ICD Indus., Inc. v. Federal Ins. Co.

• Decision Date: 14 March 1995
• Docket Number: Civ. A. No. 93-4105.
• Parties: I.C.D. INDUSTRIES, INC., Plaintiff, v. FEDERAL INSURANCE CO., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

879 F. Supp. 480

I.C.D. INDUSTRIES, INC., Plaintiff, v. FEDERAL INSURANCE CO., Defendant.

Civ. A. No. 93-4105.

United States District Court, E.D. Pennsylvania.

March 14, 1995.

COPYRIGHT MATERIAL OMITTED

Phillip J. Meyer, Labrum and Doak, Philadelphia, PA, for plaintiff.

Ronald C. Yen, West Chester, PA, Michael J. Plevyak, White and Williams, Paoli, PA, for Federal Ins. Co.

Steven D. Johnson, Roann L. Pope, Hecker, Brown, Sherry and Johnson, Jeffrey A. Lutsky, Stradley, Ronon, Stevens & Young, Philadelphia, PA, for Alexander & Alexander, Inc.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge.

Plaintiff ICD Industries ("ICD") was insured under a policy issued by Federal Insurance Company ("Federal") which, inter alia, afforded coverage resulting from an advertising injury. ICD has brought this declaratory judgment action claiming that it is entitled to recover attorney fees and costs it incurred in defending against a patent infringement, action. Currently before the Court are the parties' cross motions for summary judgment. Presented for resolution are two issues: (1) whether the patent infringement lawsuit brought against ICD can be fairly said to have stated an advertising injury claim, and (2) the extent to which Federal was obligated to consider evidence outside of the allegations made in the underlying complaint when determining whether it had a duty under the policy to afford ICD a defense. For the following reasons, the Court will deny ICD's motion for summary judgment and grant Federal's motion.

I.

On or about November 30, 1988, ICD purchased a commercial excess umbrella insurance policy¹ from Federal (the "Federal policy") to protect it from professional liability up to the policy's limit of $25,000,000. As a condition for the issuance of the Federal policy, ICD agreed to maintain underlying insurance with Cigna Insurance Company ("Cigna"). Both the Federal policy and the Cigna policy were in effect at all relevant times.

On March 16, 1990, ICD was named as a co-defendant along with the Confab Corporation ("Confab") in a patent infringement suit filed by the Procter & Gamble Company in the Eastern District of Pennsylvania (the "Procter & Gamble action"). See Procter & Gamble Co. v. ICD Indus., Civil Action No. 90-1862 (E.D.Pa. March 16, 1990). In that action, Procter & Gamble sought a declaration by the Court that a patent it held for a certain sanitary napkin design was valid and had been infringed by the defendants, a permanent injunction against the defendants forbidding them from any further alleged infringement of the patent, and an award of treble damages for the defendants' willful and deliberate violation of the patent.

Fourteen months after the filing of the complaint, and after having conducted discovery concerning ICD's and Confab's promotional and marketing activities, Procter & Gamble was granted leave to file an amended complaint to assert, in addition to its claim of patent infringement, a claim for unfair competition. The claim of unfair competition allegedly stemmed from false advertising by the defendants that tended to deceive the public and place Procter & Gamble's products in a negative light. Based on this newly stated unfair competition claim, Cigna agreed to defend ICD in the Procter & Gamble action and to pay for all defense costs incurred by ICD from the time of the filing of the amended complaint forward. Cigna, however, refused to reimburse ICD for the costs of defending the Procter & Gamble action prior to the filing of the amended complaint.

In light of Cigna's position, ICD sought recompense from Federal for defense costs it had incurred for the time period from the filing of the initial complaint to the filing of the amended complaint. According to Coverage B of the Federal policy, ICD's coverage extended to any loss arising out of, inter alia, an "advertising injury."² Federal rejected ICD's claim.

On March 10, 1992, the parties to the Procter & Gamble action settled their differences and the case was dismissed. ICD thereafter initiated the present case seeking a declaration from the Court that it is entitled to coverage from Federal for defense costs it shouldered prior to the filing of the amended complaint, when Cigna agreed to assume the costs of defense.

II.

