

REVIEW of a decision of the Court of Appeals. Affirmed.

¶1 REBECCA GRASSL BRADLEY, J. In this duty to defend
case, West Bend Mutual Insurance Company asks us to reverse the
court of appeals' decision holding that the allegations in
Abbott Laboratories' complaint against Ixthus Medical Supply,
Inc. alleged a potentially covered advertising injury, and as a

result, triggered West Bend's duty to defend under the
 No. 2017AP909

commercial general liability policy West Bend issued to Ixthus.1
West Bend argues the court of appeals erred when it determined:
(1) Abbott's complaint2 alleged a causal connection between the
advertising activity and injury; and (2) the knowing violation
exclusion did not apply. West Bend further contends that the
criminal acts exclusion applies, thereby removing any duty to
defend, or alternatively that application of the fortuity
doctrine, public policy, and the reasonable expectation of an
insured each independently eliminates its duty to defend.
¶2 We hold the allegations in Abbott's complaint fall
within the initial grant of coverage under the "personal and
advertising injury liability" provision of the commercial

general liability insurance policy West Bend issued to Ixthus.
We further hold that neither the knowing violation nor the
criminal acts exclusions apply to remove West Bend's duty to

1For ease of reference, we refer to West Bend Mutual
Insurance Company as "West Bend." We refer to Abbott
Laboratories, Abbott Diabetes Care Inc., and Abbott Diabetes
Care Sales Corporation collectively as "Abbott." We refer to
Ixthus Medical Supply, Inc. and Karl Kunstman collectively as
"Ixthus."

The court of appeals opinion in this case was an
unpublished per curiam decision. See West Bend Mut. Ins. Co. v.
Ixthus Med. Supply, Inc., No. 2017AP909, unpublished slip op.,
(Wis. Ct. App. Mar. 28, 2018) (per curiam).
2All references to Abbott's "complaint" are to the Second
Amended Complaint from the underlying lawsuit Abbott filed in
federal district court in New York against Ixthus and many other
defendants. See Abbott Laboratories, et.al. v. Adelphia Supply
USA, et al., No. 15 Civ. 05826 (E.D.N.Y. Nov. 2015).

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 No. 2017AP909

defend. Finally, we do not address West Bend's argument that
the fortuity doctrine, public policy, and the reasonable
expectation of an insured eliminate its duty to defend because
West Bend failed to adequately raise or develop these
contentions.3 We affirm the decision of the court of appeals.
I. BACKGROUND
¶3 Ixthus is a medical supply company operating in
Wisconsin. At all times relevant to this action, Ixthus was
insured under a commercial general liability insurance ("CGL")
policy with West Bend, which provided coverage for "personal and
advertising injury." Specifically, the CGL policy provided:

COVERAGE B PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of
"personal and advertising injury" to which this
insurance applies. We will have the right and
duty to defend the insured against any "suit"
seeking those damages. However, we will have no
duty to defend the insured against any "suit"
seeking damages for "personal and advertising
injury" to which this insurance does not
apply . . . .

3
See State v. Dowdy, 2012 WI 12, ¶5, 338 Wis. 2d 565, 808
N.W.2d 691 ("As a general rule, issues not raised in the circuit
court will not be considered for the first time on appeal.");
Wirth v. Ehly, 93 Wis. 2d 433, 443, 287 N.W.2d 140 (1980) ("It
is the often repeated rule in this State that issues not raised
or considered in the trial court will not be considered for the
first time on appeal."); Raasch v. City of Milwaukee, 2008 WI
App 54, ¶8, 310 Wis. 2d 230, 750 N.W.2d 492 (appellate court
justified in rejecting undeveloped arguments).

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 No. 2017AP909

b. This insurance applies to "personal and
advertising injury" caused by an offense arising
out of your business but only if the offense was
committed in the "coverage territory" during the
policy period.
"SECTION V——DEFINITIONS" of the CGL policy defines
"advertisement" and "personal and advertising injury" as:

1. "Advertisement" means a notice that is broadcast or
published to the general public or specific market
segments about your goods, products or services for
the purpose of attracting customers or supporters.
For the purposes of this definition:

a. Notices that are published include material
placed on the Internet or on similar electronic
means of communication; and

b. Regarding web-sites, only that part of a web-
site that is about your goods, products or
services for the purposes of attracting customers
or supporters is considered an advertisement.

. . . .

