Novell, Inc. v. Federal Ins. Co., 97-4050

• Decision Date: 14 April 1998
• Docket Number: No. 97-4050,97-4050
• Citation: 141 F.3d 983
• Parties: NOVELL, INC., a Utah corporation, Plaintiff-Appellant, v. FEDERAL INSURANCE COMPANY, an Indiana corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 983

141 F.3d 983

NOVELL, INC., a Utah corporation, Plaintiff-Appellant, v. FEDERAL INSURANCE COMPANY, an Indiana corporation, Defendant-Appellee.

No. 97-4050.

United States Court of Appeals Tenth Circuit.

April 14, 1998.

Robert D. Brugge, Spray, Gould & Bowers, Los Angeles, CA (Thomas R. Karrenberg and John P. Mullen, Anderson & Karrenberg, Salt Lake City, UT, with him on the brief), for appellant.

Timothy M. Thornton, Jr., Nelsen, Thompson, Pegue & Thornton, Santa Monica, CA (Malena Dobal, Nelsen, Thompson, Pegue & Thornton, Santa Monica, CA, and Donald Purser, Donald Purser & Associates, Salt Lake City, UT, with him on the brief), for appellee.

Before BRISCOE, McWILLIAMS, and LUCERO, Circuit Judges.

BRISCOE, Circuit Judge.

Plaintiff filed this action against its general liability insurance carrier for declaratory relief and damages arising out of defendant's alleged failure to defend plaintiff. On cross-motions for summary judgment, the district court entered judgment in favor of defendant. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.

I.

Novell, Inc. merged with WordPerfect Corporation, acquiring its assets, stock, and business (which apparently consisted primarily of computer software). Michael Ross is the sole proprietor of Enhancement Software, which developed and sold software known as "StampIt." StampIt was designed to work as an "add-on" program to various versions of WordPerfect software and allowed users to "stamp" their documents with a number of predefined stamps ("copy," "draft," etc.) when they were printed. Between August 1992 and December 1993, Ross advertised the StampIt program in various Novell/WordPerfect publications. In conjunction with advertising in WordPerfect Magazine, Ross also utilized reader service cards contained in the back of the magazine to allow readers to request additional information.

At some point in 1993, Novell/WordPerfect licensed an add-in program known as "ExpressDocs" to work with WordPerfect 5.1 DOS and WordPerfect 5.1 Windows. The program was similar to the StampIt program in that it allowed users to print documents with several predefined "watermark" inscriptions. The ExpressDocs program was subsequently bundled into WordPerfect 6.0 Windows, and Novell/WordPerfect advertised, marketed, and generally promoted the add-in program as well as the ExpressDocs feature of WordPerfect 6.0 Windows.

Between June and November 1993, Ross sent various letters to Novell/WordPerfect, complaining about its course of conduct in marketing the ExpressDocs program. On November 19, 1993, Novell/WordPerfect filed a civil action in Utah federal district court against Enhancement Software, seeking a declaration of rights and obligations of the parties with regard to the StampIt software. In January 1994, Novell/WordPerfect refused to accept further advertising for the StampIt software.

On March 14, 1994, Ross filed a diversity action in California federal district court against Novell/WordPerfect. In his complaint, Ross alleged he joined Novell/WordPerfect's third-party developer program in late 1991 or early 1992 and, in doing so, he was encouraged to advertise in its publications, rent its mailing lists, and spend time, effort, and money in developing, marketing, and licensing StampIt. He further alleged he had discussions with Novell/WordPerfect employees in June 1992, who represented it was the company's policy to encourage third parties to develop add-on programs and that it would not use, appropriate, or usurp ideas or concepts incorporated in StampIt or do anything to compete with Ross or otherwise dilute the market for StampIt. Ross alleged that in March 1993, he entered into a contract with Novell/WordPerfect whereby he became a registered developer, and that he paid for the benefits associated with becoming a registered developer and provided a copy of StampIt and its source code. Ross further alleged Novell/WordPerfect promised their relationship would be in the nature of a partnership. He asserted the subsequent development of the ExpressDocs program/feature violated representations made to him, effectively appropriated and usurped his research, development, and marketing efforts, and undermined his ability to market and license StampIt. Based upon these allegations, Ross asserted claims for fraud, negligent misrepresentation, breach of contract, breach of fiduciary duty, breach of confidence, unfair competition, intentional interference with prospective economic advantage, negligent interference with prospective economic advantage, and breach of implied covenant of good faith and fair dealing. Ross filed identical counterclaims in the Utah declaratory judgment action. His diversity action was transferred to Utah and the two actions were assigned to the same district judge.

