Prolink Holdings Corp. v. Fed. Ins. Co.

• Decision Date: 03 August 2012
• Docket Number: No. 11–3566.,11–3566.
• Citation: 103 U.S.P.Q.2d 1761,688 F.3d 828
• Parties: PROLINK HOLDINGS CORPORATION, Plaintiff–Appellant, v. FEDERAL INSURANCE COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

688 F.3d 828

103 U.S.P.Q.2d 1761

PROLINK HOLDINGS CORPORATION, Plaintiff–Appellant,

v.FEDERAL INSURANCE COMPANY, Defendant–Appellee.

No. 11–3566.

United States Court of Appeals,Seventh Circuit.

Argued April 17, 2012.

Decided Aug. 3, 2012.

David A. Gauntlett (argued), Attorney, Gauntlett & Associates, Irvine, CA, for Plaintiff–Appellant.

Daniel J. Cunningham (argued), Attorney, Tressler LLP, Chicago, IL, for Defendant–Appellee.

Before BAUER, KANNE, and SYKES, Circuit Judges.

KANNE, Circuit Judge.

In 2008, GPS Industries, Inc., and GPS IT, LLC (collectively “GPS”), filed a lawsuit against ProLink Holdings Corporation asserting claims of patent infringement, slander of title, and unfair competition. ProLink's insurer, Federal Insurance Company, refused to defend ProLink in the lawsuit because the complaint's allegations did not fall within the governing policy, or in the alternative, were subject to various exclusions within the policy. GPS and ProLink eventually settled and ProLink now seeks a declaration that Federal had a duty to defend the GPS lawsuit. The district court granted Federal's motion for judgment on the pleadings. Because GPS's allegations are not covered under the policy, Federal did not have a duty to defend ProLink and we affirm the judgment of the district court.

I. Background

ProLink and GPS are business competitors, each manufacturing and selling GPS-based golf course distance measurement and course management products. Relevant to this litigation, GPS owns U.S. Patent No. 5,438,518 (“the '518 patent”) for a player positioning and distance finding system. On July 16, 2008, GPS sued ProLink, alleging that ProLink infringed and induced the infringement of the '518 patent by “making, using, leasing, offering to sell, and/or selling devices incorporating the inventions patented in the ' 518 patent.” (GPS Compl. at 5.) In addition, GPS asserted claims of slander of title and unfair competition against ProLink. Specifically, GPS alleged that on June 30, 2006, ProLink falsely represented that it owned an exclusive license in perpetuity under the '518 patent as part of an intellectual property security agreement with Comerica Bank. This agreement was recorded and allegedly encumbered GPS's title to the '518 patent. On August 17, 2007, ProLink entered into a second intellectual property security agreement, this time representing that it owned outright the '518 patent. Again, this agreement was recorded and allegedly encumbered GPS's title. The GPS complaint alleges that ProLink knew that its representations were false and that it does not own the '518 patent or any associated rights. Further, “the ProLink Defendants have continued to make false claims of license rights and/or ownership interests in the '518 patent to investors and to others within the golf industry, and have granted security interests in the '518 patent to others.” (GPS Compl. at 8.) According to GPS, ProLink's actions slandered GPS's title to the '518 patent and constituted unfair competition.

Since 2003, ProLink was a named insured under Federal's commercial general liability insurance policy (the “Policy”). In late 2008, ProLink notified Federal of the GPS lawsuit, provided a copy of the complaint, and requested that Federal defend it in the ensuing litigation. By letter dated December 15, 2008, Federal informed ProLink that it would not defend or indemnify ProLink because GPS's allegations did not satisfy the Policy's definition of “personal injury” and, even if they did, the Policy's Intellectual Property Laws or Rights Exclusion or Expected or Intended Injury Exclusion would apply. ProLink eventually settled GPS's claims.

On January 14, 2011, ProLink filed a declaratory judgment action in district court, seeking to establish that Federal breached its duty to defend ProLink in the GPS litigation. ProLink cited and attached to its complaint the most recent Policy, which provided coverage from April 24, 2007, through April 24, 2008. On March 2, Federal filed a motion for judgment on the pleadings, arguing that ProLink could not establish that any of GPS's allegations triggered coverage under the Policy. ProLink responded to Federal's motion and filed a crossmotion for summary judgment on March 23. The district court found in favor of Federal on October 14, citing the Policy's exclusion of coverage for “personal injury” arising out of an offense committed before the beginning of the policy period (“First Publication Exclusion”). The district court held that ProLink's claim failed because the first alleged “personal injury” for which GPS sought damages (June 2006) occurred outside of the Policy period (April 2007 to April 2008), and thus, the exclusion applied. Although ProLink asserted in its reply brief that an identical Policy was in effect during the preceding year, the court deemed this argument waived. ProLink filed this timely appeal.