14. "Personal and advertising injury" means injury,
including consequential "bodily injury," arising out
of one or more of the following offenses:

. . . .

f. The use of another's advertising idea in your
advertisement," or

g. Infringing upon another's copyright, trade dress
or slogan in your "advertisement."
Under "COVERAGE B," the CGL policy contains exclusions for both
"Knowing Violation of Rights of Another" and "Criminal Acts":

2. Exclusions

This insurance does not apply to:

a. Knowing Violation of Rights of Another

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 No. 2017AP909

"Personal and advertising injury" caused by or at
the direction of the insured with the knowledge that
the act would violate the rights of another and
would inflict "personal and advertising injury."

. . . .

d. Criminal Acts

"Personal and advertising injury" arising out of a
criminal act committed by or at the direction of the
insured.
¶4 Abbott is a health care company that manufactures and
sells blood glucose test strips in both the domestic and

international markets. Abbott's strips are trademarked under
the name "FreeStyle." The test strips are functionally
identical regardless of the intended market, but the labeling
and instructional inserts as well as price and available rebates
are substantially different between the domestic and
international packaged boxes. For a variety of reasons, Abbott
sells test strips for use in international markets at a much
lower cost.
¶5 In November 2015, Abbott filed a lawsuit in New York
federal court against Ixthus and over 100 other defendants
asserting thirteen federal statutory and common law claims for
relief based on its belief that the defendants were

"import[ing], advertis[ing] and subsequent[ly] distribut[ing]"
boxes of Abbott's international test strips in the United
States. The thirteen claims alleged were: (1) Federal
Trademark Infringement under Section 32 of the Lanham Act; 15
U.S.C. § 1114(1); (2) Federal Unfair Competition under Section
43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(i)(A); (3) Common

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 No. 2017AP909

Law Unfair Competition (New York law); (4) Federal Trademark
Dilution under Section 43(c) of the Lanham Act, 15 U.S.C.
§ 1125(c); (5) State Law (New York) Trademark Dilution; (6)
State Law (New York) Deceptive Business Practices; (7) Unjust
Enrichment; (8) Violation of Federal RICO, 18 U.S.C. § 1962(c);
(9) Conspiracy to Violate Federal RICO, 18 U.S.C. § 1962(d);
(10) Importation of Goods Bearing Infringing Marks under 15
U.S.C. § 1124; (11) Fraud and Fraudulent Inducement; (12) Aiding
and Abetting Fraud; and (13) Contributory Trademark
Infringement.4
¶6 Upon being served, Ixthus tendered its defense to West
Bend. In a March 2016 letter to Ixthus, West Bend denied

Ixthus's tender, and explained why it took the position that the
Abbott lawsuit was not covered by the CGL policy. In August
2016, West Bend filed a complaint in the circuit court seeking a
declaratory judgment that West Bend had no duty to defend or
indemnify Ixthus in Abbott's lawsuit. In March 2017, West Bend
filed a motion for summary judgment. The circuit court granted

West Bend's motion, concluding that although the allegations in
Abbott's complaint fell within the initial grant of coverage,
the knowing violation exclusion applied, thereby eliminating any
duty West Bend had to defend Ixthus.5

4
It is undisputed that the federal district court dismissed
the two RICO claims and the unjust enrichment claim, leaving
ten alleged claims.
5
The Honorable David W. Paulson of Racine County Circuit
Court presiding.

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 No. 2017AP909

¶7 Both Ixthus and Abbott appealed to the court of
appeals, which reversed the circuit court's decision. The court
of appeals agreed with the circuit court that the allegations in
Abbott's complaint fell within the initial grant of coverage,
but disagreed with the circuit court as to the applicability of
the knowing violation exclusion. See West Bend Mut. Ins. Co. v.

Ixthus Med. Supply, Inc., No. 2017AP909, unpublished slip op.,
¶¶10, 12-14 (Wis. Ct. App. Mar. 28, 2018) (per curiam). The
court of appeals concluded the knowing violation exclusion did
not apply because several of the claims alleged in the complaint
could be established without having to prove Ixthus's actions
were intentional; therefore, the court of appeals held that the

complaint asserted potentially covered claims not consumed by
the knowing violation exclusion. Id. Accordingly, the court of
appeals concluded West Bend had a duty to defend Ixthus. Id.,
¶20.
¶8 West Bend petitioned for review by this court, which
we granted.
II. STANDARD OF REVIEW
¶9 "We independently review a grant of summary judgment
using the same methodology of the circuit court and the court of
appeals." Water Well Sols. Serv. Grp., Inc. v. Consolidated
Ins. Co., 2016 WI 54, ¶11, 369 Wis. 2d 607, 881 N.W.2d 285.
"Summary judgment is appropriate when there is no genuine
dispute of material fact and the moving party is entitled to

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 No. 2017AP909

judgment as a matter of law." Id. (citing Wis. Stat.

