Abb Flakt Inc. v. NAT. UNION FIRE INS. CO.

• Decision Date: 28 June 1999
• Docket Number: No. 299, 1998.,299, 1998.
• Citation: 731 A.2d 811
• Parties: ABB FLAKT, INC., a corporation of the State of Delaware, Plaintiff Below, Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Birmingham Fire Insurance Company of Pennsylvania, First State Insurance Company, Twin City Fire Insurance Company, Atlantic Mutual Insurance Company, Centennial Insurance Company, International Insurance Company, and Aetna Casualty and Surety Company, Defendants Below, Appellees.
• Court: Supreme Court of Delaware

731 A.2d 811

ABB FLAKT, INC., a corporation of the State of Delaware, Plaintiff Below, Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Birmingham Fire Insurance Company of Pennsylvania, First State Insurance Company, Twin City Fire Insurance Company, Atlantic Mutual Insurance Company, Centennial Insurance Company, International Insurance Company, and Aetna Casualty and Surety Company, Defendants Below, Appellees.

No. 299, 1998.

Supreme Court of Delaware.

Submitted: June 8, 1999.

Decided: June 28, 1999.

Donald E. Marston, Sullivan & Marston, P.A., Wilmington, and William C. Eustace (argued) and Tracy Alan Saxe (argued), Saxe, Eustace & Vita, P.C., New Haven, Connecticut, for appellant.

Anthony G. Flynn and Timothy Jay Houseal, Young, Conaway, Stargatt & Taylor, LLP, Wilmington and M. Elizabeth Medaglia (argued), Robert N. Kelly, Peter von Mehren, Jackson & Campbell, P.C., Washington, D.C., for appellees National Union Fire Insurance Company of Pittsburgh, Pa. and Birmingham Fire Insurance Company of Pennsylvania.

Donald M. Ransom, Casarino, Christman & Shalk, Wilmington, and Wendy L. Mager (argued) and Lisa Dorio Ruch, Smith, Stratton, Wise, Heher & Brennan, Princeton, New Jersey, for appellees Atlantic Mutual Insurance Company and Centennial Insurance Company.

Sherry Ruggiero Fallon, Tybout, Redfearn & Pell, Wilmington, for appellees First State Insurance Company and Twin City Fire Insurance Company.

Paul Cottrell, Tighe, Cottrell & Logan, P.A., Wilmington, and Jeffrey A. Goldwater, Arthur F. Brandt, and Ann M. Edmonds, Bollinger, Ruberry & Garvey, Chicago, Illinois, for appellee International Insurance Company.

Richard K. Herrmann and Mary B. Matterer, Blank, Rome Comisky & McCauley, LLP, Wilmington, and Richard T. Lunger, Rivkin, Radler & Kremer, Uniondale, New York, for appellee Aetna Casualty & Surety Company.

Before VEASEY, Chief Justice, WALSH, HOLLAND, HARTNETT and BERGER, Justices, constituting the Court en Banc. WALSH, Justice:

In this appeal we review the Superior Court's grant of summary judgment in two consolidated declaratory judgment actions relating to "advertising injury" policy provisions contained in general liability insurance policies. The Superior Court ruled that the underlying provisions were unambiguous and did not provide coverage for patent infringement. The court found that patent infringement did not fall within the enumerated offenses set forth in the pertinent provisions and, even assuming that it did, there was no causal connection between the underlying patent infringement and the insured's advertising activities.

While we do not adopt the Superior Court's analysis of policy ambiguity, we affirm on an alternative basis: that, as a matter of law, the underlying patent infringement actions for which the insured sought coverage neither "arose out of" nor "occurred in the course of" the insured's advertising activities. Accordingly, on that alternative basis, we affirm the judgment of the Superior Court.

I

ABB Flakt, Inc. ("Flakt") is a Delaware corporation engaged in the business of producing flue gas desulferization ("FGD") systems designed to filter sulfur dioxide from the flue gas emitted from power plant smoke stacks. Flakt has its principal place of business in Atlanta, Georgia. Flakt contends that in order to sell its FGD technology to potential customers, it built and operates a demonstration plant at its Georgia facility.

In 1989, Flakt was sued for patent infringement in the United States District Court for the District of Delaware. The plaintiff in that action, Joy Technologies, Inc. ("Joy") sought injunctive relief and damages, claiming that Flakt "has made, used and sold and continues to make, use and sell facilities and apparatus, the operation of which" infringes United States Patent No. 4,279,873 (the "873 patent") covering a process for flue gas desulferization. Joy holds the exclusive right to sue under the 873 patent. In this action ("Joy I"), Flakt was alleged to have directly infringed, induced infringement of, and contributorily infringed the 873 patent. In January 1992, a jury in Joy I rendered a verdict against Flakt and judgment was entered on February 3, 1992 upholding the validity and enforceability of the 873 patent and finding infringement.

