Poof Toy Products, Inc. v. US Fid. & Guar. Co.

• Decision Date: 27 June 1995
• Docket Number: No. 94-CV-74695-DT.,94-CV-74695-DT.
• Citation: 891 F. Supp. 1228
• Parties: POOF TOY PRODUCTS, INC., a Michigan corporation, and Raymo Dallavecchia, Plaintiffs, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a Maryland corporation, Defendant.
• Court: U.S. District Court — Eastern District of Michigan

891 F. Supp. 1228

POOF TOY PRODUCTS, INC., a Michigan corporation, and Raymo Dallavecchia, Plaintiffs, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a Maryland corporation, Defendant.

No. 94-CV-74695-DT.

United States District Court, E.D. Michigan, Southern Division.

June 27, 1995.

COPYRIGHT MATERIAL OMITTED

Ernest I. Gifford, Birmingham, MI, for plaintiffs.

Michael L. Updike, Farmington Hills, MI, for defendant.

ORDER & OPINION GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

BORMAN, District Judge.

This matter is before the Court on Plaintiffs' motion for summary judgment. Plaintiffs filed this action with the Court on November 18, 1994 seeking, essentially, an order directing Defendant to defend Plaintiffs in a lawsuit currently pending with the United States District Court for the Southern District of California. It is claimed that this duty to defend arises from a commercial general liability insurance policy issued by Defendant United States Fidelity and Guaranty Company (USF & G) to Plaintiff, with the coverage period from October 21, 1993 to October 21, 1994.

The underlying suit was brought, on May 5, 1994, by Andrea Steorts against Plaintiffs in the present suit, Poof Toy Products Inc. and Raymo Dallavecchia (hereinafter Poof Toys), among others, and alleged 18 counts based on federal, state and common law. In sum, the Steorts complaint alleged that plaintiff Steorts had created certain foam-material toys, known as "bath stickers"¹ and "fuzzles"² which were the subject of various copyrights and trademarks. With sales of the bath stickers and fuzzles increasing, and through the efforts of the Der-Tex defendants in the underlying suit, Steorts entered into an agreement with Der-Tex to manufacture her products. Thereafter, Plaintiff learned that her fuzzles were being sold in Target stores under the Poof Toys label. She also alleges that her "Tubasaurs"³ product, a prototype of which she had given to Der-Tex to manufacturer earlier in 1993, was sold at Wal-Mart stores throughout the United States, as the products of defendant Poof Toys, using the name "Tub-O-Saurus." Steorts Complaint, ¶ 40. Of the 18 Counts alleged in the Steorts complaint, eight were directed at defendants/Plaintiffs Poof Toys. Factual allegations addressing Poof Toys's actions included: Misappropriation of Trade Secrets (Count VI); Copyright Infringement (Count VII); Trademark and Trade Dress Infringement and Unfair Competition (Count IX); and Common Law Unfair Competition (Count XIII).

The only issue posed by Plaintiff's motion is whether any allegations in the underlying Steorts complaint constitute "advertising injury" within the meaning contemplated by the parties to the USF & G policy and therefore invokes Defendant's duty to defend. The policy at issue is the standard form post-1986 Commercial General Liability (CGL) policy. The Insurance Services Office publishes standard forms which are universally used in the property and casualty insurance industry. In 1986, the forms were revised to include the current definitions and exclusion for "advertising injury."

The policy states that the insurer will "have the right and duty to defend any `suit' seeking those damages to which this coverage part applies." (Plaintiff's exhibit A, policy # 1MP30010030602, effective 10/21/93, hereinafter Policy, p. A65). Coverage under the policy includes damages for "`advertising injury' caused by an offense committed in the course of advertising your goods, products or services" provided the offense was committed in the "coverage territory" during the policy period. (Policy, p. 65). "Advertising Injury" is defined by the policy as "injury" arising out of one or more of the following offenses:

a. Oral or written publication or material that slanders of 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.⁴

(Policy, pp. 69-70).

Plaintiff asserts, and Defendant does not contest, (Defendant's Brief in Answer, p. 9), that as a federal court sitting in diversity jurisdiction in the State of Michigan, this Court must apply the Michigan substantive law. Michigan law requires a court to apply the law of the state where the insurance policy was issued. Irons Home Builders, Inc. v. Auto-Owners Ins. Co., 839 F.Supp 1260, 1264 (E.D.Mich.1993). In this case, the policy was issued in Michigan. (Policy, p. 3).

