Zurich Ins. Co. v. Sunclipse, Inc.

• Decision Date: 19 January 2000
• Docket Number: No. 98 C 1152.,98 C 1152.
• Citation: 85 F.Supp.2d 842
• Parties: ZURICH INSURANCE COMPANY, Plaintiff, v. SUNCLIPSE, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

85 F.Supp.2d 842

ZURICH INSURANCE COMPANY, Plaintiff, v. SUNCLIPSE, INC., Defendant.

No. 98 C 1152.

United States District Court, N.D. Illinois, Eastern Division.

January 19, 2000.

COPYRIGHT MATERIAL OMITTED

Ellen B. Van Vechten, Smith, Williams & Lodge, Chicago, IL, Marlene Ann Kurilla, Fred A. Smith, III, Frank Joseph Marsico, Sedgwick, Detert, Moran & Arnold, Chicago, IL, for Zurich Insurance Company, plaintiff.

Duane F. Sigelko, Henry Pietrkowski, Sachnoff & Weaver, Ltd., Chicago, IL, Edward W. Smithers, Law Offices of Edward W. Smithers, San Jose, CA, for Sunclipse, Inc., defendant.

Edward W. Smithers, Law Offices of Edward W. Smithers, San Jose, CA, Henry Pietrkowski, Sachnoff & Weaver, Chicago, IL, for Sunclipse, Inc., counter-claimant.

Ellen B. Van Vechten, Smith, Williams & Lodge, Chicago, IL, Marlene Ann Kurilla, Fred A. Smith, III, Frank Joseph Marsico, Sedgwick, Detert, Moran & Arnold, Chicago, IL, for Zurich Insurance Company, counter-defendant.

MEMORANDUM OPINION AND ORDER

PALLMEYER, District Judge.

Plaintiff Zurich Insurance Company ("Zurich" or "Insurer") seeks a declaration that it had no duty to defend or indemnify Defendant Sunclipse, Inc. ("Sunclipse" or "Insured") for the defense costs incurred and the settlement reached in an unfair competition case filed against Sunclipse by Century Container Corp. ("Century"). In the underlying action, Century sought damages from Sunclipse resulting from the alleged misappropriation of proprietary information concerning the manufacture of conductive surface coating for corrugated boxes. Century claimed that Sunclipse's manufacture and sale of its own coating violated the terms of an agreement by which Century licensed its coating process to Sunclipse.

Zurich claims it is not required to defend Sunclipse against Century's allegations and now seeks summary judgment. Zurich contends that Sunclipse did not provide prompt notice of the underlying action as required by the insurance policy, and that the subject insurance policy does not cover the alleged injuries. Sunclipse filed a cross motion for summary judgment. Sunclipse asserts that California law applies, and under that law Zurich may not assert the delay in notice defense because it cannot show prejudice from the delay. Sunclipse argues, further, that the underlying action involved an "advertising injury" which is covered under the policy. For the reasons set forth below, Zurich's motion for summary judgment is granted and Sunclipse's motion is denied.

FACTUAL BACKGROUND

A. The Parties

Sunclipse, a California corporation which maintains its principal place of business in that state, is a wholly-owned subsidiary of Amcor Limited ("Amcor"), a multinational integrated packaging and paper company with its headquarters in Australia. (Sunclipse 12(M) ¶¶ 1, 2.) Sunclipse is involved in the manufacture and sale of corrugated products made from liner board or sheet stock. (Zurich 12(M) ¶ 16.) Sunclipse manufactures Corru-Shield, an electrostatic discharge ("ESD") container designed to protect packaged electronic devices from static electricity. (Id. ¶ 17.) Sunclipse's facilities are located in several California communities,¹ and it services the California market for corrugated packaging. (Sunclipse 12(M) ¶ 13.) It maintains no office, has no property, and has no employees in Illinois. (Id.)

At the time of the issuance of the subject insurance policies, Zurich was the United States branch of a Swiss corporation. (Zurich 12(M) ¶ 1.) During the relevant time period, Zurich maintained its principal administrative offices in Schaumburg, Illinois and was licensed to and did transact business in Illinois. (Id. ¶ 2.)