Joy filed a second action against Flakt on March 30, 1992, ("Joy II"). In this action it was alleged that Flakt and other related or affiliated companies "have made, used, and sold, and continue to make, use and sell, systems, facilities and apparatus, the operation of which" infringes the 873 patent. In Joy II, Joy also alleged that defendants "themselves engaged in the operation of at least certain of such systems, facilities and apparatus in such a manner as to infringe" the 873 patent. In Joy II, Joy raised certain collateral estoppel issues based on the judgment in Joy I. Again Joy charged Flakt with direct infringement, inducing infringement and contributory infringement.

In November 1994, Flakt filed the underlying declaratory judgment actions against eight insurance companies (collectively "the insurers")¹ seeking a determination that the activities which led to the patent litigation was covered by the advertising injury provisions of its policies. The insurers sold general liability insurance policies to Flakt and Combustion Engineering, Inc. ("Combustion") from 1981-1992. Combustion, a Delaware corporation with its principal place of business in Connecticut, is a co-defendant in Joy II. The Superior Court found that all of the insurance policies at issue were substantially similar with inconsequential differences. The policies contained essentially two definitions² for "advertising activity" or "advertising injury" which Flakt advances as the basis for the insurers duty to defend and indemnify. These definitions are:

"Advertising injury" means injury arising out of an offense committed during the policy period occurring in the course of the named insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of a right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan.

or

"Advertising Liability" means libel, slander, defamation, infringement of copyright, title or slogan, piracy, unfair competition, idea misappropriation or invasion of rights of privacy committed, or alleged to have been committed in any advertisement, publicity article, broadcast or telecast and arising out of the Named Insured's advertising activities.

A third provision provided:

Advertising injury means 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.

The insurers moved for summary judgment asserting that, as a matter of law, it owed no duty to Flakt to defend, or indemnify for judgments arising from, the patent infringement litigation. The Superior Court stayed all discovery pending briefing on the summary judgment motions of the insurers. Flakt argued that there was a need for discovery regarding choice of law³ and intent of coverage. The Superior Court continued the discovery stay after finding that the primary issue was one of contract construction.

II

We first consider Flakt's contention that the Superior Court erred as a matter of law and/or abused its discretion by granting a stay of discovery while requiring it to respond to the insurers' motions for summary judgment. Flakt contends that both Mann v. Oppenheimer & Co., Del.Supr., 517 A.2d 1056 (1986) and Levy v. Stern, Del.Supr., No. 211, 1996, 1996 WL 742818 (Dec. 20, 1996), support a finding that the Superior Court abused its discretion in denying it discovery while facing a summary judgment motion. The insurers counter that the Superior Court correctly concluded that discovery was unnecessary because the policy provisions being construed were unambiguous, and therefore did not require resort to extrinsic evidence.⁴

This Court reviews a trial court's application of discovery rules for abuse of discretion. American Insurance Co. v. Synvar Corp., Del.Supr., 199 A.2d 755, 757 (1964); Mann v. Oppenheimer & Co., Del. Supr., 517 A.2d 1056, 1061 (1986).

A stay of discovery is appropriate where a potentially case dispositive motion is pending, and there is no prejudice to the non-moving party. The disposition of such motion without the delay and expense of discovery serves to relieve the proponent of an unnecessary burden. Schick Inc. v. Amalgamated Clothing and Textile Workers Union, Del.Ch., C.A. No. 9066, 1987 WL 12450 at *2 (June 18, 1987). The party seeking the stay, however, carries the burden of justifying the elimination of important procedural devices available to most litigants. Corporate Property v. AmerSig Graphics, Inc., Del.Ch., C.A. No. 13241, 1993 WL 534986 at *1 (Dec. 9, 1993).

In this case, the insurers claimed that disposition of the summary judgment motion was appropriate without discovery because they placed in the record the complaints for the underlying patent infringement actions. The patent infringement actions had been described in Flakt's complaint, but not attached as exhibits.⁵ Since the issue of coverage turns on the claims made by the plaintiffs in the patent actions and the ultimate recovery, it would appear that this is one of those rare cases where discovery is not required. In any event, the issue of whether the Superior Court abused its discretion in granting the stay of discovery is inextricably intertwined with the correctness of its rulings on the ambiguity of the advertising injury provisions and lack of establishment of a causal connection....