Heritage Mut. Ins. Co. v. Advanced Polymer Tech.

• Citation: 97 F.Supp.2d 913
• Decision Date: 16 May 2000
• Docket Number: No. IP96-0542-C-B/S.,IP96-0542-C-B/S.
• Parties: HERITAGE MUTUAL INSURANCE COMPANY, Plaintiff, Counter-Defendant, v. ADVANCED POLYMER TECHNOLOGY, INC., Leo J. Leblanc, and Environ Products, Inc., Defendants, Counter-Plaintiffs.
• Court: U.S. District Court — Southern District of Indiana

97 F.Supp.2d 913

HERITAGE MUTUAL INSURANCE COMPANY, Plaintiff, Counter-Defendant, v. ADVANCED POLYMER TECHNOLOGY, INC., Leo J. Leblanc, and Environ Products, Inc., Defendants, Counter-Plaintiffs.

No. IP96-0542-C-B/S.

United States District Court, S.D. Indiana, Indianapolis Division.

May 16, 2000.

COPYRIGHT MATERIAL OMITTED

Jeffrey A. Doty, Kightlinger & Gray, Indianapolis, IN.

Thomas W. Conklin, Conklin Murphy & Conklin, Chicago, IL.

John David Hoover, Johnson Smith Pence Densborn Wright & Heath, Indianapolis, IN.

Dwight D. Lueck, Barnes & Thornburg, Indianapolis, IN.

Jeremy T. Ross, Schiffman & Ross, Philadelphia, PA.

ENTRY DECLARING THAT PLAINTIFF HAS NO DUTY TO DEFEND DEFENDANTS

BARKER, Chief Judge.

This case represents another installment in the ongoing debate about the meaning of "advertising injury," a popular phrase used to describe a type of insurance coverage provided in standard versions of commercial general liability insurance policies issued since the 1970's. Plaintiff, Heritage Mutual Insurance Company ("Heritage"), filed a complaint seeking a declaratory judgment that it has no duty to defend or to indemnify its insureds, Defendants Advanced Polymer Technology, Inc. ("APT"), and Leo J. LeBlanc ("LeBlanc"), in an underlying action brought against APT and LeBlanc by Environ Products, Inc. ("Environ"), in the United States District Court for the Eastern District of Pennsylvania. APT has counterclaimed, seeking a declaration that Environ's complaint in the underlying action contains allegations of advertising injury, thereby triggering Heritage's duty to defend and to indemnify it in the underlying action.

On March 25, 1998, we denied APT's motion for partial summary judgment, in which APT maintained that Heritage had a duty to defend it in the Environ action because, in APT's view, Environ had alleged an advertising injury within the meaning of the Heritage-APT policy. We denied APT's motion because even if we assumed that initial coverage was proper under the policy, issues of material fact remained as to the "first publication" exclusion in the policy, which excludes coverage for advertising injury arising out of material whose first publication took place before the beginning of the policy period. In November 1998, Heritage moved for summary judgment, which we denied with respect to APT on February 1, 1999.¹ At issue in that motion was the rather narrow matter of whether the first publication exclusion prevented coverage for any alleged advertising injury, although we noted that the initial coverage issue, namely whether Environ had alleged an advertising injury within the meaning of the Heritage-APT policy, had not been briefed by the parties in those submissions and had yet to be determined.

On May 17, 1999, this action proceeded to a one-day bench trial. The parties eventually submitted their post-trial briefs, which included arguments on both the initial coverage issue and the first publication exclusion. After thoroughly considering the issues advanced in those submissions, we conclude that Heritage has no duty to defend APT in the underlying action filed by Environ since its complaint definitively fails to contain allegations that APT committed an advertising injury offense enumerated in the Heritage-APT policy.

Background

APT produces underground, secondarily-contained flexible piping systems that include a flexible inner supply pipe and an outer secondary containment pipe. The piping systems are mainly utilized by entities in the petroleum industry, such as gasoline filling stations, to transport fuel safely from storage tanks to fuel dispensers. APT was insured by Heritage from April 4, 1993 through April 4, 1994, and Heritage renewed the policy through April 4, 1995. See Pl.Ex. 10. The policy at issue here, known as the Commercial General Liability ("CGL") form, represents a 1986 version written by the Insurance Services Organization ("ISO"), a for-profit private trade organization that generates standard insurance forms for use by its clients, mainly insurance companies.² See Trial Tr. at 108-09. While some insurers may alter the forms they receive from ISO and tailor the standard language based upon the unique coverages requested by their insureds, insurers often adopt the ISO forms verbatim. In this case, APT falls within the latter camp, having lifted the language in the insurance policy at issue here directly from the 1986 version of ISO's CGL form.

