Ohio Cas. Ins. Co. v. Cloud Nine, LLC

• Decision Date: 14 November 2006
• Docket Number: No. 1:05-CV-88 TC.,1:05-CV-88 TC.
• Citation: 464 F.Supp.2d 1161
• Parties: The OHIO CASUALTY INSURANCE COMPANY and West American Insurance Company, Plaintiffs and Cross-Defendants, v. CLOUD NINE, LLC, et al., Defendants. Unigard Insurance Company, Plaintiff/Intervenor and Cross-Claimant.
• Court: U.S. District Court — District of Utah

Page 1161

464 F.Supp.2d 1161

The OHIO CASUALTY INSURANCE COMPANY and West American Insurance Company, Plaintiffs and Cross-Defendants, v. CLOUD NINE, LLC, et al., Defendants Unigard Insurance Company, Plaintiff/Intervenor and Cross-Claimant.

No. 1:05-CV-88 TC.

United States District Court, D. Utah, Northern Division.

November 14, 2006.

Barbara K. Berrett, Mark D. Taylor, Berrett & Associates, Salt Lake City, UT, for Plaintiffs and Cross-Defendants.

Ray R. Christensen, Rebecca L. Hill, Christensen & Jensen PC, Salt Lake City, UT, for Intervenor Plaintiff.

Michael L. Ford, Strong & Hanni, Salt Lake City, UT, for Defendants.

ORDER AND MEMORANDUM DECISION

CAMPBELL, District Judge.

The parties seek a ruling regarding the scope of two insurance companies' duty to defend the Cloud Nine Defendants in the separate case of Edizone LC v. Cloud Nine LLC, Case No. 1:04-CV-117-TS (D.Utah). One of the insurance companies, Unigard Insurance Company, agreed to defend the Cloud Nine Defendants in Edizone, whereas the other insurance company, The Ohio Casualty Insurance Company, rejected the Cloud Nine Defendants' initial tender of defense. Unigard, in its Motion for Partial Summary Judgment, contends that Ohio Casualty, like Unigard, has a duty to defend.¹ Unigard further contends that Ohio Casualty should share equally in paying the costs that Unigard has incurred (or will incur) defending the Edizone case.

The court finds that the allegations in Edizone's Complaint allege an advertising injury triggering a duty to defend on the part of Ohio Casualty and Unigard. Also, based on the language of the Ohio Casualty and Unigard policies, the court finds that Ohio Casualty must pay fifty percent of the Cloud Nine Defendants' defense costs in Edizone, with Unigard paying the remaining fifty percent. Accordingly, Unigard's Motion for Partial Summary Judgment is GRANTED.

I. FACTUAL AND PROCEDURAL BACKGROUND²

Unigard insured the Cloud Nine Defendants for a portion of the period at issue in the Edizone case, and it accepted the Cloud Nine Defendants' tender of defense under a reservation of rights when Edizone was filed in August 2004. Ohio Casualty also insured the Cloud Nine Defendants for a portion of the relevant period, but it rejected their initial tender of defense. Ohio Casualty then filed this declaratory judgment action seeking a ruling that it has neither a duty to defend nor a duty to indemnify the Cloud Nine Defendants. Unigard intervened as a plaintiff, contending that it also does not have a duty to defend or indemnify, but if it does, then so does Ohio Casualty because the policies are essentially identical.³ Additionally, Unigard seeks a finding that if both insurers have a duty to defend, Ohio Casualty must share equally in paying defense costs (incurred and to be incurred).

It is important to note that after Unigard filed its Motion for Partial Summary Judgment, Ohio Casualty agreed to defend the Cloud Nine Defendants under a reservation of rights, based on what it believes are materially new allegations in the Second Amended Complaint filed in Edizone. Because Ohio Casualty has since acknowledged a duty to defend from the date of Edizone's Second Amended Complaint (filed in January 2006), the duty-to-defend issue raised by Unigard's Motion is narrowed to whether Ohio Casualty owed a duty to defend before the Second Amended Complaint was filed.

A. The Insurance Policy

Ohio Casualty issued a Commercial General Liability Policy to Cloud Nine, LLC, and Easy Seat, LLC, for the period of June 10, 2001, to June 10, 2002. (Ohio Casualty Policy No. BKO (02) 52 34 34 82, attached as Ex. A to Decl. of Rebecca Hill.) The Policy provided coverage for "Personal and Advertising Injury Liability" (Coverage B), as follows:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply....

