Auto-Owners Ins. Co. v. Stevens & Ricci Inc.

• Decision Date: 01 September 2016
• Docket Number: No. 15–2080,15–2080
• Citation: 835 F.3d 388
• Court: U.S. Court of Appeals — Third Circuit
• Parties: Auto–Owners Insurance Company v. Stevens & Ricci Inc. ; Hymed Group Corporation Hymed Group Corporation, Appellant

835 F.3d 388

Auto–Owners Insurance Company

v. Stevens & Ricci Inc. ; Hymed Group CorporationHymed Group Corporation, Appellant

No. 15–2080

United States Court of Appeals, Third Circuit.

Argued January 20, 2016

Opinion Filed: September 1, 2016

Jeffrey A. Berman, David M. Oppenheim [ARGUED], Anderson & Wanca, 3701 Algonquin Road, Suite 500, Rolling Meadows, IL 60008,Phillip A. Bock, Bock & Hatch, LLC, 134 N. LaSalle Street, Suite 1000, Chicago, IL 60602, Ann M. Caldwell, Caldwell Law Office, LLC, 108 W. Willow Grove Avenue, Suite 300, Philadelphia, PA 19118, Counsel for Appellant

Robert S. Stickley, Langsam Stevens Silver & Hollaender, LLP, 1818 Market Street, Suite 3400, Philadelphia, PA 19103

Timothy P. Tobin [ARGUED], Gislason & Hunter LLP, 701 Xenia Ave. South, Suite 500, Minneapolis, MN 55416, Counsel for Appellee

Before: JORDAN, HARDIMAN, and GREENAWAY, JR., Circuit Judges.

OPINION OF THE COURT

JORDAN, Circuit Judge.

In this insurance coverage dispute, Auto–Owners Insurance Company (“Auto–Owners”) seeks a declaration that it has no obligation to defend or indemnify its insured, Stevens & Ricci, Inc. (“Stevens & Ricci”), in connection with a $2,000,000 judgment entered against Stevens & Ricci as part of the settlement of a class action lawsuit. In that class action, the Hymed Group Corporation (“Hymed”) alleged, as representative of the class, that Stevens & Ricci had violated the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227, by sending unsolicited fax advertisements. While that class action was pending, Auto–Owners filed this declaratory judgment action in the United States District Court for the Eastern District of Pennsylvania against both Stevens & Ricci and Hymed.¹ Auto–Owners and Hymed filed cross-motions for summary judgment. In its motion, Auto–Owners argued that the terms of the insurance policy did not obligate it to indemnify or defend Stevens & Ricci in the class action; Hymed argued, to the contrary, that the policy required Auto–Owners to pay the judgment on behalf of its insured.² The District Court concluded that the sending of unsolicited fax advertisements in violation of the TCPA did not fall within the terms of the insurance policy, and thus granted Auto–Owners's motion for summary judgment and denied Hymed's cross-motion. Because we agree that the insurance policy does not cover the judgment in the underlying class action, we will affirm.

I. BACKGROUND

This case began with the improper use of what now seems an old-fashioned method of communication: fax machines. Stevens & Ricci was solicited by an advertiser claiming to have a fax advertising program that complied with the TCPA. Relying on that representation, Stevens & Ricci allowed the advertiser to fax thousands of advertisements to potential customers on its behalf. The advertiser sent 18,879 unsolicited advertisements by fax in February 2006.

Much later, on June 1, 2012, Hymed filed a class action lawsuit in the United States District Court for the Eastern District of Pennsylvania against Stevens & Ricci, claiming that the advertisements actually did violate the TCPA, see Hymed Grp. Corp. v. Stevens & Ricci, Inc. , Civil Action No. 12–CV–3093 (the “Underlying Action”), which prohibits the “use [of] any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement ....” 47 U.S.C. § 227(b)(1)(C). Hymed asserted that it and other class members—numbering, per the complaint, “more than 39 other recipients” (J.A. at 545)—had not invited or given permission to Stevens & Ricci to send the faxes. Hymed's complaint further charged that the unsolicited faxes had damaged the recipients by causing them to waste paper and toner consumed in the printing process and to lose the use of their fax machines when the advertisements were being received. In Hymed's words, the “junk faxes” had also interrupted the class members' “privacy interest in being left alone.” (J.A. at 549–50.) For relief, Hymed sought actual or statutory damages, whichever was greater, and an injunction against future violations. Given the volume of faxes sent, a finding of liability to the class under the TCPA, with statutory damages of $500 per fax, 47 U.S.C. § 227(b)(3)(B), could have resulted in a damage award in the Underlying Action of $9,439,500, before trebling.³ Such a judgment could have bankrupted Stevens & Ricci and caused the dissolution of its business.

