Ekco Group v. Travelers Indemnity of IL

• Decision Date: 03 October 2001
• Docket Number: No. 01-1029,01-1029
• Citation: 273 F.3d 409
• Parties: (1st Cir. 2001) EKCO GROUP, INC., Plaintiff, Appellee, v. THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Defendant, Appellant. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 409

273 F.3d 409 (1st Cir. 2001)

EKCO GROUP, INC., Plaintiff, Appellee, v. THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Defendant, Appellant.

No. 01-1029

United States Court of Appeals For the First Circuit

Heard Oct. 3, 2001

Decided December 10, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE. Hon. Joseph A. DiClerico, Jr., U.S. District Judge

William T. Corbett with whom Laura A. Brady, Drinker Biddle & Shanley LLP, John A. Lassey, Jennifer L. Murphy and Wadleigh, Starr & Peters, P.L.L.C. were on brief for appellant.

Gordon A. Rehnborg, Jr. with whom Doreen H. Connor and Wiggin & Nourie, P.A. were on brief for appellee.

Before Boudin, Chief Judge, Torruella, Circuit Judge, and Barbadoro,^*

District Judge.

BOUDIN, Chief Judge.

This case presents, once again, see Liberty Mut. Ins. Co. v. Metro. Life Ins. Co., 260 F.3d 54 (1st Cir. 2001), the vexing question of how to interpret an "advertising injury" clause in a general commercial liability ("GCL") policy. EKCO Housewares, Inc., a subsidiary of EKCO Group, Inc. (collectively "the EKCO companies"), markets kitchen products, some of which it makes itself. Among its products are metal tea kettles, which are sold to K-Mart, a large, independent chain of retail stores. In 1998, Chantal Cookware Corporation of Houston, Texas, brought suit in federal court in Texas against EKCO Housewares, K-Mart and others. Chantal Cookware Corp. v. Vitrex Gourmet Corp., No. H-97-3978 (S.D. Tex. 1998).

The complaint in the Chantal case, as ultimately amended, charged that the EKCO tea kettle (its "Royale" 2.5 quart kettle) resembled in design and ornament Chantal's best selling tea kettle (its "Classic" 2.5 quart kettle) and that the defendants were liable for trade dress infringement and unfair competition under both the Lanham Act, 15 U.S.C. § 1125(a) (1994), and state law, and for infringement of a design patent covering Chantal's kettle, 35 U.S.C. § 271 (1994 & Supp. V 1999). Chantal said that EKCO had deliberately copied the well known design, features, and packaging of Chantal's tea kettle, that the EKCO version was a low quality replica, and that the production and sale of the EKCO tea kettle had damaged Chantal.

Travelers Indemnity Company of Illinois ("Travelers") had insured EKCO Group and EKCO Housewares under GCL policies covering successive time periods from 1993 to 1997. The EKCO companies notified Travelers of the Chantal lawsuit, asserting that Travelers was obligated to defend and indemnify. Although the Travelers policies provided various coverages, the provision invoked by the EKCO companies insured them against liability for, and promised to defend suits based upon, "advertising injury caused by an offense committed in the course of advertising your goods, products or services." This coverage was subject to several limitations. The policy defined the phrase "advertising injury" as follows:

1. "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.

Travelers refused to defend, and the EKCO companies thereupon brought suit against Travelers in New Hampshire state court seeking a declaration that Travelers was obligated to defend the Chantal lawsuit. EKCO Group, which had purchased the policies for itself and affiliated companies, has ties with New Hampshire. Travelers removed the case to federal district court in New Hampshire, claiming jurisdiction based on diversity of citizenship. 28 U.S.C. § 1332. Thereafter, the Chantal lawsuit was settled. The EKCO companies hope to recover their defense costs and amounts paid in settlement.

In the federal action, both sides moved for summary judgment, and on November 29, 2000, the district court filed a decision in favor of the EKCO companies. Applying New Hampshire law to construction of the policy, the district court held inter alia that the trade dress and unfair competition claims made by Chantal against EKCO Housewares fell within the policy coverage for advertising injury, that the injuries were caused by an offense committed in the course of advertising EKCO's goods, and that certain exclusions relied upon by Travelers did not apply.

