R.C. Bigelow, Inc. v. Liberty Mut. Ins. Co.

Decision Date18 April 2002
Docket NumberDocket No. 01-7197.
PartiesR.C. BIGELOW, INC., Plaintiff-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Second Circuit

Frank S. Occhipinti, Stewart, Occhipinti & Makow, LLP, New York, N.Y. (Colin Gunn, Gunn, Godfrey & Allison, Westport, Conn., on the brief), for Plaintiff-Appellant.

Richard J. Kenny, Rome McGuigan Sabanosh, P.C., Hartford, Conn. (William W. Kaliff, Hartford, Conn., on the brief), for Defendant-Appellee.

Before WALKER, Chief Judge, NEWMAN, and KEARSE, Circuit Judges.

JON O. NEWMAN, Circuit Judge.

The issue on this appeal is whether the "advertising injury" provision of a liability insurance policy obligated an insurer to defend a claim that an insured infringed a competitor's trade dress and included the allegedly infringing trade dress in published advertisements. Plaintiff Appellant R.C. Bigelow, Inc. ("Bigelow") appeals from a judgment of the United States District Court for the District of Connecticut (Alvin W. Thompson, District Judge) granting summary judgment to Defendant Appellee Liberty Mutual Insurance Co. ("Liberty Mutual"). The Court rejected Bigelow's claim for the costs incurred in successfully defending a suit by Celestial Seasonings, Inc. ("Celestial"). We conclude that Liberty Mutual had a duty to defend, and we therefore reverse the judgment of the District Court.

Background

Bigelow, a Connecticut corporation, is a manufacturer and distributor of specialty teas. Celestial is a competitor of Bigelow's in the herbal tea market. Liberty Mutual, a Massachusetts company, provided liability insurance to Bigelow. The policy contained an "advertising injury" provision, discussed below, which is at issue in this litigation.

Celestial's suit in Colorado. In June 1995, Celestial filed in the United States District Court for the District of Colorado a complaint against Bigelow for trade dress infringement, false advertising, unfair competition, and trade dress dilution, arising under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and under state statutes and common law. In February 1996, Celestial filed an amended complaint, adding a damage claim to its false advertising claim and adding a new claim for dilution of a famous mark under section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c). The first claim, for trade dress infringement, alleged that in January 1994, Bigelow introduced its herbal teas in new packaging with trade dress confusingly similar to that of Celestial's boxes. The second claim, for false advertising, alleged that Bigelow failed to correctly indicate on the packaging that the teas were "artificially flavored," and that Bigelow engaged in false advertising by mounting an aggressive marketing and print advertising campaign to promote these teas, while conveying the false and misleading impression that those herbal teas were all natural. The third claim, for unfair competition, incorporated the factual allegations from the first two claims and alleged that Bigelow had misappropriated Celestial's product image, trust, loyalty, and goodwill. The fourth and fifth claims, for trade dress dilution and common law trade dress dilution, incorporated the factual allegations from the trade dress infringement claim and alleged that Bigelow had intentionally "whittled down, blurred or tarnished plaintiff's trade dress so as to dilute the trade dress in commerce."

In January 1997, the District Court in Colorado entered judgment in favor of Bigelow on all counts in Celestial's action.

Request for Liberty Mutual to defend and indemnify. While the Colorado suit was pending, Bigelow notified Liberty Mutual of the suit, sent the insurer a copy of the complaint, and requested the insurer to defend and indemnify Bigelow in the action. In February 1996, Bigelow sent Liberty Mutual a copy of Celestial's amended complaint. In March 1996, Liberty Mutual denied Bigelow's claim for coverage.

Bigelow's suit in Connecticut. In August 1996, Bigelow brought the instant suit against Liberty Mutual in the Connecticut District Court, seeking damages for defense of the Colorado suit and indemnity against potential liability. On cross-motions for summary judgment, the District Court ruled in favor of Liberty Mutual in January 2001. R.C. Bigelow, Inc. v. Liberty Mutual Insurance Co., No. 96 Civ. 1643 (D.Conn. Jan. 25, 2001) ("Amended Ruling").

