Cat Internet Serv. V. Providence Washington Ins.

• Decision Date: 17 June 2003
• Docket Number: No. 01-4166.,01-4166.
• Parties: CAT INTERNET SERVICES, INC., Internet Supply, Inc. Appellees v. PROVIDENCE WASHINGTON INSURANCE CO., York Insurance Company, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

333 F.3d 138

CAT INTERNET SERVICES, INC., Internet Supply, Inc. Appellees v. PROVIDENCE WASHINGTON INSURANCE CO., York Insurance Company, Appellants.

No. 01-4166.

United States Court of Appeals, Third Circuit.

Argued October 29, 2002.

Opinion filed November 18, 2002.

Filed June 17, 2003.

Michael F. Aylward, (Argued), Morrison, Mahoney and Miller, Boston, MA, Eugene J. Maginnis, Jr., Dugan, Brinkmann, Maginnis and Pace, Philadelphia, PA, for Appellants.

Stephen Levin, (Argued), Morrisville, PA, for Appellees.

Laura A. Foggan, John C. Yang, Seth J. Blonder, Wiley Rein & Fielding LLP, Washington, DC, for Amicus Curiae Complex Insurance Claims Litigation Association.

Before SLOVITER, FUENTES, Circuit Judges, and DEBEVOISE,^* Senior District Judge.

ORDER

DEBEVOISE, Senior District Judge.

A Precedential Opinion having been substituted for a Not Precedential Opinion in this cause, it is:

ORDERED that the Precedential Opinion be filed in substitution for the previously filed Not Precedential Opinion.

OPINION OF THE COURT

Appellants, Providence Washington Insurance Company ("Providence Washington") and York Insurance Company ("York") (collectively "Providence") appeal from the District Court's order granting summary judgment in favor of appellees on their claim that the advertising injury provisions of Providence's standard commercial liability policy entitled them to coverage in a Tennessee lawsuit in which appellees were named as defendants. We agree with the District Court and will affirm.

I. Facts and Procedural History

In February 2000 Magazines.com Inc. (The "Tennessee Plaintiff"), sued appellees, CAT Internet Services, Inc. ("CAT") and Internet Supply, Inc. ("INS"), charging that through the use of CAT's and INS's Internet domain name, MAGAZINE.COM, CAT and INS infringed the Tennessee Plaintiff's name and trademark, MAGAZINES.COM for the purpose and with the effect of diverting sales of magazines and other products to their own affiliates, some of which were competitors of the Tennessee Plaintiff. The complaint in the Tennessee action charged statutory and common law trademark and trade name infringement as well as injury to business reputation and common law unfair competition.

The complaint in the Tennessee action contained a number of allegations concerning the advertising activities of the parties and the damage that CAT's and INS's use of the domain name MAGAZINE.COM caused the Tennessee Plaintiff. It was alleged that the Tennessee Plaintiff's "MAGAZINE.COM web site has engaged in a number of advertising campaigns since its inception ..." (App. 22a). As to CAT and INS, the complaint charged that "[INS] is a close affiliate of CAT and is in the business of operating hardcore pornography web sites and related online services... and marketing `click-through advertising and marketing arrangements to the online adult and hardcore pornography industries. [INS] and CAT have made use of the MAGAZINE.COM domain name to redirect traffic to hardcore pornography sites.'" (App. 19a). One form of relief that the Tennessee Plaintiff sought was an order "enjoining any further use of the domain name and mark MAGAZINE.COM in connection with (a) the online sale or promotion of magazine subscriptions, and (b) pornographic or adult content not suitable for viewing by children or gambling." (App. 30a).

After notice of the Tennessee Plaintiff's suit, CAT's and INS's insurers, Providence Washington and York, declined to undertake their defense under the advertising injury provisions of their standard commercial liability policies. The pertinent provisions of the policies provided:

1. Business Liability

a. We will 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 ...

b. This insurance applies to:

(2) "advertising injury" caused by an offense committed in the course of advertising your goods, products or services ...

"Advertising injury" was defined in the policy as:

"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 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.

Following Providence's refusal to provide coverage for the Tennessee Plaintiff's claims, CAT and INS commenced an action for declaratory relief and damages in the District Court. The parties filed cross-motions for summary judgment. The District Court granted CAT's and INS's motion, ruling that Providence had a duty to defend the Tennessee litigation.¹ This appeal followed.

II. The District Court Opinion

The claimed damages demanded of Providence relate solely to the duty to defend. Applying Pennsylvania law to the coverage issue, the District Court noted that the insurer's "duty to defend is broader than the duty to indemnify, because a duty to defend arises `whenever an underlying complaint may potentially come within the insurance coverage.' Frog, Switch [& Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir.1999)] ... If a single allegation of a complaint is potentially covered by a policy, an insurer has an obligation to defend its insured against all claims until there is no possibility of recovery for a covered claim." (Slip. Op. at 7).

Addressing the question whether the complaint in the Tennessee litigation alleged an "advertising injury" within the meaning of the policies, the District Court held that it did. It concluded that under Pennsylvania law the advertising injury provisions cover trademark infringement as a "misappropriation of an advertising idea or style of doing business," a view with which our court has in dicta suggested agreement. Frog, Switch, 193 F.3d at 749. (Slip. Op. at 8, 9).

Distinguishing Sorbee International Ltd. v. Chubb Custom Insurance Co., 735 A.2d 712 (Pa.Super.1999), the District Court found that "the allegations of the Tennessee Complaint ... do allege trademark infringement that is a `misappropriation of an advertising idea or style of doing business'" (Slip. Op. at 10), thus asserting an "advertising injury" that triggered Providence's obligation to defend under the policies.

III. Jurisdiction and Standard of Review

The District Court had diversity jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). We have jurisdiction under 28 U.S.C. § 1291, as this is an appeal from a final judgment of the District Court. We review the District Court's grant of summary judgment de novo. Fogleman v. Mercy Hosp., Inc., 283 F.3d 561, 566 n. 3 (3d Cir.2002). Summary judgment was proper if, viewing the record in the light most favorable to Providence, there is no genuine issue of material fact and CAT and INS are entitled to judgment as a matter of law. The parties agree that there is no genuine issue of fact on the policy coverage issue.

IV. Discussion

The insurance contracts which are the subject of this case are governed by Pennsylvania law. The policies were issued by a Pennsylvania agent to Pennsylvania corporations. Pennsylvania conflict of laws principles dictate that an insurance contract is guided by the law of the state in which it is delivered. See Travelers Indem. Co. v. Fantozzi, 825 F.Supp. 80, 84 (E.D.Pa.1993).

Providence urges that the District Court misinterpreted dicta in this court's holding in Frog, Switch and ignored the Pennsylvania Superior Court's holding in Sorbee International and thus erred in holding that a trademark infringement dispute involving competing Internet domain sites sought recovery for "misappropriation of an advertising idea or style of doing business." At oral argument Providence's counsel advanced the position that listing a domain site name such as "MAGAZINE" is not "advertising" within the meaning of the policy as it was not part of a marketing campaign to sell CAT's or INS's products to the consuming public. It would follow, according to Providence, that misuse of the domain name as charged in the Tennessee litigation did not cause an "advertising injury."

In Frog, Switch insurance carriers that had issued policies covering "advertising injury" were asked to defend a claim for theft of trade secrets, unfair competition and reverse passing off. A Frog, Switch competitor had sued Frog, Switch alleging that Frog, Switch entered the dipper bucket market using proprietary trade secrets, confidential...