In Michigan, an insurance policy is a contract; and, as with any contract, the rights of the parties are determined by the terms of their agreement, in this case the insurance policy. Fragner v. American Community Mutual Ins. Co., 199 Mich.App. 537, 542, 502 N.W.2d 350 (1993); Accord Eghotz v. Creech, 365 Mich. 527, 530, 113 N.W.2d 815 (1962). To define terms used within a policy, a court first looks to the meaning given in the policy or, if no definition is given, their meaning is interpreted in accordance with their common meaning. Allstate Insurance v. Freeman, 432 Mich. 656, 443 N.W.2d 734 (1989); See also Upjohn v. New Hampshire Ins. Co., 438 Mich. 197, 206-07, 476 N.W.2d 392 (1991) (clear, unambiguous language must be considered in its "plain and easily understood" sense).

Where there is no ambiguity in the policy's language, its construction is a question of law for the trial court's determination. Wilson v. Home Owners Insurance Co., 148 Mich.App. 485, 490, 384 N.W.2d 807 (1986); Accord Fragner, 199 Mich.App at 540, 502 N.W.2d 350. Ambiguity exists when, after reading the policy, reasonable persons could differ as to its meaning. Id. In contrast, an insurance contract is clear if it could only be understood in one way. Id.

Courts construe ambiguous language in insurance policies against the insurers, who almost always draft the policies, and in favor of the insured. Allstate v. Freeman, 432 Mich. at 656, 443 N.W.2d 734; Reurink Bros. Star Silo, Inc. v. Maryland Casualty Co., 131 Mich.App. 139, 146, 345 N.W.2d 659 (1983) ("Where there is a dispute over the meaning of the terms of an insurance contract, any doubts are to be resolved in favor of the insured.").

The duty to defend an insured is "separate and severable" from its duty to indemnify. Reurink Bros., 131 Mich.App. at 142, 345 N.W.2d 659. Therefore, it is possible that a duty to defend exists even where it is unlikely the insurance company would be required to pay. See Detroit Edison Co. v. Michigan Mutual Ins. Co., 102 Mich.App. 136, 140, 301 N.W.2d 832 (1980) (the duty to defend extends even to groundless, false or fraudulent allegations).

An insurance company's duty to defend the insured arises from the allegations in the third party's complaint against the insured. Detroit Edison, 102 Mich.App. 136, 141-42, 301 N.W.2d 832 (1980). However, it is necessary to look beyond the precise language of the pleadings to determine whether the actual cause of injury can reasonably be understood to come within the coverage of the policy. See Allstate v. Freeman, 432 Mich. at 662, 443 N.W.2d 734; Detroit Edison, 102 Mich.App. at 142, 301 N.W.2d 832. There is a duty when the allegations "even arguably come within the policy coverage." Id. at 142, 301 N.W.2d 832 (emphasis in original). Even if only a minority of the theories or claims fall within the policy's coverage, the duty to defend the entire suit exists. Id. at 142, 301 N.W.2d 832; Reurink Bros., 131 Mich.App. at 142, 345 N.W.2d 659 ("If any theories fall within the policy, the insurer owes a duty to defend the suit.").

To find coverage under a policy, the Court must find: 1) allegations of fact constituting one of the enumerated "advertising injury" offenses; 2) a causal element, i.e., that the advertising activities/offenses caused the alleged injuries; and 3) that the injury complained of does not fall within an enumerated exception to coverage.

(1) Enumerated Offenses.

a. "Misappropriation of advertising ideas or style of doing business:" Trademarks and Trade dress.

Count VIII of the California complaint alleges trademark, trade dress and unfair competition in violation of 15 U.S.C. § 1125 (the Lanham Act). The Lanham Act defines trademarks as "any word, name, symbol, or device or any combination thereof" used by any person "to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown." 15 U.S.C. § 1127. Marks which are suggestive, arbitrary or fanciful are protected under the Act because they are inherently distinctive and thus, serve to identify the source of the product. Two Pesos, Inc. v. Taco Cabana, Inc., ___ U.S. ___, ___, 112 S.Ct. 2753, 2757, 120 L.Ed.2d 615 (1992) (interim edition and therefore subject to withdrawal or editing).⁵

"`Trade dress' involves the total image of a product and may include features such as shape, color or color combinations, texture, graphics, or even particular sales techniques." John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 980 (1983). Trade dress is most frequently used to indicate the packaging or labeling of goods, but the design of the product itself may also constitute protectable trade dress. Id. Trade dress and trademarks are protected under § 1125 of the Act which prohibits any person from using a term, name, symbol or device, or any combination thereof, to which it is likely to confuse, mistake or deceive as to the manufacturer, origin or description of a good or service. 15 U.S.C. § 1125. Protection of trademarks and trade dress serves to "secure to the owner of the mark the goodwill of his business and to protect the ability of consumers to distinguish among competing producers." Two Pesos, ___ U.S. at ___, 112 S.Ct. at 2760.

"Style of doing business," as it appears in the insurance...