During the time that Stevens & Ricci had the unsolicited faxes sent to Hymed and other class members, it was covered by a “Businessowners Insurance Policy” (the “Policy”) issued by Auto–Owners. (J.A. at 555.) The Policy obligates Auto–Owners to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’, ‘property damage’, ‘personal injury’ or ‘advertising injury’ to which this insurance applies.” (J.A. at 563.) The present dispute centers on whether the sending of unsolicited faxes inflicted two of those four types of injury on the members of the class: property damage and advertising injury.

The term “property damage” is defined in the Policy as “[p]hysical injury to tangible property, including all resulting loss of use of that property.” (J.A. at 576.) For “property damage” to be covered under the Policy, it must be caused by an “occurrence” (J.A. at 563), which the Policy defines as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions” (J.A. at 575). Despite its use of the term, the Policy does not separately define an “accident,” though it does exclude from coverage any property damage “expected or intended from the standpoint of the insured.” (J.A. at 564–65.)

The Policy defines “advertising injury” as injury arising out of one or more of the following events:

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. Misappropriation of advertising ideas or style of doing business; or

d. Infringement of copyright, title or slogan.

(J.A. at 573.) To be covered, an “advertising injury” must also be inflicted “in the course of advertising [the insured's] goods, products or services.” (J.A. at 563.)

Auto–Owners agreed to defend Stevens & Ricci in the Underlying Action, but reserved its right to later challenge whether the alleged misconduct (i.e. , the sending of unsolicited faxes) fell within the terms of the insurance policy's coverage. In November 2013, Hymed, Stevens & Ricci, and Auto–Owners reached an agreement to compromise and settle the Underlying Action. Among other things, the parties agreed to entry of judgment in favor of the class, and against Stevens & Ricci, in the amount of $2,000,000. Hymed and the class also agreed to seek recovery to satisfy the judgment only from Auto–Owners under the Policy. On December 4, 2014, the District Court in the Underlying Action entered an order and final judgment approving the settlement and entering the judgment against Stevens & Ricci. In its order, the Court specifically found that Stevens & Ricci “did not willfully or knowingly violate the TCPA.” (J.A. at 24.)

By that time, Auto–Owners had already filed this case to clarify its obligations under the Policy. In particular, on December 28, 2012, Auto–Owners filed the present declaratory judgment action, pursuant to 28 U.S.C. § 2201, against Stevens & Ricci and Hymed, seeking a declaration that the Policy did not provide coverage for Hymed's claims in the Underlying Action and that Auto–Owners thus did not owe Stevens & Ricci any duty to defend or indemnify.⁴ It filed an amended complaint on January 3, 2013. Stevens & Ricci never entered an appearance or filed a response.⁵ Auto–Owners and Hymed each moved for summary judgment, and the District Court concluded that the sending of unsolicited faxes to Hymed and other class members did not cause the sort of injury that falls within the Policy's definition of either “property damage” or “advertising injury.” Accordingly, the Court granted Auto–Owners's motion for summary judgment and denied Hymed's cross-motion. Hymed promptly appealed.

II. DISCUSSION

A. Jurisdiction

This is an action under the Declaratory Judgment Act, 28 U.S.C. § 2201. That Act does not itself create an independent basis for federal jurisdiction but instead provides a remedy for controversies otherwise properly within the court's subject matter jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co. , 339 U.S. 667, 671–72, 70 S.Ct. 876, 94 L.Ed. 1194 (1950). In bringing its action, Auto–Owners invoked the District Court's diversity jurisdiction under 28 U.S.C. § 1332, which has two requirements for the establishment of jurisdiction. First, the parties must be completely diverse, meaning that “no plaintiff can be a citizen of the same state as any of the defendants.” Grand Union Supermarkets of the V.I., Inc. v. H.E. Lockhart Mgmt., Inc. , 316 F.3d 408, 410 (3d Cir. 2003). For jurisdictional purposes, “a corporation is a citizen of both its state of incorporation and the state ‘where it has its principal place of business.’ ” Johnson v. SmithKline Beecham Corp. , 724 F.3d 337, 347 (3d Cir. 2013) (quoting 28 U.S.C. § 1332(c)(1) ). Here, there is no dispute that the parties are completely diverse: Auto–Owners is based and incorporated in Michigan, while Stevens & Ricci is based and incorporated in Arizona, and Hymed is based and incorporated in Pennsylvania.⁶

The second requirement for federal jurisdiction under the diversity statute is that the “matter in controversy exceeds the sum or value of $75,000 ....” 28 U.S.C. § 1332(a). Meeting that requirement here is not as straightforward as it may first appear. Although Auto–Owners and Hymed are ultimately fighting over the insurer's need to pay a $2,000,000 judgment against its insured, that judgment is...