Plaintiff tendered the defense of Ross' action and counterclaims to defendant, who had issued a policy of general commercial liability insurance as well as a commercial excess umbrella policy. Defendant denied the tender of defense. The actions were dismissed on December 2, 1995, pursuant to a settlement agreement. Under the terms of the agreement, plaintiff paid Ross $28,500. Plaintiff incurred attorney fees of $102,766.75 in defending the claims.

II.

We review the district court's grant of summary judgment de novo, applying the same standard used by the district court under Fed.R.Civ.P. 56(c). V-1 Oil Co. v. Means, 94 F.3d 1420, 1422 (10th Cir.1996). Summary judgment is appropriate only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We examine the factual record and reasonable inferences therefrom in the light most favorable to the nonmoving party. Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990). If there is no genuine issue of material fact in dispute, we must determine whether the district court correctly applied the law. Id.

Contractual obligation to defend

Plaintiff contends the district court erred in concluding defendant was not contractually obligated to defend plaintiff against Ross' claims and counterclaims. As both parties acknowledge, this issue hinges on interpretation of language in the policy of commercial general liability insurance (CGL) issued by defendant to plaintiff. ¹

Because this is a diversity action, we apply the substantive law of Utah, the forum state. See Barrett v. Tallon, 30 F.3d 1296, 1300 (10th Cir.1994). Under Utah law, insurance policies are interpreted under general contract principles. Allstate Ins. Co. v. Worthington, 46 F.3d 1005, 1008 (10th Cir.1995); Bergera v. Ideal Nat'l Life Ins. Co., 524 P.2d 599, 600 (Utah 1974). Whether a contract is ambiguous is a question of law to be determined by the court. See Allstate, 46 F.3d at 1008; Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272, 1274 (Utah 1993). "Ambiguities in an insurance contract are construed against the insurer." Allstate, 46 F.3d at 1008. "Each case involving an insurer's promise to defend must be considered independently on the basis of the particular language of the insurance policy at issue." Simmons v. Farmers Ins. Group, 877 P.2d 1255, 1258 (Utah App.1994). "Language limiting an insurer's duty to defend an insured must be clear, unambiguous, and sufficiently conspicuous in order to give proper notice to the insured of the limitations on the duty to defend." Id.

The CGL policy provided:

We will pay damages the insured becomes legally obligated to pay by reason of liability imposed by law or assumed under an insured contract because of: bodily injury or property damage caused by an occurrence; or personal injury or advertising injury to which this insurance applies.

This insurance applies: 1. to bodily injury or property damage which occurs during the policy period; and 2. to personal injury or advertising injury only if caused by an offense committed during the policy period.

We will defend any claim or suit against the insured seeking such damages. We will pay in addition to the applicable limit of insurance the defense expense.

Record II at 389. The CGL policy defined "advertising injury" as follows:

When used with respect to insurance under this policy: ADVERTISING INJURY means injury arising solely out of one or more of the following offenses committed in the course of advertising your goods, products or services:

1. oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

2. oral or written publication of material that violates a person's right of privacy;

3. misappropriation of advertising ideas or style of doing business; or

4. infringement of copyrighted advertising materials, titles or slogans.

Id. at 408. Although there is some question about the meaning of the term "style of doing business," the remainder of the language is clear and unambiguous.

Generally speaking, the above-quoted language provides that an "advertising injury" exists, and defendant has a duty to defend plaintiff, when there is an injury arising solely out of one or more of the categorized offenses (i.e., slander, violation of privacy, misappropriation of advertising ideas or style of doing business, copyright infringement) committed by plaintiff in the course of promoting its goods, products, or services. ² See generally Erie Ins. Group v. Sear Corp., 102 F.3d 889, 894 (7th Cir.1996) (concluding the term "advertising," as used in insurance policy providing coverage for "advertising injuries," was unambiguous and meant "actual, affirmative self-promotion of the actor's goods or services"). In analyzing whether Ross' complaint triggered a duty on the part of defendant to defend, we first...