Atlantic Mut. Ins. Co. v. Brotech Corp.

• Decision Date: 30 June 1994
• Docket Number: Civ. A. No. 93-1450.
• Citation: 857 F. Supp. 423
• Parties: ATLANTIC MUTUAL INSURANCE CO. v. BROTECH CORPORATION, Defendant and Third Party Plaintiff, v. PLANET INSURANCE COMPANY and Lexington Insurance Company, Third Party Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

857 F. Supp. 423

ATLANTIC MUTUAL INSURANCE CO. v. BROTECH CORPORATION, Defendant and Third Party Plaintiff, v. PLANET INSURANCE COMPANY and Lexington Insurance Company, Third Party Defendants.

Civ. A. No. 93-1450.

United States District Court, E.D. Pennsylvania.

June 30, 1994.

COPYRIGHT MATERIAL OMITTED

Joseph P. Connor, III, Connor & Weber, P.C., Paoli, PA, for Atlantic Mut. Ins. Co.

Paul R. Rosen, Spector, Gadon & Rosen, P.C., Philadelphia, PA, Karen L. Bush, Andrew M. Reidy, Anderson, Kill, Olick & Oshinsky, Washington, DC, for Brotech Corp.

T. Kevin Fitzpatrick, Liebert, Short & Hirshland, Eric A. Weiss, Marshall Dennehey Warner Coleman & Goggin, Philadelphia, PA, for Planet Ins. Co.

Edwin L. Scherlis, Michael J. Cawley, Margolis, Edelstein, Scherlis, Sarowitz & Kraemer, Philadelphia, PA, for Lexington Ins. Co.

MEMORANDUM

WALDMAN, District Judge.

I. Introduction

This is an action by Atlantic Mutual Insurance Company ("Atlantic") against Brotech Corporation ("Brotech") for a declaratory judgment and ruling that Atlantic, under two comprehensive general liability policies it issued to Brotech, owes no duty to defend Brotech in a patent infringement action or to indemnify Brotech for any liability it may incur in that action.

Brotech filed a counterclaim seeking a declaration that Atlantic owes a duty to defend and indemnify Brotech as an insured. Brotech also filed a third-party complaint against Lexington Insurance Company ("Lexington") and Planet Insurance Company ("Planet") for similar relief based on their issuance of policies to Brotech after the effective coverage periods of the Atlantic policies.

Presently before the court is the Motion of Defendant and Third-Party Plaintiff Brotech Corporation for Partial Judgment on the Pleadings or, in the Alternative, Partial Summary Judgment on the Duty to Defend and the Cross-Motions for Summary Judgment of Plaintiff Atlantic Mutual Insurance and Third-Party Defendants Planet Insurance Company and Lexington Insurance Company.

II. Legal Standard

All parties involved have requested a judgment on the pleadings under Fed.R.Civ.P. 12(c), or alternatively, partial summary judgment. Since all parties have presented material outside the pleadings which the court has considered, the court will treat the motions as motions for summary judgment pursuant to Fed.R.Civ.P. 56.

In considering a motion for summary judgment, the court must determine whether the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, show there is no genuine issue as to any material fact, and whether the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986); Arnold Pontiac-GMC, Inc. v. General Motors Corporation, 786 F.2d 564, 568 (3d Cir.1986). Only facts that may affect the outcome of a case under applicable law are "material." Anderson, supra 477 U.S. at 248, 106 S.Ct. at 2510.

All reasonable inferences from the record must be drawn in favor of the non-movant. Anderson, supra 477 U.S. at 256, 106 S.Ct. at 2514. Although the movant has the initial burden of demonstrating an absence of genuine issues of material fact, the non-movant must then establish the existence of each element on which it bears the burden of proof. J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir.1990), cert. denied, 499 U.S. 921, 111 S.Ct. 1313, 113 L.Ed.2d 246 (1991) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986)).

III. Facts

There is no dispute among the parties as to the following material facts pertinent to a resolution of this case.

On March 1, 1990, Rohm & Haas filed an action against Brotech for patent infringement. Rohm & Haas alleged that from 1981 Brotech has infringed certain patents by selling or using the products defined by the claims of those patents or by selling or using the products made by the processes defined by the claims of those patents. The Rohm & Haas litigation is proceeding in the District of Delaware. Brotech has incurred substantial costs.

On June 15, 1992, pursuant to two comprehensive general liability insurance policies that covered the period from November 6, 1981 to December 15, 1986, Brotech requested that Atlantic defend and indemnify Brotech in the Rohm & Haas litigation. On July 6, 1992 and July 23, 1992, Brotech made similar requests of Lexington and Planet respectively, pursuant to policies that covered the period from December 15, 1986 through October 1, 1990. All of the insurance companies denied coverage.

