Amerisure Ins. Co. v. Laserage Technology Corp.
| Decision Date | 10 March 1998 |
| Docket Number | No. 96-CV-6313.,96-CV-6313. |
| Citation | 2 F.Supp.2d 296 |
| Parties | AMERISURE INSURANCE COMPANY, and Michigan Mutual Insurance Company, Plaintiffs, v. LASERAGE TECHNOLOGY CORPORATION, Cirqon Technologies Corporation, Arthur O. Capp, Jr., Stephen L. Capp, Kalman Zsamboky and Zecal Incorporated, Defendants. |
| Court | U.S. District Court — Western District of New York |
Reynolds E. Hahn, Petrone & Petrone, P.C., Rochester, NY, Shaun McParland Baldwin, Dawn Midkiff, Daniel R. Formeller, Andrea J. McIntyre, D.J. Dartorio, Tressler, Soderstrom, Maloney & Priess, Chicago, IL, for Plaintiffs.
Joseph B. Rizzo, Gallo & Iacovangelo, Rochester, NY, Robert I. Schwimmer, Richard R. Winter, Sarah E. Pace, McBride, Baker & Coles, Chicago, IL, for Defendants Laserage Technology Corp., Cirqon Technologies Corp., Arthur O. Capp, Jr., Stephen L. Capp.
Samuel G. Brundage, Johnson, Mullan, Brundage & Keigher, Rochester, NY, Howard G. Sloane, Jonathan D. Thier, Cahill, Gordon & Reindel, New York, NY, for Defendants Kalman Zsamboky, Zecal Inc.
DECISION AND ORDER
This is an action involving the interpretation of two commercial general liability insurance policies. The plaintiffs seek a declaration that they are not obligated to provide a defense to the defendants, who were sued in an underlying case previously filed in this Court entitled Kalman Zsamboky and Zecal, Inc. v. Laserage Technology, Corp., Cirqon Technologies Corp., Arthur O. Capp, Jr. and Stephen L. Capp (95-CV-6332). The following motions are before the Court:
1. Motion [72-1] by the plaintiff Amerisure for summary judgment against Laserage and Cirqon;
2. Motion [69-1] by the plaintiff Amerisure for summary judgment against Arthur O. Capp, Jr. and Stephen L. Capp;
3. Motion [68-1] by the plaintiff Michigan Mutual for summary judgment against Laserage, Cirqon, Arthur O. Capp, Jr. and Stephen L. Capp;
4. Motion by Amerisure to bifurcate [71-1] and/or stay the counterclaim [71-2] or, in the alternative, for summary judgment as to those claims [71-3];
5. Motion [93] by Amerisure to strike references to certain extrinsic materials;
6. Motion [110] by Laserage, Cirqon, Arthur Capp and Stephen Capp for default judgment on their counterclaim;
7. Motion [112] by Amerisure and Michigan Mutual for leave to file their answer to defendants' counterclaim, instanter, to conform with the evidence; and
8. Motion [126] by Laserage, Cirqon, Arthur Capp and Stephen Capp for reconsideration of this Court's Order [124-1], denying these defendants' motion for leave to supplement their summary judgment briefs. Oral argument on motions 1-5 above was heard on February 5, 1998.
The Court has reviewed the papers submitted in support of and in opposition to the applications, and has considered the oral arguments of Shaun McFarland Baldwin, Esq. on behalf of Amerisure and Michigan Mutual and Richard Winter, Esq. on behalf of Laserage, Cirqon, Arthur Capp and Stephen Capp ("the Laserage Defendants"). For the reasons stated below, the application to strike references to certain extrinsic materials and the applications for summary judgment are granted, the applications for default judgment on the counterclaim and for reconsideration are denied, and the remaining applications are dismissed as moot.
Laserage is a corporation engaged in the laser machining of various materials. Cirqon is a corporation engaged in the fabrication of copper metallized circuit boards. Laserage is a majority shareholder of Cirqon. Together they have over one hundred employees and post combined sales of over $10 million.