II. Analysis

We review de novo the district court's judgment on the pleadings in favor of Federal and denial of ProLink's summary judgment motion. See Fail–Safe, LLC v. A.O. Smith Corp., 674 F.3d 889, 892 (7th Cir.2012). We construe all facts and grant all reasonable inferences in favor of the party against whom the motion under consideration was made. Clarendon Nat'l Ins. Co. v. Medina, 645 F.3d 928, 933 (7th Cir.2011).

Federal and ProLink agree that Illinois law governs the outcome of this diversity action. Thus, “[t]o determine if an insurer has a duty to defend the insured, the court must compare the allegations in the underlying complaint to the relevant provisions of the insurance policy.” Universal Underwriters Ins. Co. v. LKQ Smart Parts, Inc., 357 Ill.Dec. 532, 963 N.E.2d 930, 937 (Ill.App.Ct.2011), leave to appeal denied,360 Ill.Dec. 10, 968 N.E.2d 89 (Ill.2012); see also Amerisure Mut. Ins. Co. v. Microplastics, Inc., 622 F.3d 806, 810 (7th Cir.2010). The insurer's duty to defend arises if “the facts alleged in the underlying complaint fall within, or potentially within, the policy's coverage.” Pekin Ins. Co. v. Wilson, 237 Ill.2d 446, 341 Ill.Dec. 497, 930 N.E.2d 1011, 1017 (2010). The allegations of the underlying complaint and the policy terms are construed liberally in favor of the insured, resolving all ambiguities against the insurer. Amerisure, 622 F.3d at 811. The insurer must defend the insured “even if the allegations are groundless, false, or fraudulent” and “even if only one of several theories is within the potential coverage of the policy.” Gen. Agents Ins. Co. of Am. v. Midwest Sporting Goods Co., 215 Ill.2d 146, 293 Ill.Dec. 594, 828 N.E.2d 1092, 1098 (2005); see also Owners Ins. Co. v. Seamless Gutter Corp., 356 Ill.Dec. 137, 960 N.E.2d 1260, 1269 (Ill.App.Ct.2011). In sum, “an insurer may not justifiably refuse to defend a lawsuit against its insured unless it is clear from the face of the underlying complaint that the allegations set forth in the complaint fail to state facts that bring the case within, or potentially within, the coverage of the policy.” Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill.2d 352, 307 Ill.Dec. 653, 860 N.E.2d 307, 315 (2006).

The district court chose to enter judgment in favor of Federal based on the First Publication Exclusion, noting that ProLink did not timely inform the court that the same Policy was in effect prior to 2007. But Federal's denial letter, which was part of the record, specifically referencesthe Policy, “issued for the policy periods of April 24, 2006 to April 24, 2007 and April 24, 2007 to April 24, 2008,” and “continuously in force from May 18, 2003.” (Compl. Ex. 5 at 2.) Given that the 2006–2007 policy was referenced in the record before the district court, we decline to rely upon the First Publication Exclusion in reaching our decision. Instead, “we may affirm a judgment on any ground the record supports and the appellee has not waived.” Barton v. Zimmer, Inc., 662 F.3d 448, 454 (7th Cir.2011). Although the district court did not address whether the underlying complaint's allegations fall within, or potentially within, the Policy's coverage, we find that they do not and will affirm the judgment on this basis.

In the Policy, Federal agrees to pay damages that ProLink becomes legally obligated to pay for “personal injury.” “Personal injury” is defined, in part, as:

injury, other than bodily injury, property damage or advertising injury, caused by an offense of:

... electronic, oral, written or other publication of material that:

1. libels or slanders a person or organization (which does not include disparagement of goods, products, property or services)....

(Policy at 30.) Federal asserts that GPS's allegations do not satisfy this definition because the only thing alleged is disparagement of property (the ' 518 patent). Because disparagement of property is specifically excluded from the definition of “personal injury,” Federal had no duty to defend ProLink. In contrast, ProLink argues that it is reasonable to infer from the underlying complaint that ProLink implicitly defamed and disparaged GPS, not just its patent. This implicit defamation constitutes libel or slander of an organization—a covered “personal injury.”

The parties agree that GPS's asserted claims for relief, slander of title and unfair competition, do not satisfy the definition of “personal injury.” But “[t]he...