Gemmy Industries Corp. v. Alliance General Ins.

• Decision Date: 17 November 1998
• Docket Number: No. 3-98-CV-0014-BD.,3-98-CV-0014-BD.
• Citation: 190 F.Supp.2d 915
• Parties: GEMMY INDUSTRIES CORPORATION, Plaintiff, v. ALLIANCE GENERAL INSURANCE COMPANY, et al. Defendants.
• Court: U.S. District Court — Northern District of Texas

190 F.Supp.2d 915

GEMMY INDUSTRIES CORPORATION, Plaintiff, v. ALLIANCE GENERAL INSURANCE COMPANY, et al. Defendants.

No. 3-98-CV-0014-BD.

United States District Court, N.D. Texas.

November 17, 1998.

Jeffrey E. Cook, Sullivan Parker & Cook, Dallas, Texas, for Plaintiff.

Veronica M. Bates, Alissa K. Christopher, Cowles & Thompson, Dallas, Texas, for Defendant Alliance General Insurance Company.

John Tollefson, Knox & Tollefson, Dallas, Texas, for Defendant American Equity Insurance Company.

MEMORANDUM OPINION AND ORDER

KAPLAN, United States Magistrate Judge.

This case is before the Court on cross-motions for summary judgment. All parties seek a judicial determination as to whether defendants have a duty to defend and indemnify plaintiff under the terms of their respective insurance policies. The Court holds that plaintiff is not entitled to coverage because it breached the notice provisions of both policies.

I.

Plaintiff Gemmy Industries Corporation was insured at different times under two comprehensive general liability policies issued by Alliance General Insurance Company and American Equity Insurance Company. The Alliance policy covered the period from May 4, 1995 to May 4, 1996. The American Equity policy was in force from May 4, 1996 to May 4, 1997. Both insurance policies provide coverage for "`[a]dvertising injury' caused by an offense committed in the course of advertising ... goods, products or services." (Am. Eq. Exh. 1B at 17; Alliance Exh. C at 5). "Advertising injury" is defined as an "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;

(d) Infringement of copyright, title or slogan."

(Am. Eq. Exh. 1B at 26; Alliance Exh. C at 12).

Plaintiff was sued by Fun-Damental Too, Ltd. in February 1996.¹ Fun-Damental originally asserted claims for: (1) unfair competition; (2) injury to business reputation; (3) tortious interference with contract; (4) trade dress infringement; and (5) false designation of origin under Section 43(a) of the Lanham Act. (Am. Eq. Exh. 2 ¶¶ 44-59). On July 11, 1996, the complaint was amended to add a claim for copyright infringement. (Am. Eq. Exh. 3 ¶¶ 74-78). The copyright claim was dismissed on December 16, 1996. (Am. Eq. Exh. 7 at 15.)

Plaintiff did not tender notice of these claims to American Equity until May 5, 1997. Alliance was first notified of the lawsuit on June 4, 1997. Both insurance companies denied coverage and refused to provide a defense. (Am. Eq. Exh. 5; Alliance Exh. G). Plaintiff asked American Equity to reconsider its decision in light of the copyright infringement claim raised in the amended complaint.² (Am.Eq.Exh. 6). Thereafter, American Equity agreed to provide a defense subject to a reservation of rights. (Am.Eq.Exh. 10).

On October 7, 1997, plaintiff settled with Fun-Damental for $100,000. Plaintiff then submitted demands to Alliance and American Equity for the amount of the settlement and $124,700 in legal fees and expenses. (Am. Eq. Exh. 11; Alliance Exh. F). Once again, both insurance companies denied coverage. This lawsuit followed.³ The case is now before the Court on cross-motions for summary judgment. All parties maintain that they are entitled to judgment as a matter of law based on the definition of "advertising injury" and the notice provisions of the policies.

II.

Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Thurman v. Sears, Roebuck & Co., 952 F.2d 128, 131 (5th Cir.), cert. denied, 506 U.S. 845, 113 S.Ct. 136, 121 L.Ed.2d 89 (1992). A fact is "material" if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Matter of Gleasman, 933 F.2d 1277, 1281 (5th Cir.1991). Cases involving the interpretation of an insurance policy are particularly appropriate for summary disposition. See Principal Health Care of Louisiana v. Lewer Agency, Inc., 38 F.3d 240, 242 (5th Cir.1994); SnyderGeneral Corporation v. Great American Insurance Co., 928 F.Supp. 674, 677 (N.D.Tex.1996) (Kaplan, M.J.).

The movant has the initial burden of demonstrating the absence of a genuine issue of material fact. Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995). The burden then shifts to the nonmovant to show that summary judgment is not proper. Duckett v. City of Cedar Park, Texas, 950 F.2d 272, 276 (5th Cir. 1992). The non-movant may satisfy its evidentiary burden by tendering depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992). All the evidence must be viewed in the light most favorable to the party opposing the motion. Rosado v. Deters, 5 F.3d 119, 122 (5th Cir.1993).

