Krueger Intern., Inc. v. Federal Ins. Co.
| Decision Date | 19 August 2009 |
| Docket Number | Case No. 07-C-0736. |
| Parties | KRUEGER INTERNATIONAL, INC., Plaintiff, v. FEDERAL INSURANCE COMPANY and St. Paul Fire and Marine Insurance Company, Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
George Burnett, David H. Weber, Liebmann Conway Olejniczak & Jerry SC, Green Bay, WI, for Plaintiff.
Heidi L. Vogt, Lee Anne N. Conta, Philip C. Reid, Von Briesen & Roper SC, Milwaukee, WI, Daniel J. Cunningham, Tressler Soderstrom Maloney & Priess, Chicago, IL, Robert J. Penegor, Penegor Law Offices, Brookfield, WI, for Defendants.
DECISION AND ORDER
Plaintiff Krueger International, Inc. ("KI") filed this lawsuit seeking declaratory relief against two of its former liability insurers. KI seeks a determination that Defendants St. Paul Fire and Marine Insurance Company ("St. Paul") and Federal Insurance Company ("Federal") had a duty under their respective policies to defend KI in an action filed against it by Studio & Partners s.r.l. ("S & P"), in which S & P alleged that KI had misappropriated S & P's furniture design ("the Underlying Action").1 KI contends that S & P's complaint in the underlying action alleged that S & P sustained "advertising injury" as that term is defined in the insurer's respective policies. St. Paul and Federal, in turn, deny that S & P's complaint alleged any advertising injury, and further contend that any such claim falls within the explicit exclusions of their policies. In addition, St. Paul has asserted a counterclaim against KI in which it seeks reimbursement of contributions it made toward KI's defense under a reservation of rights.
This Court's jurisdiction arises under 28 U.S.C. § 1332, and the case is now before me on cross motions for summary judgment. For the reasons stated herein, I conclude that none of the damages claimed by S & P in the Underlying Action fall within the coverage provided by the insurance policies. It follows that neither St. Paul, nor Federal, had a duty to defend. Their motions for summary judgment will therefore be granted, and KI's motion will be denied. I also conclude that St. Paul may be entitled to reimbursement of the defense costs it paid under its reservation of rights. That claim cannot be resolved on the record as it now stands, however, and so the case will be set for further proceedings. St. Paul's motion for leave to file an amended counterclaim which seeks to add to its claim for reimbursement the amount it paid in settlement of S & P's claim will also be granted. KI's motion to add a bad faith claim against St. Paul will be denied.
Plaintiff KI is a Wisconsin corporation engaged in the business of manufacturing furniture. (St. Paul's PFOF ¶ 1.) The facts of the Underlying Action are more fully set forth in the Court's decision dismissing that case, Studio & Partners v. KI, No. 06-C-0628, 2007 WL 3342597 (E.D.Wis., Nov. 7, 2007.). In brief, S & P, an Italian company that designs furniture, brought suit against KI, alleging that KI had misappropriated S & P's designs for academic-style furniture, which S & P had designated its "CAMPUS" line, and then concealed that fact from S & P, the U.S. Patent and Trademark Office, and the public once KI began selling its own version of the furniture in the American market. Between 1995 and 1998, KI's German subsidiary and S & P's predecessor had worked together in an attempt to bring the CAMPUS product to market. KI later informed S & P that it was no longer interested in going forward with the design. S & P claimed, however, that KI nevertheless went ahead and manufactured its own line of furniture, first called "Einstein" then "Intellect," based on S & P's designs. In 2003, KI applied for and received patents on an Einstein/Intellect desk and chair. According to S & P, it did not discover KI's alleged misappropriation and misconduct until 2005. In the Underlying Action, S & P asserted six separate claims for relief: (1) fraudulent concealment, (2) breach of fiduciary duty, (3) correction of patent inventorship, (4) misappropriation, (5) unjust enrichment, and (6) "misrepresentation/fraud/negligent/strict liability."2
Asserting that S & P's allegations fell within the advertising injury coverage of both policies, KI tendered to each its defense. Federal rejected KI's tender on the ground that S & P had not alleged advertising injury and, in any event, S & P's claims fell within several policy exclusions, including the intellectual property exclusion. (Federal's PFOF ¶ 62.) Federal reaffirmed its rejection of KI's tender of defense on the same grounds after S & P filed an amended complaint. (Id. ¶ 63.) St. Paul initially took the same position and likewise rejected KI's tender of defense. (KI's PFOF ¶ 49.) St. Paul later reconsidered, however, and on August 16, 2007, it assumed KI's defense under a reservation of rights pending a coverage determination by the Court. (Van Severen Decl., April 1, 2008, Ex. I.) In its letter agreeing to defend KI under a reservation of rights, St. Paul expressly noted that it was reserving its rights to seek reimbursement from KI for any amount it has paid in defending the case. (Van Severen Decl., April 1, 2008, Ex. I.)
