Davila v. Arlasky, 90 C 6600.

• Decision Date: 18 July 1994
• Docket Number: No. 90 C 6600.,90 C 6600.
• Citation: 857 F. Supp. 1258
• Parties: Aureo Rivera DAVILA and Aureo E. Rivera, Plaintiffs, v. David F. ARLASKY and John L. Mulkerin, Defendants. INTERNATIONAL INSURANCE COMPANY, a corporation, United States Fire Insurance Company, a corporation, The North River Insurance Company, a corporation, and Sentry Insurance a Mutual Company, as Assumptive Reinsurer of Great Southwest Fire Insurance Company, Intervenors-Petitioners, v. David F. ARLASKY, Aureo Rivera Davila, and Aureo E. Rivera, Respondents.
• Court: U.S. District Court — Northern District of Illinois

857 F. Supp. 1258

Aureo Rivera DAVILA and Aureo E. Rivera, Plaintiffs, v. David F. ARLASKY and John L. Mulkerin, Defendants.

INTERNATIONAL INSURANCE COMPANY, a corporation, United States Fire Insurance Company, a corporation, The North River Insurance Company, a corporation, and Sentry Insurance a Mutual Company, as Assumptive Reinsurer of Great Southwest Fire Insurance Company, Intervenors-Petitioners, v. David F. ARLASKY, Aureo Rivera Davila, and Aureo E. Rivera, Respondents.

No. 90 C 6600.

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

July 18, 1994.

Marc Oliver Beem, James P. Bailinson, Lisa M. Ramsden, Miller, Shakman, Hamilton, Kurtzon & Shlifke, Michael L. Blumenthal, Milton M. Blumenthal & Associates, Chicago, IL, Charles A. Cordero, Cordero, Miranda & Pinto, San Juan, PR, for Aureo Rivera-Davila and Aureo E. Rivera.

Aureo E. Rivera, pro se.

William Edward Spizzirri, Kralovec, Marquard, Doyle & Gibbons, Chtd., Chicago, IL, for International Ins. Co., U.S. Fire Ins. Co. and North River Ins. Co.

Larry S. Kaplan, Lawrence S. Gosewisch, Adler, Kaplan & Begy, Chicago, IL, for Sentry Ins.

Louis Anthony Varchetto, William J. Wylie, Dennis Allen Van Der Ginst, Wylie, Mulherin, Rehfeldt & Varchetto, Wheaton, IL, for David F. Arlasky and defendant John L. Mulkerin.

Robert Daniel Gordon, Towbin & Zazove, Ltd., Chicago, IL, for John Joseph Mulkerin.

Larry S. Kaplan, Adler, Kaplan & Begy, Chicago, IL, for Great Southwest Fire Ins. Co.

MEMORANDUM OPINION AND ORDER

WILL, District Judge.

Before the court are motions for summary judgment filed by intervenors-petitioners insurance companies in this patent infringement suit brought by Aureo Rivera Davila and Aureo E. Rivera (the "Riveras") against David Arlasky and John Mulkerin. Intervening petitioners International Insurance Company, United States Fire Insurance Company, and North River Insurance Company (the "Insurers"), and intervening petitioner Sentry Insurance, as assumptive reinsurer of Great Southwest Fire Insurance Company ("Great Southwest") seek a declaration by this Court that as a matter of law neither the Insurers nor Great Southwest has a duty to defend Arlasky or a duty to indemnify Arlasky for any judgment entered against him. For the following reasons, we grant summary judgment in favor of the Insurers and Great Southwest.

BACKGROUND

The Riveras first brought a patent infringement suit against Chapman Industries, Inc. on January 2, 1985. That suit was dismissed without prejudice and they refiled on December 11, 1987. Plaintiffs obtained a default judgment of infringement of their patent against Chapman Industries. This judgment proved uncollectible and they then filed this suit against David Arlasky and John Mulkerin, the chief officers and sole shareholders of Chapman Industries, for infringement and inducing infringement. Subsequently, Mulkerin was discharged in bankruptcy, leaving Arlasky as the sole defendant in this case.

This Court set a pre-trial conference on May 26, 1993. Despite a court order requiring Arlasky's presence, he failed to appear at the conference. At a subsequent hearing, after this Court inquired about his absence, his counsel informed the Court that he had not been in contact with Arlasky since December 1992. Since that time, Arlasky has neither appeared in court nor been in contact with his counsel. In addition, his counsel has stated that Arlasky's solvency at this time is questionable.

