Houbigant, Inc. v. Federal Ins. Co., 03-1286.

• Decision Date: 06 July 2004
• Docket Number: No. 03-1286.,03-1286.
• Citation: 374 F.3d 192
• Parties: HOUBIGANT, INC.; Establissement Houbigant, Appellants v. FEDERAL INSURANCE COMPANY; Fireman's Fund Insurance Companies.
• Court: U.S. Court of Appeals — Third Circuit

374 F.3d 192

HOUBIGANT, INC.; Establissement Houbigant, Appellants v. FEDERAL INSURANCE COMPANY; Fireman's Fund Insurance Companies.

No. 03-1286.

United States Court of Appeals, Third Circuit.

Argued November 7, 2003.

Filed July 6, 2004.

COPYRIGHT MATERIAL OMITTED

John W. Schryber (argued), Patton and Boggs, Washington, D.C., Robert D. Chesler, Lowenstein Sandler, Roseland, N.J., for Appellants.

Gerard H. Hanson, Marilyn S. Silvia (argued), Hill Wallack, Princeton, N.J., for Federal Insurance Company, Appellee.

Alfred C. Constants, III, Caron, Constants & Wilson, Rutherford, N.J., for Fireman's Fund Insurance Companies, Appellee.

Before McKEE, SMITH, and GREENBERG, Circuit Judges.

McKEE, Circuit Judge.

Houbigant, Inc. and Establissment Houbigant (collectively, "Houbigant") appeal the district court's order granting Federal Insurance Company's ("Federal") motion for summary judgment and denying Houbigant's cross motion for summary judgment.¹ For the reasons discussed below, we will reverse the judgment of the district court and remand for further proceedings consistent with this opinion.

I. BACKGROUND

Houbigant has been in the business of creating and manufacturing fragrances for more than 200 years. Between 1994 and 1996 Houbigant entered into a series of licensing agreements with Dana Perfumes Corporation and Houbigant (1995) Ltee. Ltd. ("Insureds"). R. at 734; see also R. at 815-57. Under the agreement, the Insureds were granted a license to manufacture and sell certain Houbigant fragrances and use the trademarks associated with them. R. at 818-19. However, the Insureds were required to manufacture, package, and label Houbigant products in accordance with particular specifications in order to ensure authenticity and quality. R. at 824.

The Insureds eventually filed for Chapter 11 bankruptcy. Shortly thereafter, Houbigant filed a bankruptcy claim against the Insureds alleging that they had directly or contributorily infringed Houbigant's "trademarked titles" and breached Houbigant's contractual obligations by: (1) selling a "watered-down" version of Houbigant's "Chantilly" fragrance; (2) selling the "know-how" and physical components required to make Chantilly and three other fragrances to unlicensed fragrance producers who sold the products worldwide;² (3) using the Houbigant name to sell non-Houbigant products; and (4) indicating that the Chantilly fragrance was produced by the Insureds. R. at 728-48. Houbigant claimed tort damages in excess of $99 million³ and a separate claim for contractual damages in excess of $105 million resulting from the Insured's conduct. R. at 744-54. The Insureds notified their insurer, Federal, of the pending claim.

At that time, the Insureds were covered by two policies issued by Federal: (1) the Commercial General Liability policy ("CGL policy"); and (2) the Commercial Excess Umbrella policy ("Umbrella policy"). The CGL policy provides coverage for "advertising injury," R. at 499, which is defined, in relevant part, as "injury ... arising solely out of ... infringement of trademarked or service marked titles or slogans," where such infringement is "committed in the course of advertising of [the insured's] goods, products or services...." R. at 512. However, the policy excludes coverage of any advertising injury "arising out of breach of contract," R. at 505, or "an infringement, violation or defense of any ... trademark or service mark or certification mark or collective mark or trade name, other than trademarked or service marked titles or slogans." R. at 507.

The Umbrella policy contains two separate coverage provisions. Coverage A, entitled "Excess Follow Form Liability Insurance," covers "that part of the loss ... in excess of the total applicable limits of [the] underlying insurance [policy] ..." under the same terms as said policy. R. at 278. Coverage B of the Umbrella policy entitled "Umbrella Liability Insurance," covers "damages the insured becomes legally obligated to pay by reason of liability imposed by law or assumed under an insured contract because of ... advertising injury...." R. at 279. This includes injury "arising solely out of ... infringement of copyrighted titles, slogans or other advertising materials," where such infringement is "committed in the course of advertising...." R. at 288-89. Coverage B also excludes breach of contract claims. R. at 285.