The standards by which a court decides a summary judgment motion do not change when the parties file cross motions. Southeastern Pa. Transit Auth. v. Pennsylvania Pub. Util. Comm'n, 826 F.Supp. 1506 (E.D.Pa.1993), aff'd, 27 F.3d 558 (3d Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 318, 130 L.Ed.2d 279 (1994). Summary judgment may thus be granted only if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). When ruling on cross motions for summary judgment, a ruling court must consider the motions independently. Williams v. Philadelphia Hous. Auth., 834 F.Supp. 794 (E.D.Pa. 1993), aff'd, 27 F.3d 560 (3d Cir.1994). Accordingly, the evidence in each motion is viewed in the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). The moving party bears the initial burden of pointing out the absence of genuine issues of material fact, Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986), but once it has done so, the party opposing the motion cannot rest on its pleadings, Fed. R.Civ.P. 56(e). Rather, the opposing party must come forward with facts showing that a genuine issue exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513-14, 91 L.Ed.2d 202 (1986).

The present matter is before the Court based on the Court's diversity jurisdiction. The parties have relied principally on Pennsylvania law in their pleadings. To the extent that the law of a state other than Pennsylvania could control the resolution of these motions, the Court concludes that the issue has been waived by the parties, see Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1005 n. 1 (3d Cir.1980), and that Pennsylvania law shall apply.³

In applying Pennsylvania law and in the absence of controlling authority by the Supreme Court of Pennsylvania, this Court is compelled to predict how the Supreme Court of Pennsylvania would resolve the questions posed in this case. McGowan v. University of Scranton, 759 F.2d 287, 291 (3d Cir.1985). Though not controlling, decisions from Pennsylvania's lower appellate courts are considered predictive, and in the absence of an indication otherwise, shall be accorded significant weight. Kiewit Eastern Co. v. L & R Constr. Co., 44 F.3d 1194, 1201 n. 16 (3d Cir.1995) (citing Wisniewski v. Johns-Manville Corp., 759 F.2d 271, 273-74 (3d Cir. 1985)).

III.

ICD asserts that Federal's denial of ICD's claim for reimbursement of defense costs incurred prior to the filing of the amended complaint was improper because the allegations in the Procter & Gamble original complaint resulted from an alleged "advertising injury," a type of claim that was afforded coverage under the Federal policy. "Advertising injury" in the Federal policy is defined as:

a. libel, slander or defamation;

b. any infringement of copyright, title or slogan;

c. piracy, unfair competition or idea misappropriation under an implied contract;

d. any invasion of right of privacy;

committed or alleged to have been committed during the policy period in any advertisement, publicity article, broadcast or telecast and arising out of the insured's activities.

ICD posits that the patent infringement allegation set forth in Procter & Gamble's initial complaint falls within the term "piracy" included in the Federal policy's definition of "advertising injury." Federal, however, counters that, it is not required to provide coverage under the policy because an advertising injury cannot arise out of a patent infringement action as a matter of law.

As an alternative argument, ICD avers that it is entitled to coverage because Procter & Gamble had also sought damages from ICD for "unfair competition," a term included within the Federal policy's definition of an advertising injury.⁴ Although Procter & Gamble's claim for unfair competition was not included in the initial complaint, ICD insists that the initial complaint, when read in conjunction with 1) the allegations in the amended complaint, 2) certain document requests propounded by Procter & Gamble during discovery, and 3) Procter & Gamble counsel's line of questioning at a deposition taken prior to the filing of the amended complaint, potentially asserts a claim for unfair competition within the meaning of the Federal policy. The Court will address the parties' asseverations seriatim.

A.

It is beyond peradventure in Pennsylvania that the task of interpreting an insurance contract is performed by a court. Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 304, 469 A.2d 563, 566 (Pa.1983). "The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument." Id. at 305, 469 A.2d at 566. When interpreting an insurance policy, the basal inquiry a court must make is whether the contract's disputed terms are ambiguous. See St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 (3d Cir.1991). Words are considered ambiguous if they "may reasonably admit of different meanings." Mendel v. Home Ins. Co., 806 F.Supp. 1206 (E.D.Pa.1992) (quoting Mellon Bank, 619 F.2d at 1011). Any ambiguities a court finds when analyzing the policy must be construed against the insurer and in favor of coverage. St. Paul Fire & Marine, 935 F.2d at 1431. This principle holds true even where the insured is a commercial entity. ACandS, Inc. v. Aetna Casualty & Sur. Co., 764 F.2d 968, 973 (3d Cir.1985).

The course of the parties' arguments requires the Court to first...