B. The Insurance Policies

Between November 1, 1992 and November 1, 1995, Zurich issued three one-year Commercial General Liability insurance policies ("the Policies") to Sunclipse. Each policy provided coverage for personal and advertising injury with a limit of $1 million. (Sunclipse 12(M) ¶ 6; Zurich 12(M) ¶¶ 4-6.) Each of the Policies lists Sunclipse, Inc. as the Named Insured with a California mailing address. (Sunclipse 12(M) ¶ 7; Exs. A, B, C to Affidavit of Steven Sheldon² in Support of Zurich's Mot. for Summ. J.) On the declarations page of each of the Policies, "Glendale, CA" is designated as the "Service Office" for the Policy³ and each of the Policies contains a California amendatory endorsement regarding cancellation and renewal. (Id.) Each of the Policies was delivered to Sunclipse's broker, Alexander & Alexander of California, Inc. ("A & A California") at its offices in Pasadena, California. (Sunclipse 12(M) ¶ 8.) Amcor arranged the issuance of the Policies as part of an integrated insurance program for all of Amcor's subsidiaries throughout the world, including Sunclipse. (Id. ¶ 9.) Several substantive communications about the Policies and at least one meeting regarding the Policies issued to Sunclipse took place between A & A California and the offices of Zurich International U.S. West located in Glendale, California ("Zurich's Glendale Office"). (Id. ¶¶ 10-11.) Sunclipse remitted premium payments to A & A California and Zurich presumably accepted such payments from A & A California.⁴ (Id. ¶ 12.)

Each of the Policies contained a provision describing the coverage for personal and advertising injury. The relevant provision reads as follows:

COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement.

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;

but only if the offense was committed in the "coverage territory" during the policy period.

(Sunclipse 12(M) ¶ 14; Exs. A, B, C to Sheldon Aff.) The Policies define "Advertising injury" as:

injury arising out of 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 organizations' 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.

(Id.) The Policies also exclude certain "personal" and "advertising" injuries from coverage. Specifically, the Policies exclude coverage for "`Advertising Injury' arising out of ... Breach of contract, other than misappropriation of advertising ideas under an implied contract[.]" (Zurich 12(M) ¶ 10.) The Conditions section of the Policies contain the following duties of the insured in the event of an occurrence, claim or suit:

a. You must see to it that we are notified as soon as practicable of an "occurrence" or an offense which may result in a claim....

b. If a claim is made or "suit" is brought against any insured, you must:

(1) Immediately record the specifics of the claim or "suit" and the date received; and

(2) Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or "suit" as soon as practicable.

(Id. ¶ 7.) Each of the Policies was signed by Zurich's United States Manager, Secretary and President, all of whom are located at the Schaumburg, Illinois offices. (Id. ¶ 12.) The Policies further provided that "[y]our agent or broker is best equipped to provide information about your insurance. Should you require additional information or assistance in resolving a complaint, call or write to the following: Zurich-American Insurance Group, Customer Inquiry Center, 1400 American Lane, Schaumburg, Illinois 60196-1056." (Id. ¶ 13.)

C. The Underlying Action

Century is an Illinois corporation which manufactures graphite conductive surface coatings for application to liner board or corrugated sheet stock under the trade name "Centurian." (Zurich 12(M) ¶ 14.) The coated material is used to make electro-static discharge ("ESD") containers designed to protect electronic devices from static electricity. (Id.) Century supplies its products to companies that manufacture corrugated products, including Sunclipse. (Id. ¶ 15.) Century and Sunclipse entered into two separate license agreements in February and July of 1993. (Id. ¶¶ 18, 20.) Both agreements provided that "SUNCLIPSE agrees not to manufacture, distribute or sell any corrugated products having a conductive surface coating purchased from any source other than CENTURY ... during the term of this license."⁵ (Id.) The July agreement superceded the February agreement. (Sunclipse 12(M), Ex. 23, at 4, 10.)

On March 20, 1995, Century filed a lawsuit in the United States District Court for the Northern District of Illinois, charging Sunclipse with misappropriation of trade secrets and breach of contract. (Zurich 12(M), Ex. A to Aff. of Sharon R. Terris⁶ in Support of Zurich's Mot. for Summ. J.) In its second amended complaint, filed on May 12, 1995, Century stated four claims (1) misappropriation of trade secrets; (2) breach of contract; (3) unjust enrichment; and (4) punitive damages. (Sunclipse 12(M) ¶ 16.) Century alleged that its president, Arthur J. Castellano ("Castellano") met with Robert Vermillion ("Vermillion"), a prospective employee, in December 1993. (Zurich 12(M) ¶ 23.) During those meetings, Castellano allegedly discussed Century's license agreement with Sunclipse and allegedly disclosed confidential and proprietary information and trade secrets regarding the graphite conductive surface coatings. (Id.) The second amended complaint further alleged that Corru-Kraft, a division of Sunclipse, subsequently hired Vermillion in March 1994 as its manager of ESD corrugated sales and product development. (Id. ¶ 25.) Century also alleged that...