§ 802.08(2) (2013-14)).6 Declaratory judgments determining
whether an insurer has a duty to defend require interpretation
of the insurance policy, which also presents questions of law
reviewed de novo. Water Well Sols. Serv. Grp., 369 Wis. 2d 607,
¶12; Air Eng'g, Inc. v. Industrial Air Power, LLC, 2013 WI App
18, ¶9, 346 Wis. 2d 9, 828 N.W.2d 565.7
III. ANALYSIS
A. General Insurance Principles——Advertising Injury
¶10 The sole issue presented is whether West Bend has the
duty to defend its insured, Ixthus, under the terms of the CGL
policy——specifically the "Personal and Advertising Injury

Liability" provision. In assessing whether a duty to defend
exists, we "compare the four corners of the underlying complaint
to the terms of the entire insurance policy." Water Well Sols.
Serv. Grp., 369 Wis. 2d 607, ¶15. In doing so, "a court must
liberally construe the allegations contained in the underlying
complaint, assume all reasonable inferences from the allegations
made in the complaint, and resolve any ambiguity in the policy

6 All subsequent references to the Wisconsin Statutes are to
the 2017-18 version unless otherwise indicated.
7 The final order from the circuit court both "adjudged and
declared" that West Bend had no duty to defend. This judgment
followed West Bend's motion for summary judgment within a
declaratory judgment action. The circuit court merged the
summary judgment and declaratory judgment into a single order,
granting West Bend's summary judgment motion by issuing a
declaration.

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 No. 2017AP909

terms in favor of the insured." Id. The purpose of the

analysis is to determine whether the allegations in the
complaint contain any claims, which if proven true, would be
covered by the policy. See id., ¶¶16-17 & n.11. Stated
otherwise, if there are any potentially covered claims——any
allegations in the complaint that "give rise to the possibility
of coverage"——the insurer has a duty to defend. See Fireman's
Fund Ins. Co. v. Bradley Corp., 2003 WI 33, ¶¶19, 26, 261
Wis. 2d 4, 660 N.W.2d 666. The duty to defend is "necessarily
broader than the duty to indemnify because the duty to defend is
triggered by arguable, as opposed to actual, coverage." Id.,
¶20.

¶11 We use a three-step process in duty-to-defend cases:

(1) "First, a reviewing court determines whether the
policy language grants initial coverage for the
allegations set forth in the complaint. If the
allegations set forth in the complaint do not
fall within an initial grant of coverage, the
inquiry ends."

(2) Second, "if the allegations fall within an
initial grant of coverage, the court next
considers whether any coverage exclusions in the
policy apply."

(3) Third, "[i]f any exclusion applies, the court
next considers whether an exception to the
exclusion applies to restore coverage."
Water Well Sols. Serv. Grp., 369 Wis. 2d 607, ¶16 (internal
citations omitted).
¶12 Additionally, in analyzing the first step of the duty-
to-defend analysis when an insured seeks coverage under the
advertising provision of a CGL policy, we ask three questions to

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determine whether the allegations in the complaint fall under
the initial grant of coverage. See Acuity v. Bagadia, 2008 WI

62, ¶16, 310 Wis. 2d 197, 750 N.W.2d 817; Fireman's Fund Ins.
Co., 261 Wis. 2d 4, ¶26; see also Air Eng'g, Inc., 346
Wis. 2d 9, ¶11; Acuity v. Ross Glove Co., 2012 WI App 70, ¶9,
344 Wis. 2d 29, 817 N.W.2d 455. This three-question test,
unique to advertising injury cases, assesses whether the
allegations in a complaint "give rise to the possibility of
coverage under the CGL insurance polic[y's] advertising injury
provision." Fireman's Fund Ins. Co., 261 Wis. 2d 4, ¶26. The
three questions are: (1) Does the complaint allege a covered
offense under the advertising injury provision? (2) Does the