Although International Insurance Company, United States Fire Insurance Company, North River Insurance Company, and Great Southwest Insurance Company previously filed motions to intervene, which this Court denied, the insurance companies again requested leave to intervene, in light of Arlasky's failure to appear and his apparent inability or unwillingness to pay any future judgment which might be entered against him. We granted the insurers leave to intervene based on the change in circumstances. Before us now are the intervening insurance companies' motions for summary judgment.

DISCUSSION

Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.Pro. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In considering a motion for summary judgment, the court must draw all inferences in the light most favorable to the nonmoving party. See Regner v. City of Chicago, 789 F.2d 534, 536 (7th Cir.1986). Under Illinois choice of law rules, Illinois law applies to our interpretation of the contract issues.

1. Policy Coverage for Patent Infringement and Inducement of Infringement

Beginning in 1982, Insurers, all of whom are part of Crum & Forster Insurance Company, issued a series of six comprehensive general liability ("CGL") insurance policies. Beginning in 1981, Great Southwest issued a series of two commercial umbrella policies and one excess indemnity policy. All of these policies provide coverage for bodily injury, property damage, personal injury, and advertising injury. At issue is whether the patent infringement alleged in this suit is covered under the policies as advertising injury.

In determining whether an insurance policy provides coverage, we look to the terms of the contract. Because Illinois substantive law governs in this case, we are bound by the principles of policy construction set forth by the Illinois courts. The construction of an insurance policy is a question of law. Outboard Marine Corp. v. Liberty Mutual Ins. Co., 154 Ill.2d 90, 180 Ill.Dec. 691, 699, 607 N.E.2d 1204, 1212 (Ill.1992). Furthermore,

in construing an insurance policy, the court must ascertain the intent of the parties to the contract. To ascertain the meaning of the policy's words and the intent of the parties, the court must construe the policy as a whole, with due regard to the risk undertaken, the subject matter that is insured and the purposes of the entire contract. If the words in the policy are ambiguous, a court must afford them their plain, ordinary, and popular meaning. However, if the words in the policy are susceptible to more than one reasonable interpretation, they are ambiguous and will be construed in favor of the insured and against the insurer who drafted the policy.

180 Ill.Dec. at 699, 607 N.E.2d at 1212 (citations omitted).

We first examine the language of the contracts themselves. Under the comprehensive liability policies at issue,

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

The policies do not define further any of the terms which plaintiffs argue are applicable here, namely "piracy," "unfair competition," or "infringement of title." The policies do contain a list of items which are not covered. The most relevant states that the insurance policy does not apply to advertising injury arising out of "infringement of trademarks, service marks or trade name other than titles or slogans by use thereof or in connection with goods, products or services sold, offered for sale or advertised." Beyond this sparse policy language, the policies do not provide further assistance in determining whether patent infringement is covered as advertising injury.

The umbrella policies define advertising liability as follows:

Advertising Liability. The term "advertising liability" means:

(A) libel, slander or defamation,

(B) infringement of copyright or of title or slogan,

(C) piracy or unfair competition or idea misappropriation under an implied contract,

(D) invasion of right 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 activities.

The excess policy provides coverage for advertising injury, defined as:

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

The parties have not cited, and we have not found, an Illinois supreme court case which discusses whether a policy providing coverage for piracy, unfair competition, and infringement of title should be construed to cover patent infringement. In the absence of a supreme court case in point, a federal court sitting in diversity must predict how the state supreme court would decide the case. Adams v. Fred Weber, Inc., 849 F.2d 1018, 1026 (7th Cir.1988). Further, "we are obliged to consider the holdings of state appellate courts, but are not bound to do so if we have good reasons for diverging from those decisions." McGeshick v. Choucair, 9 F.3d 1229, 1232 (7th Cir.1993).

The closest Illinois appellate case is International Ins. Co. v. Florists' Mutual Ins. Co., 201 Ill.App.3d 428, 147 Ill.Dec. 7, 559 N.E.2d 7 (Ill.App.Ct.1990). In Florists' Mutual, the court held that antitrust injury resulting from the processing of floral orders was not advertising injury. In the underlying suit, Florists' Transworld Delivery Association ("FTD") was charged in a federal court action with antitrust violations flowing from an in-house rule which prescribed conditions for processing floral arrangements which had been advertised in a particular way. The defendant insurance company argued that while the federal complaint did not allege an injury directly caused by advertising, a sufficient relationship existed between advertising and the injury. The plaintiff insurance company, on the other hand, argued that the federal complaint did not allege advertising injury. It argued that to find coverage under the...