(Id. at p. 5 of CGL Coverage Form (emphasis added).) According to the Policy, "personal and advertising injury" is an "injury ... arising out of one or more of the following offenses: ... [t]he use of another's advertising idea in your `advertisement' ...." (Id. at p. 13 (emphasis added).) "Advertisement" is defined as "a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters." (Id at p. 11.)

The Policy also contains certain exclusions. In particular, the insurance policy does not apply to "personal or advertising injury" that was "caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertisement injury" or that arose "out of oral or written publication of materials, if done by or at the direction of the insured with knowledge of its falsity." (Id. at p. 5 (emphasis added).)⁴

B. Edizone's Complaint

The genesis of the Edizone suit is the alleged breach of a License Agreement allowing the Cloud Nine Defendants to manufacture, use and sell patented elastomer gel technology and product known as "Gelastic," "GellyComb," and "Intelli-Gel" (another name for "GellyComb"). In its initial complaint,⁵ Edizone asserts causes of action for (1) patent infringement; (2) breach of contract; (3) constructive fraud; (4) fraudulent non-disclosure; (5) federal law trademark infringement; (6) common law trade name infringement or common law unfair competition; (7) deceptive trade practices under the Utah Truth in Advertising Act; (8) misrepresentation and false designation of origin under the federal trademark act; and (9) conspiracy. (See Edizone Complaint, attached as Ex. E to Hill Decl.)

According to Unigard, Edizone's Complaint triggers a duty to defend under the "advertising injury" portion of the Policy because it alleges that the Cloud Nine Defendants used Edizone's "advertising ideas" (the trade names GellyComb, Gelastic, and Intelli-Gel) in their advertisement, all to Edizone's detriment. Unigard focuses on Edizone's Sixth, Seventh, and Eighth causes of action to argue that Edizone's allegations trigger Ohio Casualty's duty to defend under the Policy's Coverage B for "personal and advertising injury" liability.

In its Complaint, Edizone describes its Sixth Cause of Action as "Common Law Trade Name Infringement [and] Common Law Unfair Competition." It alleges that the Cloud Nine Defendants "have adopted and taken for themselves the use of Edizone's valuable trade names [GellyComb, Gelastic, and/or Intelli-Gel] by using said names in their businesses, on their websites, and in conjunction with their goods...." (Edizone Compl. ¶ 103, attached as Ex. E to Declaration of Rebecca L. Hill.) Edizone further alleges that the Cloud Nine Defendants' use of those trade names constitutes "common law trade name infringement and unfair competition and is designed to cause confusion and mistake and to deceive purchasers into believing that Defendants' products are somehow sponsored by, made by, or associated with Edizone." (Id.) Edizone contends that, "[a]s a direct and proximate result of Defendants' actions, Edizone will suffer, and has suffered, injury to its trade names and its established good will in the market. Defendants' acts, misconduct and misappropriation of Edizone's trade names are also likely to cause confusion, mistake, and deceive the public, and have already caused actual confusion. Such injuries are irreparable injuries for which there is no adequate remedy at law." (Id. ¶ 105.)

Under Edizone's Seventh Cause of Action, the Cloud Nine Defendants are accused of violating the Utah Truth in Advertising Act, Utah Code Ann. § 13-1 la-3, which "prohibits persons and companies from engaging in deceptive trade practices." (Id. ¶ 108.) Edizone alleges that the Cloud Nine Defendants "engaged in many of the deceptive trade practices enumerated in [§ 13-11a-3], including ... the causing of confusion or misunderstanding as to the source, sponsorship, approval, or certification of their goods or services; or ... the causing of confusion or misunderstanding as to their affiliation, connection, association with, or certification by Edizone." (Id)

And, finally, Edizone's Eighth Cause of Action alleges "Misrepresentation and False Designation of Origin" under 15 U.S.C. § 1125(a). According to Edizone, the Cloud Nine Defendants "appropriated the names GellyComb, Gelastic and/or Intelli-Gel and are using [the names] in their own businesses ... in a prominent fashion." (Id. ¶ 110.) In particular, Edizone alleges that the Cloud Nine Defendants "use the above trade names to get people to their businesses, where competing products are advertised and sold using said trade name."⁶ (Id. ¶ 113.)

C. Legal Standard for Summary Judgment

Federal Rule of Civil Procedure 56 permits the entry of summary judgment if "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-51, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998).

Unigard's Motion involves the interpretation of two insurance contracts and a determination of the insurers' rights and obligations under those contracts. Utah law (which applies in this diversity action) provides that insurance contracts "are interpreted under general contract principles" and that interpretation of such contracts is a question of law to be determined by the courts. Allstate...