Travelers appealed to this court. Thereafter, the EKCO companies filed a motion, joined by Travelers, to dismiss EKCO Housewares as a party-plaintiff; the purpose was to preserve federal jurisdiction, it having become clear belatedly that EKCO Housewares, like Travelers, is an Illinois corporation. EKCO Group is a proper plaintiff, having contracted for the policies in question, and both sides have stipulated that rulings as to EKCO Group's rights will control as to EKCO Housewares despite its dismissal. Precedent permits us to grant the requested motion, Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 833 (1989), and we now do so.

Turning to the merits, we note that the parties agree that New Hampshire law controls the interpretation of the policies. This position is colorable (EKCO Group had its main office there when it contracted for coverage), so we accept it, Merchants Ins. Co. of N.H., Inc. v. U.S. Fid. & Guar. Co., 143 F.3d 5, 8 (1st Cir. 1998), observing that the pertinent precepts of New Hampshire law appear much like those of other states. Because the interpretation of the insurance policy in this case presents a question of law, see Ross v. Home Ins. Co., 773 A.2d 654, 656 (N.H. 2001), we review the district court's ruling and construe the policy de novo.

Needless to say, the advertising injury provision is, at least in certain applications, unclear and has provoked a good deal of litigation. E.g., Liberty, 260 F.3d at 54. New Hampshire, like most states, tends to favor the insured where the policy is genuinely ambiguous and the choice is between two plausible readings, one providing coverage and the other not. Fed. Bake Shop v. Farmington Cas. Co., 736 A.2d 459, 460 (N.H. 1999). But plausibility is a matter of degree, and a policy may be unclear in some respects and clear enough in others.

In this case, under the plain terms of the policy there is coverage only if two different conditions are satisfied. First, there must be injury "arising out of" a defined offense; here the only listed offense claimed by EKCO Group to be applicable is "[m]isappropriation of advertising ideas or style of doing business." Second, the offense in question "must be committed in the course of advertising your [the insured's] goods, products or services." As we shall see, the two provisions cannot be construed wholly in isolation from one another.

It is by no means impossible, by piecing together dictionary definitions, to read the policy language in question to provide coverage here for the EKCO companies. This is easiest to do (and most defensible) for the first part of the pertinent offense definition--the term "misappropriation"--although even here the coverage might be debated. This is so because it is not easy to match Chantal's claims to whatever remains of the evanescent common law tort so labeled (EKCO does not even try), and it is uncertain whether the policy used the term in a generic sense.

There is no general common law rule against using the ideas, inventions and practices of others, absent deception or wrongful acquisition. See Prosser & Keeton on Torts 1020-22 (5th ed. 1984). Rather, the label "misappropriation" has been used to describe a judicially created tort where, in narrow categories or for special reasons, common law protection has been given to a few intangibles.¹ Chantal's design patent claim is statutory, and its trade dress claim would more commonly be described in common-law jargon as "passing off," "trademark" or "unfair competition."

Alternatively, the policy reference to misappropriation might be read not as a technical legal reference but generically to include any tort, statutory or otherwise, for which wrongful acquisition is an element. Both trade dress and design patent suits are based in part on wrongful appropriation in this latter sense. If everything turned on the reference to "misappropriation," the canon that policies be construed in favor of the insured might resolve the case for EKCO, Fed. Bake Shop, 736 A.2d at 460, although this is not a foregone conclusion.²

The other part of the offense definition--that the misappropriation be of an advertising idea or style of doing business--is harder to satisfy, but perhaps not linguistically impossible. To call a real teapot intended for sale as a kitchen utensil an "advertising idea" is not a natural usage: the phrase refers more readily to an advertising concept or plan for an advertising campaign (both of which could indeed be misappropriated). And "style of doing business" seems even more remote to the teapot; the phrase is commonly used, in the legal context, to refer to a theme or motif of packaging of products or of the business venue itself, such as the Mexican restaurant decor involved in Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992).

Still, a distinctively designed teapot could, assuming secondary meaning, be seen as both a concrete product and as an insignia triggering a favorable association in the public's mind with the manufacturer, just as an ordinary trademark device or name might do. I.P. Lund Trading ApS & Kronin, Inc. v. Kohler Co., 163 F.3d 27, 51-52 (1st Cir. 1998) (concurring opinion). To this extent the physical teapot itself might be deemed to function as an "advertising idea" for Chantal. The district court took this view and then, by a kind of substitution, deemed EKCO Housewares's production and sale of...