complaint allege that the insured engaged in advertising
activity? and (3) Does the complaint allege a causal connection
between the plaintiff's alleged injury and the insured's
advertising activity? Id. Answering yes to all three questions
completes the first step in the duty-to-defend analysis, the
policy provides an initial grant of coverage, and the court
proceeds to the second and third steps in the process.
¶13 The second part of the duty-to-defend analysis
involves determining whether any of the insurance policy's
exclusions apply. Water Well Sols. Serv. Grp., 369 Wis. 2d 607,
¶16. "Exclusions are narrowly or strictly construed against the
insurer if their effect is uncertain." American Family Mut.
Ins. Co. v. American Girl, Inc., 2004 WI 2, ¶24, 268 Wis. 2d 16,
673 N.W.2d 65. Only if a policy exclusion removes coverage does
the court proceed to the third step of the duty-to-defend
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 No. 2017AP909

analysis, which entails consideration of whether an exception to
the exclusion restores coverage. Water Well Sols. Serv. Grp.,

369 Wis. 2d 607, ¶16.
¶14 "If the policy, considered in its entirety, provides
coverage for at least one of the claims in the underlying suit,
the insurer has a duty to defend its insured on all the claims
alleged in the entire suit." Water Well Sols. Serv. Grp., 369
Wis. 2d 607, ¶16. Stated otherwise, if even one covered offense
alleged in the underlying complaint, if proven, would give rise
to recovery under the terms of the policy, the insurance company
has a duty to defend. Id.; Fireman's Fund Ins. Co., 261
Wis. 2d 4, ¶21; Air Eng'g, Inc., 346 Wis. 2d 9, ¶10; Ross Glove

Co., 344 Wis. 2d 29, ¶19.
B. Application
¶15 West Bend argues: (1) the complaint does not allege a
causal connection and (2) even if it does, exclusions in the
policy apply to eliminate its duty to defend. Because West Bend
does not challenge the court of appeals' answers to the first or
second questions of the advertising injury test, we need not
specifically analyze whether the complaint alleges a covered
offense under the advertising injury provision or whether the
complaint alleges that the insured engaged in advertising
activity. The court of appeals correctly held that the
complaint sufficiently alleged both a covered offense and that
Ixthus engaged in advertising activity. We adopt the court of

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 No. 2017AP909

appeals' analysis on those two questions.8 See West Bend Mut.

Ins. Co., No. 2017AP909, unpublished slip op., ¶¶12-13.
1. Advertising Injury Coverage——Causal Connection
¶16 West Bend asserts the complaint lacks any allegations
suggesting a causal connection between Abbott's injury and
Ixthus's actions. Specifically, West Bend argues the complaint
does not allege any advertising activity by Ixthus that caused
injury to Abbott. Instead, West Bend insists that the
allegations in the complaint against Ixthus focused on
importation and distribution, not advertising. Therefore, West
Bend says the complaint's allegations as to Ixthus do not fall
within the initial grant of coverage under the insurance

policy's advertising provision. We reject West Bend's
contentions and hold the complaint sufficiently alleges the
required causal connection.

8 The court of appeals concluded both that Abbott's
complaint alleged a covered offense under the advertising
provision and that Ixthus engaged in an advertising activity:

[T]he complaint alleges a covered offense because it
alleges that Abbott suffered an advertising injury
caused by an offense arising out of Ixthus's
business. . . . The complaint alleges that the test
strips are functionally the same whether for domestic
or international sale but that the diverted ones are
not labeled to comply with FDA requirements and that
there are numerous material differences between
packaging intended for international and domestic
markets. Packaging itself is an advertisement.

See West Bend Mut. Ins. Co., No. 2017AP909, unpublished slip
op., ¶¶12-13.

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 No. 2017AP909

¶17 The test for whether a causal connection has been
sufficiently alleged focuses not on "whether 'the injury could

have taken place without the advertising,'" but whether the
allegations sufficiently assert that "the advertising did in
fact contribute materially to the injury." Fireman's Fund Ins.
Co., 261 Wis. 2d 4, ¶52 (quoting R.C. Bigelow, Inc. v. Liberty
Mut. Ins. Co., 287 F.2d 242, 248 (2d Cir. 2002) (citations
omitted)). With this causation test in mind, we examine the
complaint's allegations relevant to causation.
¶18 First, in paragraphs 5 and 6, the complaint alleges
that the "Defendants" "caused——and continue to cause——Abbott to
pay out, wrongfully, millions of dollars in rebates." Second,

in paragraph 15, the complaint alleges:

Defendants' unauthorized importation, advertisement
and subsequent distribution causes, or is likely to
cause, consumer confusion, mistake, and deception to
the detriment of Abbott . . . . When such patients
encounter the diverted international FreeStyle test
strips, which bear certain of Abbott's trademarks but
which are materially different from what U.S. patients
expect, they are likely to be confused and, indeed,
disappointed. . . . And the advertisement and sales
of diverted international FreeStyle test strips cause
great damage to Abbott and the goodwill of Abbott's
valuable trademarks.
Third, in paragraph 385, the complaint alleges: "Using Abbott's
trademarks and trade dress, Defendants advertise to consumers
and the marketplace their ability and willingness to sell
FreeStyle test strips. These advertisements are made through,
inter alia, websites, emails, facsimiles, point-of-sale displays
and other media."

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¶19 West Bend admits that the complaint's references to
"Defendants" include Ixthus, but contends that Ixthus was not
really an "advertising" defendant——but instead a "distributing"
defendant who did not advertise or sell products directly to end
users. As a result, West Bend argues that these causation
paragraphs are insufficient to connect Ixthus's activity to the
coverage afforded in the advertising provision of the CGL
policy. West Bend's post-hoc spin on these causation paragraphs
cannot eliminate coverage at the duty-to-defend stage. The
insurer in Ross Glove Co. advanced a similar argument in that

case, suggesting that the manufacturer of infringing packaged
products could not also be viewed as having advertised those

goods. The court of appeals rightly rejected this argument,
concluding that the complaint alleged the manufacturer engaged
in covered advertising activity because its packaging
constituted a "published advertisement" notwithstanding the
advertising activity of other defendants in the case. Ross
Glove Co., 344 Wis. 2d 29, ¶16. Just like the manufacturer in
Ross Glove Co., Ixthus need not be "the first, last or only,
entity" alleged to advertise in order to be engaged in covered
advertising activity. Id.
¶20 The allegations in Abbott's complaint very plainly
allege that Ixthus, as a "Defendant," engaged in advertising
that caused substantial injury to Abbott. Fleshing out the
factual allegations at trial may affect indemnification under
the policy, but at the duty-to-defend stage, we liberally
construe the allegations in the complaint, and make all
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 No. 2017AP909

reasonable inferences from the allegations. See Water Well

Sols. Serv. Grp., 369 Wis. 2d 607, ¶15. Further, "advertising
need not be the sole cause of harm. Rather, the advertising
activity must merely 'contribute materially' to the harm."
Bagadia, 310 Wis. 2d 197, ¶50 (emphasis added; citation
omitted).
¶21 We conclude the allegations in the complaint are
sufficient to satisfy the test for causation. The complaint
says the "Defendants" (including Ixthus) engaged in advertising
activity that caused a variety of injuries to Abbott. The
complaint alleges the defendants used Abbott's trademarks and
trade dress in advertising to consumers and the marketplace

through websites, emails, facsimiles, point-of-sale displays and
other media. The complaint alleges the defendants caused a
variety of serious injuries to Abbott including loss of millions
of dollars in rebates, great damage to Abbott's goodwill and
valuable trademarks, and consumer confusion, mistake, and
disappointment. Consumer confusion alone satisfies the
"contribute materially" causation test. See id., ¶56
("Advertising activity can contribute materially to the
trademark infringement if the advertising activity likely
creates consumer confusion.").
¶22 The third question in the advertising-injury test on
causation undoubtedly must be answered affirmatively: the
complaint alleges a causal connection between Abbott's alleged
injury and Ixthus's advertising activity. Given the allegations
in the complaint, it is reasonable to infer that Ixthus's
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 No. 2017AP909

alleged advertising activity contributed materially to Abbott's
alleged injuries. Accordingly, the allegations in the complaint
fall within the initial grant of coverage.
2. Exclusions
¶23 Having concluded the allegations in the complaint fall
within the initial grant of coverage under the personal and
advertising provision of the CGL policy, we move to the second
step in the duty-to-defend analysis to determine whether any of
the exclusions in the CGL policy apply to eliminate West Bend's
duty to defend Ixthus.
¶24 West Bend's policy contains two exclusions it believes
applies: (1) knowing violation and (2) criminal acts. We

address each in turn.
a. Knowing Violation
¶25 West Bend argues the knowing violation exclusion
applies to preclude its duty to defend because the complaint
alleges Ixthus acted intentionally and with knowledge that it
was defrauding Abbott by buying international test strips at the

lower price and selling them domestically to increase profit.
West Bend points to the repeated allegations in the complaint
that the defendants knew what they were doing and that Ixthus
had done this before.
¶26 The knowing violation exclusion in Ixthus's CGL policy
says:

This insurance [meaning the coverage for personal and
advertising injury] does not apply to:

a. Knowing Violation of Rights Of Another

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 No. 2017AP909

"Personal and advertising injury" caused by or at
the direction of the insured with the knowledge
that the act would violate the rights of another
and would inflict "personal and advertising
injury."
¶27 The knowing violation exclusion has eluded review in
this court, but our court of appeals has considered its
application. In Acuity v. Ross Glove Co., 344 Wis. 2d 29, the

court of appeals considered whether the knowing violation
exclusion in Acuity's CGL policy with Ross Glove Company

precluded coverage for advertising injury alleged in a third-
party complaint against Ross Glove for "alleged patent
infringements and trade dress infringement." Id., ¶¶1-2.
Acuity argued the exclusion applied based on allegations in the
complaint that Ross Glove's actions were "willful and done with
the intent to cause harm." Id., ¶19. The court of appeals held
the exclusion did not preclude Acuity's duty to defend because
the complaint also alleged liability under the Lanham Act, a

strict liability statute, where "intent is not a required
element of trade dress infringement, but rather is required only
to justify a request for enhanced damages or attorney fees."
Id. Applying the rule that when "even one covered offense is
alleged in the underlying complaint, the insurance company has a
duty to defend" the court of appeals held the exclusion did not
preclude coverage. Id.
¶28 The court of appeals reached a similar conclusion in
Air Eng'g, Inc. v. Industrial Air Power, LLC, 346 Wis. 2d 9.
Industrial Air Power had a CGL policy with Acuity that provided
advertising injury coverage, but also included the knowing

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 No. 2017AP909

violation exclusion. Id., ¶¶1, 12, 23. Air Engineering sued

Industrial Air Power alleging various causes of action based on
"misappropriation and use of Air Engineering's website source
code and site content and an internet advertising system[.]"
Id., ¶1. Acuity argued the knowing violation exclusion in its
policy eliminated any duty to defend because the complaint
alleged its insured "knew the misappropriated information was
confidential, misappropriated it in a willful and malicious
manner," and did so to obtain business from Air Engineering's
customers. Id., ¶23. Acuity pointed out that "each claim in
the complaint includes an allegation of conduct that is 'willful
and malicious.'" Id. The court of appeals, relying on Ross

Glove Co., concluded that "an allegation of willful conduct in a
complaint . . . does not destroy potential coverage" when the
complaint contains a covered claim that does not require proof
of a knowing violation. Air Eng'g, Inc., 346 Wis. 2d 9, ¶24.
Because the complaint involved in Air Eng'g, Inc. set forth at
least three "potentially covered claims that do not base
liability on a showing of a knowing violation of another's
rights and infliction of advertising injury," the exclusion did
not remove Acuity's duty to defend its insured. Id., ¶25.
¶29 The court of appeals' analyses in Air Engineering,
Inc. and Ross Glove Co. were correct. It properly compared the
allegations in each complaint to the language of the exclusion.
The knowing violation exclusion will preclude coverage at the
duty-to-defend stage only when every claim alleged in the
complaint requires the plaintiff to prove the insured acted with
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 No. 2017AP909

knowledge that its actions "would violate the rights of another
and would inflict 'personal and advertising injury.'" If the
complaint alleges any claims that can be proven without such a
showing, the insurer will be required to provide a defense.
¶30 West Bend urges us to apply the knowing violation
exclusion based on the "story" this 156-page complaint tells——
that Ixthus "deliberately and willfully" participated in a
"fraudulent scheme." We do not base insurance coverage
decisions on stories or themes. We apply the law, and
applicable law in this case requires us to compare the
allegations in the complaint to the words of the exclusion to
ascertain whether Abbott makes any claims that do not base

liability on a showing of a knowing violation of another's
rights and infliction of advertising injury. See Air Eng'g,