The Underlying Action was ultimately dismissed on KI's motion for summary judgment in a decision entered on November 7, 2007. (Case No. 06-C-628, doc. # 358.) S & P thereafter appealed to the Court of Appeals for the Federal Circuit. While the appeal was pending, St. Paul settled the claim by paying S & P $315,000. (Amended Counterclaim ¶ 13.) Based on the settlement reached by the parties, the appeal was dismissed on September 18, 2008. (Case No. 06-C628, doc. # 388.)
From April 1, 1994 through July 1, 2001, St. Paul issued a series of General Commercial Liability ("GCL") insurance policies to KI. (KI's PFOF ¶ 1.) Federal also issued KI a series of GCL insurance policies, which provided coverage during the span of July 1, 2001 through July 1, 2008. (Id. ¶ 2.)
The advertising injury provisions of the policies issued to KI by St. Paul provided in relevant part:
Advertising injury liability. We'll pay amounts any protected person is legally required to pay as damages for covered advertising injury that:
• results from the advertising of your products, work or completed work; and
• is caused by an advertising injury offense committed while this agreement is in effect.
* * *
Advertising injury means injury, other than bodily injury or personal injury, caused by an advertising injury offense. Advertising injury offense means any of the following offenses:
• Libel or slander.
• Making known to any person or organization written or spoken material that belittles the products, work or completed work of others.
• Making known to any person or organization written or spoken material that violates an individual's right of privacy.
• Unauthorized taking or use of any advertising idea, material, slogan, style or title of others.
Advertising means attracting the attention of others by any means for the purpose of seeking customers or increasing sales or business.
The St. Paul policies in effect from 1998-2001 also contained in intellectual property exclusion, which provided:
Intellectual property. We won't cover injury or damage that results from any actual or alleged infringement or violation of any of the following rights or laws:
• Copyright.
• Patents.
• Trade dress.
• Trade name.
• Trade secret.
• Trademark.
• Other intellectual property rights or laws.
But we won't apply this exclusion to:
• bodily injury or property damage that results from your products or completed work; or
• advertising injury that results from the unauthorized use of any copyrighted or trademarked advertising material, slogan, style, or title of others in your advertising.
(St. Paul's PFOF ¶ 23.) In addition, the policies provided for a limitation of coverage of claims arising out of "your [the insured's] completed work," defining "your work" as either "work that you're performing or others are performing for you; or service that you're providing or others are providing for you." (KI's PFOF ¶ 33.)
The policies issued to KI by Federal also provided "advertising injury" coverage. The July 1, 2001 to July 1, 2003 policies defined "advertising" as "any advertisement, publicity article, broadcast or telecast," (Federal's PFOF ¶ 4) and "advertising injury" as follows:
Advertising injury means injury, other than bodily injury or personal injury arising solely out of one or more of the following offenses committed in the course of advertising of your goods, products or services:
• oral or written publication of advertising material that slanders or libels a person or organization:
• oral or written publication of advertising material that violates a person's right of privacy; or
• infringement of copyrighted advertising materials or infringement of trademarked or service marked titles or slogans.
(Federal's PFOF ¶ 3.) These policies contained the following intellectual property exclusion:
This insurance does not apply to bodily injury, property damage, advertising injury or personal injury arising out of or directly or indirectly related to the actual or alleged publication or utterances of oral or written statements, whether made in advertising or otherwise, which is claimed as infringement, violation or defense of any of the following rights or laws:
• copyright, other than infringement of copyrighted advertising materials;
• patent
• trade dress;
• trade secrets; or
• trademark or service mark or certification mark or collective mark or trade name, other than trademarked or service marked titles or slogans.
The policies issued to KI by Federal from July 1, 2003 to July 1, 2008 defined advertising injury as follows:
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