III.

The threshold issue in this case is whether defendants had a duty to defend plaintiff in the Fun-Damental litigation. All parties agree that the resolution of this issue is governed by the "eight corners test" or "complaint allegation rule." Under Texas law, the duty to defend is determined solely by reference to the allegations of the complaint and the terms of the policy. Lafarge Corp. v. Hartford Casualty Insurance Co., 61 F.3d 389, 393 (5th Cir.1995); American Alliance Insurance Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 153-54 (Tex.App.—Dallas 1990, writ dism'd). The allegations of the complaint must be taken as true. Gulf Chemical & Metallurgical Corp. v. Associated Metals & Minerals Corp., 1 F.3d 365, 369 (5th Cir.1993); Continental Savings Ass'n v. United States Fidelity & Guaranty Co., 762 F.2d 1239, 1243 (5th Cir.), as amended, 768 F.2d 89 (5th Cir.1985). The duty to defend "is not affected by facts ascertained before suit, developed in the process of the litigation, or by the ultimate outcome of the suit." American Alliance, 788 S.W.2d at 154; see also Colony Insurance Co. v. H.R.K., Inc., 728 S.W.2d 848, 850 (Tex.App.—Dallas 1987, no writ). The insurer must provide a defense if the complaint contains at least one claim that is facially within the policy's coverage. Lafarge, 61 F.3d at 393; Rhodes v. Chicago Insurance Co., 719 F.2d 116, 119 (5th Cir. 1983).

Defendants contend that the claims alleged in the Fun-Damental litigation do not arise out of "an offense committed in the course of advertising ... goods, products or services" and do not fall within the definition of "advertising injury." The Court will address these issues first.

A.

The insurance policies provide coverage for advertising injuries "caused by an offense committed in the course of advertising ... goods, products or services."⁴ (Am. Eq. Exh. 1B at 17; Alliance Exh. C at 5). Defendants maintain that coverage is not available under this policy provision because plaintiff was sued for selling knock-off novelty items, not for advertising them. However, all the cases cited in support of this argument involve claims of patent infringement. See Simply Fresh Fruit, Inc. v. Continental Insurance Co., 94 F.3d 1219, 1222 (9th Cir.), cert. denied, 519 U.S. 965, 117 S.Ct. 388, 136 L.Ed.2d 304 (1996); National Union Fire Insurance Co. Of Pittsburgh, Pa. v. Siliconix Incorporated, 729 F.Supp. 77, 79 (N.D.Cal. 1989); A. Meyers & Sons Corp. v. Zurich American Insurance Group, 74 N.Y.2d 298, 303, 546 N.Y.S.2d 818, 545 N.E.2d 1206, 1208-09 (1989). Patent infringement occurs when a person makes, uses, or sells a patented invention. 35 U.S.C. § 271(a); see also Simply Fresh Fruit, 84 F.3d at 1109; Siliconix, 729 F.Supp. at 79. "[M]ere advertising, without more, cannot constitute actionable patent infringement." Siliconix, 729 F.Supp. at 79.

By contrast, Fun-Damental sued plaintiff for false designation of origin and trade dress infringement under Section 43(a) of the Lanham Act. 15 U.S.C. § 1125(a). Such claims inherently and necessarily implicate advertising activities. The term "advertise" is defined as:

To advise, announce, apprise, command, give notice of, inform, make known, publish. To call a matter to the public attention by any means whatsoever. Any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business and includes, without limitation ... statements and representations ... contained in any notice, handbill, sign, catalog, or letter, or printed on or contained in any tag or label attached to or accompanying any merchandise.

BLACK's LAW DICTIONARY 54 (6th ed.1990). Given this broad definition, it is impossible to allege a Lanham Act claim "without the infringing mark being used to identify the goods or services to the public." J.A. Brundage Plumbing & Roto-Rooter, Inc. v. Massachusetts Bay Ins., 818 F.Supp. 553, 558 (W.D.N.Y.1993), vacated at attorneys' request, 153 F.R.D. 36 (W.D.N.Y. 1994).⁵ See also Dogloo, Inc. v. Northern Insurance Co. of New York, 907 F.Supp. 1383, 1391 (C.D.Cal.1995).

Such is the case here. Fun-Damental specifically alleged numerous ways in which the design and appearance of plaintiff's product mimicked its own and caused customer confusion. (Am. Eq. Exh. 3 ¶¶ 27, 30-31). It is clear that plaintiff was sued for using this trade dress to "call public attention" to its product. Such a use constitutes advertising activity.⁶

B.

The next question is whether the Lanham Act claims fall...