Inc., 346 Wis. 2d 9, ¶25. Unless an exclusion knocks out every
pleaded claim, leaving no potentially covered advertising-injury
claim for which the insured could be liable, the duty to defend
remains. See generally Marks v. Houston Cas. Co., 2016 WI 53,
¶41, 369 Wis. 2d 547, 881 N.W.2d 309 (applying policy exclusions
at the duty-to-defend stage will not typically relieve an
insurer of its duty to defend).
¶31 A review of Abbott's ten remaining claims in the
complaint quickly reveals that the complaint contains multiple
claims that fall within West Bend's personal and advertising
injury coverage provision and do not require proof that Ixthus
acted with knowledge or with intent to violate Abbott's rights
and inflict injury.
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¶32 Abbott's claim for trademark dilution under Section
43(c) of the Lanham Act, 15 U.S.C. § 1125(c)(1)——a strict
liability statute——does not require proof that Ixthus acted
knowingly or intentionally. See Ross Glove Co., 344 Wis. 2d 29,

¶19. For relief under this section of the Lanham Act, Abbott
need only show: (1) Abbott had a "famous mark that is
distinctive"; and (2) after its mark became distinctive, the
defendants commenced use of the "mark or trade name in commerce
that is likely to cause dilution by blurring or dilution by
tarnishment of the famous mark regardless of the presence or
absence of actual or likely confusion, of competition, or of
actual economic injury." 15 U.S.C. § 1125(c)(1).

¶33 Likewise, Abbott's claim for trademark dilution under
New York General Business Law § 360-1 does not require Abbott to
prove Ixthus acted knowingly or intentionally. Rather, Abbott
must show "(1) its trademark 'is of truly distinctive quality or
has acquired secondary meaning' and (2) 'there is a likelihood
of dilution.'" N.Y. Gen. Bus. Law § 360-1; West Bend Mut. Ins.
Co., unpublished slip op., ¶18 (quoting Johnson & Johnson v.
American Nat'l Red Cross, 552 F. Supp. 2d 434, 447 (S.D.N.Y.
2008) (citation omitted)).
¶34 Both Abbott's federal and state law causes of action
for trademark dilution include allegations that Ixthus infringed
upon Abbott's trade dress in Ixthus' advertisements, thereby
alleging covered claims for personal and advertising injury that
do not require proof of knowing or intentional action on the
part of Ixthus. Specifically, in paragraph 385 of the
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complaint, Abbott alleges that "[u]sing Abbott's trademarks and
trade dress, Defendants advertise to consumers and the
marketplace their ability and willingness to sell FreeStyle test
strips." In paragraph 585, Abbott alleges that Ixthus "utilized
marks that are likely to cause dilution by blurring and/or
tarnishment of Abbott's famous FreeStyle Marks and FreeStyle
Trade Dress." And in paragraph 590, Abbott alleges that Ixthus
and the other Defendants "have diluted and are continuing to
dilute the distinctive quality of the FreeStyle Marks and
FreeStyle Trade Dress, in violation of state law." Because
neither cause of action requires proof of intentional conduct,
the knowing violation exclusion does not apply.

¶35 Similarly, Abbott's claim alleging deceptive business
practices under New York General Business Law § 349 does not
require Abbott to establish "intent to defraud or mislead" to
prove its case, but allows the district court to award treble
damages if Abbott proves the defendants' actions were done with
such intent. N.Y. Gen. Bus. Law § 349; West Bend Mut. Ins. Co.,

unpublished slip op., ¶19 (citing Oswego Laborers' Local 214
Pension Fund v. Marine Midland Bank, N.A., 647 N.E.2d 741, 744-
45 (Ct. App. N.Y. 1995)). Abbott alleges Ixthus' acts——
including the use of Abbott's trade dress to advertise to
consumers and the marketplace——were "materially misleading" and
caused injury to Abbott, thereby falling squarely within the
grant of coverage for "personal and advertising injury" claims.
Because intent is not an element of this cause of action, the
knowing violation exclusion does not apply.
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¶36 Even though the complaint generally asserts Ixthus
acted wrongfully and with knowledge that it was defrauding
Abbott, West Bend is not relieved of its duty to defend because
this complaint alleges at least one potentially covered
advertising-injury claim, which does not depend on whether
Ixthus acted with knowledge that it was violating Abbott's
rights or with knowledge that it was inflicting advertising
injury.9 When "even one covered offense is alleged in the
underlying complaint, the insurance company has a duty to
defend." Ross Glove Co., 344 Wis. 2d 29, ¶19.