The plaintiffs issued commercial general liability policies to Laserage, Cirqon and the Capps for the period of November 15, 1994 through November 15, 1995. The Amerisure policy provides primary coverage, while the Michigan Mutual policy provides excess coverage. Both policies provide coverage for personal injury, "caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you," and for advertising injury, "caused by an offense committed in the course of advertising your goods, products or services." Both personal injury and advertising injury are defined in relevant part as "injury ... arising out of ... 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." Each policy also contains an exclusion for personal injury and advertising injury "[a]rising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity."
Additionally, both policies contain a provision requiring the insured to give the insurer notice of an occurrence, claim or suit. The Amerisure policy section entitled "Duties In The Event Of Occurrence, Offense, Claim or Suit" states in relevant part:
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.
c. You and any other involved insured must: (1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "suit";
* * * * * *
d. No insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.
The Amerisure policy also contains a provision entitled "Legal Action Against Us," that states in relevant part:
No person or organization has a right under this Coverage Part: ... (b) To sue us on this Coverage Part unless all of its terms have been fully complied with.
The Michigan Mutual policy contains essentially identical provisions. The Amerisure policy has a personal and advertising injury limit of $1 million and a general aggregate limit of $2 million. The Michigan Mutual policy has a combined and aggregate limit of $5 million. The defendants also had insurance policies with at least three other insurance companies, Indiana Insurance Co., CNA Insurance Co. and American States Insurance Co., which policies are not at issue here.
On July 21, 1995, the defendants were sued in the aforementioned action entitled Zsamboky, et al. v. Laserage Technology Corp. et al. The complaint alleged causes of action for breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation, breach of implied covenant of good faith and fair dealing, unjust enrichment and constructive trust, correction of inventorship, misappropriation of trade secrets, declaratory judgment of patent invalidity, antitrust violations, equitable assignment of patents, and violation of the Lanham Act. The complaint alleged that between 1989 and 1995, the defendants misappropriated Zsamboky's technology, used it to obtain patents, then threatened to sue Zsamboky for selling his own technology. Zsamboky contended that the defendants told customers that he was infringing Laserage's and Cirqon's patents, and that these customers acted at their own risk in purchasing his products. He alleged that the defendants made certain false statements intentionally, knowingly, in bad faith and with knowledge of their falsity. Zsamboky sought damages for lost profits and $10 million dollars in punitive damages, as well as other relief.
Zsamboky served the defendants with summonses and complaints in early August of 1995. Arthur Capp, Chairman of the boards of both Laserage and Cirqon, learned of this lawsuit on or about August 2, 1995. Capp immediately notified Robert Schwimmer, general counsel for Laserage and Cirqon. Schwimmer is a partner at the Chicago law firm McBride, Baker & Coles, the same firm which represents Laserage, Cirqon and the Capps in the subject action. According to the 1997 Martindale-Hubbell Law Directory, McBride, Baker & Coles employs approximately seventy attorneys and lists insurance law as one of its areas of practice. Schwimmer determined that his firm, McBride, Baker & Coles, did not have patent litigation expertise, and therefore he and the defendants began looking for a patent litigation firm to defend the Zsamboky lawsuit.
Michael Wimmer, the current president of Cirqon, stated that while the defendants were interviewing prospective patent litigation firms, the question of whether there was insurance coverage for the lawsuit was raised and summarily dismissed. At his deposition, Wimmer recalled that Mr. Schwimmer said (Wimmer, p. 184)1
At that time, none of the defendants examined the insurance policies at issue here or notified the plaintiffs of the lawsuit. In fact, Stephen Capp, the person responsible for notifying insurers of general liability claims against Laserage and Cirqon, (S.Capp, pp. 144-45) (A.Capp, pp. 269-70) admitted that he never read the notice provisions of the insurance policies, at issue here, until his deposition in this action on September 22, 1997. (S.Capp, pp. 415, 421)2
The Laserage defendants selected the law firm of Baker & McKenzie to defend the lawsuit. There were three attorneys at the Baker & McKenzie firm working on the lawsuit. Mr. Schwimmer also continued to assist the defendants in the defense of the Zsamboky lawsuit. The attorneys advised the defendants that defending the lawsuit could cost approximately $250,000 to $500,000.
In October of 1995, Mr. Schwimmer discussed the possibility of insurance coverage for the Zsamboky lawsuit with one of his law partners, and he reviewed an article on the topic of general liability insurance coverage for patent cases. However, he did not advise the defendants to...
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