Bigelow maintains that Liberty Mutual was obligated to defend it against Celestial's suit in Colorado and, having failed to do so, must now pay the costs of defense that Bigelow incurred. Bigelow contends that Celestial's suit alleged a claim within the scope of the advertising injury provision of Liberty Mutual's policy and that the District Court erred as a matter of law in holding that trade dress infringement could never take place in the context of advertising. Liberty Mutual contends that none of Celestial's claims alleges an advertising injury as defined in the policy, and that therefore it did not have a duty to defend.

Discussion

The advertising injury provisions. The "Personal and Advertising Injury Liability Endorsement" in the Liberty Mutual insurance policy provides:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this coverage part applies. We will have the right and duty to defend any "suit" seeking those damages.

. . .

b. This insurance applies to: ... (2) "Advertising injury" caused by an offense committed in the course of advertising your goods, products or services.

The "Definitions" section provides:

"Advertising injury" means injury arising out of paid announcements in the print or broadcast media resulting in one or more of the following offenses:

a. 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;

b. Oral or written publication of material that violates a person's right of privacy;

c. Copying a person's or organization's advertising ideas or advertising style; or

d. Infringement of copyright, title or slogan.

The "Exclusions" section provides:

This insurance does not apply to: ...

b. "Advertising injury" arising out of:

(1) Breach of contract, other than misappropriation of advertising ideas under an implied contract;

(2) The failure of goods, products or services to conform with advertised quality or performance;

(3) The incorrect description or mistake in the advertised price of goods, products or services;

(4) Patent infringement or securities fraud; or

(5) An offense committed by an insured whose business is advertising, publishing or telecasting.

Bigelow contends that the trade dress infringement and related claims in Celestial's complaint fell within the third type of advertising injury covered by the policy, i.e., injury from "[c]opying a person's or organization's advertising ideas or advertising style." Liberty Mutual contends, and the District Court found, that none of the five claims in Celestial's complaint alleged an "advertising injury" and therefore Liberty Mutual was under no duty to defend.

The duty to defend. Under Connecticut law, which applies in this diversity action, "an insurer's duty to defend, being much broader in scope and application than its duty to indemnify, ... [t]he obligation of the insurer to defend does not depend on whether the injured party will successfully maintain a cause of action against the insured but on whether he has, in his complaint, stated facts which bring the injury within the coverage." Springdale Donuts, Inc. v. Aetna Casualty and Surety Co., 247 Conn. 801, 807, 724 A.2d 1117 (1999) (internal quotation marks and citations omitted). The duty to defend does not hinge on the skill or manner in which a complaint is drafted, but rests on the substantive thrust of the complaint, and the surrounding facts. See QSP, Inc. v. Aetna Casualty and Surety Co., 256 Conn. 343, 376, 773 A.2d 906 (2001); Schwartz v. Stevenson, 37 Conn.App. 581, 585, 657 A.2d 244 (1995) (noting that the duty to defend depends on whether the complaint "stated facts which appeared to bring [the plaintiff's] claimed injury within the policy coverage") (emphasis in original). "[I]f an allegation of a complaint falls even possibly within the coverage, then the insurance company must defend the insured." Imperial Casualty and Indemnity Co. v. State, 246 Conn. 313, 324, 714 A.2d 1230 (1998) (emphasis in original).

In determining the scope of coverage under a policy, Connecticut applies the following rules of interpretation:

The interpretation of an insurance policy... involves a determination of the intent of the parties as expressed by the language of the policy ... [including] what coverage the ... [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy.... [A] contract of insurance must be viewed in its entirety, and the intent of the parties for entering it derived from the four corners of the policy.... The policy words must be accorded their natural and ordinary meaning ... [and] any ambiguity in the terms of an insurance policy must be construed in favor of the insured because the insurance company drafted the policy.

Springdale Donuts, 247 Conn. at 805-06, 724 A.2d 1117 (internal quotation marks and citations omitted); see also QSP, 256 Conn. at 376, 773 A.2d 906 (reiterating adherence to "broad interpretation" standards in construing insurance policies).

Advertising injury. Although Celestial's complaint against Bigelow included claims of false advertising, these claims did not trigger a duty to defend under the advertising injury provision because they concerned allegedly false claims about Bigelow's products, and such false claims about the insured products are explicitly excluded by the policy....

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