Coverage "B" of the CGL policy, entitled "Personal and Advertising Injury Liability," provided in its "Insuring" clause that Heritage would insure APT and LeBlanc for any "advertising injury caused by an offense committed in the course of advertising [APT's] goods, products or services," provided that the offense was committed during the policy period. Pl.Ex. 10 at 3/9. The policy separately defined "advertising injury" as 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.

Id. at 7/9. The policy does not define "misappropriation of advertising ideas or style or doing business" or "infringement of copyright, title or slogan."

One of the policy's coverage exclusions, the "first publication" exclusion, provides that insurance coverage does not apply to "advertising injury ... [a]rising out of oral or written publication of material whose first publication took place before the beginning of the policy period." Id. at 3/9 ("exclusions" to advertising and personal injury).

Each annual policy that APT purchased provided that Heritage would pay any sums that APT became legally obligated to pay as damages because of any advertising injury to which the coverage applied, limited to $1,000,000 per person or organization. Additionally, the policy established Heritage's "duty to defend any suit seeking those damages." Id. (emphasis in original).

On November 17, 1995, Environ filed a seven-count complaint in the Eastern District of Pennsylvania against APT and LeBlanc (the underlying action), essentially alleging that APT stole its underground piping product and infringed certain claims of its patent. See Def. Ex. 21 (Environ Compl.). Specifically, Environ alleged patent infringement (count I), induced and contributory patent infringement (count II), federal unfair competition in violation of the Lanham Trademark Act (count III), state unfair competition based on the same allegations as the previous count of federal unfair competition (count IV), conversion (count V), unjust enrichment (count VI), and breach of fiduciary duty (count VII). APT tendered the defense to Heritage, who denied coverage after a series of communications with APT and declined to defend APT against Environ's allegations. At last update by the parties, the underlying litigation between Environ and APT was ongoing. One issue in that action, the question of inventorship, has been appealed to the Federal Circuit, although we have not been informed on the status of that particular matter. The parties agree that regardless of the resolution of the inventorship issue, the remaining aspects of that litigation remain pending in the Eastern District of Pennsylvania. In other words, APT's actual liability in the underlying action has not been established, a fact that explains why the parties essentially have treated this action as a duty to defend case, as do we.

On April 19, 1996, Heritage filed a request for declaratory judgment in this court, seeking a declaration that it has no duty to defend or to indemnify APT or LeBlanc in the Environ action, and APT counterclaimed. After denying the parties' separate summary judgment motions on fairly narrow grounds, the parties adduced additional factual evidence during a one-day bench trial, which evidence pertained mainly to the first publication exclusion, although the parties were free to submit evidence on initial coverage issues as well. The parties eventually submitted their post-trial briefs on all the legal issues that they considered pertinent to the resolution of this case. We now proceed to address the contentions developed by the parties in those submissions.

Discussion

Applicable Indiana Insurance Law

As a federal court sitting in diversity, we must evaluate Indiana law as it pertains to this dispute. See Colip v. Clare, 26 F.3d 712, 714 (7th Cir.1994). Heritage and APT agree that our analysis is governed by Indiana's substantive law. See Pl. Post-Trial Br. at 9; Def. Trial Br. at 15; Def. Supp. Trial Brief (hereinafter "Def. Post-Trial Br.") at 1. Under Indiana law, a contract for insurance is subject to the same rules of interpretation as are other contracts. See USA Life One Ins. Co. v. Nuckolls, 682 N.E.2d 534, 537-38 (Ind.1997). The interpretation is "primarily a question of law for the court, even if the policy contains an ambiguity needing resolution." Id. (quoting Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind.1992)). The insured is required to prove that her claims fall within the coverage provision of her policy, but the insurer bears the burden of proving specific exclusions or limitations to policy coverage. See Erie Ins. Group. v. Sear Corp., 102 F.3d 889, 892 (7th Cir.1996) (applying Indiana law). The insurer's duty to defend, which is broader than its duty to indemnify, is determined by the nature of the claim in the underlying complaint, not its merits. See Ticor Title Ins. Co. v. FFCA/IIP 1988 Prop. Co., 898 F.Supp. 633, 638 (N.D.Ind.1995) (applying Indiana law). An insurer must defend an action even if only a small portion of the conduct alleged in the complaint falls within the scope of the insurance policy. S...