A federal appeals court on Friday upheld a lower court ruling in favour of Nationwide Mutual Insurance Co. units in a dispute with a franchisee.
Fulton, California-based AutoDistributors Inc. had a franchise agreement with Pullach, Germany-based Sixt Franchise USA LLC and Sixt Rent a Car LLC that allowed it to operate a Sixt retail car franchise and use its trademarks, according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in AutoDistributors Inc.; Steven Schneider v. Nationwide E&S Specialty, et al.
Sixt sued AutoDistributors, alleging that it had breached the franchise agreement by operating a used car sales business at the franchise location and using Sixt’s trademarks in connection with that business, according to the ruling.
AutoDistributors Nationwide’s insurers denied coverage and the company sued the insurers for breach of contract and the implied covenant of good faith and fair dealing in the US District Court in Oakland, California.
The district court found in favour of the insurers and was affirmed by a three-judge panel of the Court of Appeals.
Among other things, some of Sixt’s allegations “clearly fell outside the policy’s coverage”, including that AutoDistributors breached the franchise agreement by operating the unauthorised used car sales business, it said.
“This alleged conduct did not involve any of the torts in the definition of ‘bodily injury and advertising injury,’ and therefore did not trigger the duty to defend,” the ruling said.
Lawyers in the case did not respond to requests for comment.