Federal denied coverage under both policies. Nonetheless, Houbigant and the Insureds agreed to settle the tort claims for an unsecured $50 million. Under the terms of the agreement, Houbigant obtained the right to "prosecute any cause of action against [Federal], at Houbigant's sole expense, arising from any failure by [Federal] to indemnify the [Insureds] liability to Houbigant with respect to [the tort claims]." R. at 760. The parties also agreed that Houbigant's recovery would be limited to indemnification under the implicated Federal insurance policies. The bankruptcy court approved the settlement, finding that it was "fair, reasonable, ... and entered into following good faith, arms length negotiations...." R. at 813.

Houbigant subsequently initiated this diversity action against Federal seeking indemnification under the implicated policies pursuant to the assignment it received as part of the settlement with the Insureds. The court ruled that there was no coverage under either policy, and that Federal was not bound by the settlement approved by the bankruptcy court. This appeal followed.⁴

II. A. Policy Coverage

Although we find that both policies cover the conduct of the Insureds, the story takes some telling. Thus, we will address each policy in turn.

1. CGL Policy

a. Trademarked Titles

As stated above, Houbigant alleged that the Insureds: (1) sold a "watered-down" version of Houbigant's "Chantilly" fragrance; (2) sold the "know-how" and physical components required to make Chantilly and three other fragrances to unlicensed fragrance producers who sold the products worldwide; (3) used the Houbigant name to sell non-Houbigant products; and (4) indicated that the Chantilly fragrance was produced by the Insureds. R. at 728-48. There is no question that these allegations, if true, constitute trademark infringement in violation 15 U.S.C. § 1125(a)(1)⁵ and that Houbigant would be entitled to damages pursuant to § 1117.

However, the CGL policy "does not apply to ... advertising injury ... arising out of ... infringement, violation or defense of any ... trademark or service mark or certification mark or collective mark or trade name, other than trademarked or service marked titles or slogans." R. at 507 (emphasis added). Based on the wording of this exclusion, it is clear that a trademarked title is regarded as a subset or type of trademark. However, the policy does not offer any further explanation or definition of the term. Thus, we must first determine whether Houbigant's marks constitute "trademarked titles."

The insurance contracts in question were entered into in New Jersey, and we are thus bound by the controlling law of that state.⁶ However, the New Jersey Supreme Court has yet to define the term "trademarked title." Therefore, "we must consider relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand." Packard v. Provident Nat. Bank, 994 F.2d 1039, 1046 (3d Cir.1993).

We begin our analysis with Villa Enters. Mgmt., Ltd. v. Fed. Ins. Co., 360 N.J.Super. 166, 821 A.2d 1174 (2002), a New Jersey trial court decision that addresses the very issue before us.⁷ In fact, not only does Villa address the same issue, it actually involves the same insurer, Federal. In Villa, Federal refused to defend or indemnify the insured against damages stemming from an alleged advertising injury arising out of the insured's use of the term "VILLA PIZZA," a trademark and service mark owned by another company.

The court in Villa began its analysis with a review of the law governing interpretation of insurance policies in New Jersey. See id. at 1182-83. The court found two principles particularly helpful. First, "the words of an insurance policy should be given their ordinary meaning." Id. at 1182 (quoting Longobardi v. Chubb Ins. Co. of New Jersey, 121 N.J. 530, 582 A.2d 1257, 1260 (2002) (internal quotation marks omitted)). Second, "any ambiguity must be resolved in the insured's favor." Id. (citing Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 607 A.2d 1255, 1259 (1992)). The Villa court then considered the term, "trademarked title." Inasmuch as that New Jersey court's analysis is so germane to our inquiry, we will quote its analysis at length:

In this policy, coverage is not extended for titles and slogans generally but only for trademarked and service-marked titles and slogans. The ordinary insurance consumer faced with Federal's language of coverage and exclusion would not begin with the assumption that `trademarks, service marks, certification marks, collective marks and trade names' are a subset of `trademarked or service-marked titles or slogans,' but rather would begin with the converse assumption. The question thus becomes: How are trademarked or service-marked titles or slogans different from all other trademarks and service marks?

Trademarks and service marks are devices used in connection with the sale or advertisement of products or services of particular merchants to distinguish them from similar products or services of others and identify the source of the trademarked products or service-marked services. The Lanham Act states that the term `trademark' includes `any word, name, symbol, or device, or any combination thereof, adopted and used by a manufacturer or merchant to identify his goods and distinguish them from those manufactured or sold by others.' 3 Callmann on Unfair Competition, Trademarks and Monopolies, § 17:1 (Louis...