Atlantic's duty to defend and indemnify is contained in § II(A) of the Broad Form Comprehensive General Liability Endorsement entitled Personal Injury and Advertising Injury Liability Coverage. It provides that Atlantic:

... will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury or advertising injury to which this insurance applies, sustained by any person or organization and arising out of the conduct of the named insured's business, within the policy territory, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such injury, even if any of the allegations of the suit are groundless, false or fraudulent ...

This boiler plate insurance contract provision is also contained in nearly identical form in the policies of Lexington and Planet.

The insurance companies denied Brotech's assertion that the patent infringement action was encompassed by the term "advertising injury".¹ The relevant policy provision in the Atlantic policy stated:

"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 right to privacy, piracy, unfair competition, or infringement of copyright, title or slogan.

The insurance companies rejected Brotech's contention that patent infringement was encompassed by the terms "piracy," "unfair competition" and "infringement of title" in the definition of "advertising injury".²

IV. Discussion

The issue presented is whether a claim of patent infringement triggers a duty to defend the insured in a policy that includes coverage for "advertising injury". There are no Pennsylvania appellate cases directly on point.³ The court must predict how the Pennsylvania Supreme Court would decide the issue.⁴

The principles which govern interpretation of a contract of insurance under Pennsylvania law are well settled. The task of interpreting a contract must generally be performed by the court. See Gonzalez v. United States Steel Corp., 484 Pa. 277, 298, 398 A.2d 1378 (1979); Community College of Beaver County v. Society of the Faculty, 473 Pa. 576, 592, 375 A.2d 1267 (1977). The goal is to ascertain the intent of the parties as manifested by the language of the written instrument. See Mohn v. American Casualty Co. of Reading, 458 Pa. 576, 586, 326 A.2d 346 (1974). The court must read the insurance policy as a whole and construe it according to the plain meaning of its terms. C.H. Heist Caribe Corp. v. American Home Assurance Company, 640 F.2d 479, 481 (3rd Cir.1981).

A term is ambiguous if reasonable people, considering it in the context of the entire policy, could fairly ascribe different meanings to it. Northbrook Insurance Co. v. Kuljian Corp., 690 F.2d 368, 372 (3rd Cir. 1982); United Servs. Auto. Ass'n v. Elitzky, 358 Pa.Super. 362, 369, 517 A.2d 982 (1986). Where a provision is ambiguous, it should be construed against the insurer as the drafter of the agreement. C.H. Heist, 640 F.2d at 481; Lazovick v. Sun Life Insurance Company of America, 586 F.Supp. 918, 922 (E.D.Pa. 1984). A court, however, should not torture the language of the policy to create ambiguities. Eastern Associated Coal Corp. v. Aetna Casualty & Surety Co., 632 F.2d 1068, 1075 (3rd Cir.1980).

Where the language of the contract is clear, a court is required to give the words their ordinary meaning. Northbrook, 690 F.2d at 372; Pennsylvania Manufacturers' Ass'n Insurance Co. v. Aetna Casualty & Surety Insurance Co., 426 Pa. 453, 457, 233 A.2d 548 (1967).

An insurer has a duty to defend whenever the allegations of an underlying complaint against a policyholder potentially fall within the coverage of the policy. C.H. Heist, 640 F.2d at 483; Safeguard Scientifics v. Liberty Mut. Ins. Co., 766 F.Supp. 324, 328-29 (E.D.Pa.1991); Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 589, 152 A.2d 484 (1959). The duty to defend is independent of, and broader than, the duty to indemnify. J.H. France Refractories v. Allstate, 534 Pa. 29, 626 A.2d 502, 510 (1993).

A. Duty to Defend

Under the terms of the policy provisions in question, to implicate coverage and trigger a duty to defend it must appear that the claim of patent infringement may fall within the specified conduct constituting "advertising injury" and that the injury alleged in the underlying complaint may have occurred in the course of the insured's advertising activity. Brotech contends that "piracy," "unfair competition" and "infringement of title" all encompass patent infringement and that the injury alleged in the Rohm & Haas complaint occurred in the course of advertising activity by Brotech.

The term "piracy," per se, is undefined in the policies. Brotech relies on a definition of piracy in a lay dictionary as "the unauthorized use of another's production, invention or conception esp. in the infringement of a copyright." Webster's Ninth New Collegiate Dictionary (1991). This broad definition could encompass patent infringement and absent a more limiting definition in the policy itself, is thus a meaning that might reasonably be ascribed to the term "piracy." See New...