¶37 Despite Abbott's general allegations of knowing
violations, Abbott could prevail on several covered advertising

injury claims without establishing that Ixthus knowingly
violated Abbott's rights. It is this possible coverage that
triggers West Bend's duty to defend. "An insurer's duty to
defend the insured in a third-party suit is predicated on
allegations in a complaint which, if proven, would give rise to
the possibility of recovery that falls under the terms and
conditions of the insurance policy." Fireman's Fund Ins. Co.,

9
We are not persuaded by the argument attempting to
analogize this case to Talley v. Mustafa, 2018 WI 47, 381
Wis. 2d 393, 911 N.W.2d 55, Schinner v. Gundrum, 2013 WI 71, 349
Wis. 2d 529, 833 N.W.2d 685, Estate of Sustache v. American
Family Mut. Ins. Co., 2008 WI 87, 311 Wis. 2d 548, 751
N.W.2d 845, or C.L. v. School Dist. of Menomonee Falls, 221
Wis. 2d 692, 704-05, 585 N.W.2d 826 (Ct. App. 1998). None of
those cases involved analysis of whether an insurer had the duty
to defend its insured under a CGL advertising-injury coverage
provision.

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 No. 2017AP909

261 Wis. 2d 4, ¶19. While a finder of fact could determine
Ixthus acted knowingly, thereby relieving West Bend of its
indemnification obligation under the knowing violation
exclusion, the duty to defend is "broader than the duty to
indemnify because the duty to defend is triggered by arguable,
as opposed to actual, coverage." Id., ¶20.

b. Criminal Acts
¶38 West Bend also argues the criminal acts exclusion
precludes coverage. West Bend contends the complaint
specifically alleges some of Ixthus's acts constituted crimes,
such as illegal mail, wire, and insurance fraud. The criminal
acts exclusion precludes coverage for "'Personal and advertising

injury' arising out of a criminal act committed by or at the
direction of the insured." West Bend's policy does not define
criminal act and this court has not yet decided whether a
defendant must have been only charged with or actually convicted
of a crime in order for the criminal acts exclusion to apply.
This issue of first impression was not fully addressed in the
courts below and West Bend's motion for summary judgment in the
circuit court relied solely on the knowing violation exclusion.
Accordingly, we decline to address it.10
¶39 The application of the criminal acts exclusion,
however, can be resolved without deciding the issue of first

10See Lamar Co., LLC v. Country Side Rest. Inc., 2012 WI
46, ¶31 n.15, 340 Wis. 2d 335, 814 N.W.2d 159 ("As a general
rule, we will not consider for the first time on appeal an issue
not raised in the circuit court[.]").

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 No. 2017AP909

impression. The complaint alleges claims that are not dependent
on a showing of criminal conduct. Lanham Act violations, for
example, are not criminal. "[W]hen an insurance policy provides
coverage for even one claim made in a lawsuit, the insurer is
obligated to defend the entire suit." Fireman's Fund Ins. Co.,

261 Wis. 2d 4, ¶21. Further, allegations in the complaint are
to be construed liberally in favor of the insured, and any
doubts as to coverage at the duty-to-defend stage should be
resolved in favor of the insured. Id., ¶20. Because claims not
premised on a criminal act are alleged in the complaint, the
criminal acts exclusion does not relieve West Bend of its duty
to defend Ixthus.11

IV. CONCLUSION
¶40 We hold the allegations in Abbott's complaint fall
within the initial grant of coverage under the "personal and
advertising injury liability" provision of the commercial
general liability insurance policy West Bend issued to Ixthus.
The claims in the complaint are sufficient to allege a causal
connection between Ixthus's advertising activity and Abbott's

11 The third step of the duty-to-defend analysis——
evaluating whether any exceptions to the exclusions apply——is
not implicated in this case and therefore will not be addressed.
Because we conclude that Abbott's complaint alleges covered
claims and no coverage exclusion applies to remove coverage,
logically we do not consider whether an exception to any
exclusion would restore coverage. Once a court determines the
policy provides an initial grant of coverage, the court must
consider whether any exclusions apply; if none apply, the
analysis stops and the insurer has a duty to defend its insured
against all of the claims asserted in the complaint.

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 No. 2017AP909

injuries. We further hold that neither the knowing violation
nor the criminal acts exclusions apply to remove West Bend's
duty to defend because the complaint alleges at least one
potentially covered claim unaffected by either exclusion. We
affirm the decision of the court of appeals.
By the Court.—The decision of the court of appeals is
affirmed.
¶41 ANNETTE KINGSLAND ZIEGLER, J., did not participate.

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