Seaboard Sur. Co. v. Gillette Co.

Decision Date27 December 1984
Citation476 N.E.2d 272,64 N.Y.2d 304,486 N.Y.S.2d 873
Parties, 476 N.E.2d 272 SEABOARD SURETY COMPANY, Appellant, v. GILLETTE COMPANY et al., Respondents.
CourtNew York Court of Appeals Court of Appeals

James F. Rittinger, Robert M. Callagy and Ronald R. Papa, New York City, for appellant.

John M. Friedman, Jr., and Joseph Zelmanovitz, New York City, for respondents.


JASEN, Judge.

The question presented on this appeal is whether the exclusions from liability coverage contained in the insurance policies at issue negate the insurer's duty to defend.

This is an action brought by Seaboard Surety Company (Seaboard) for a declaratory judgment that it had no duty to defend or indemnify The Gillette Company (Gillette) or J. Walter Thompson Company (Thompson) under separate but similar insurance policies, each known as a "Libel, Slander, Copyright, Piracy, Plagiarism, and Privacy Liability Policy" (Libel Policy). Previously, Seaboard had refused to defend Gillette and Thompson in a suit brought against them by the Alberto-Culver Company (Alberto).

In 1974, a product manufactured by Gillette was advertised on national television in a commercial prepared by Thompson. The commercial compared a rival product manufactured by Alberto unfavorably to Gillette's product in a demonstration depicting the supposed advantages of the latter. Alberto brought suit in Federal court in Chicago against both Gillette and Thompson, seeking damages and injunctive relief on the ground that its product had been wrongfully portrayed. Alberto's complaint included claims of unfair competition, deceptive trade practices, consumer fraud and deceptive business practices, and common-law libel. Alberto alleged, inter alia, that the commercial "falsely implie[d]" deficiencies in its product, "falsely" and "unfairly disparage[d] [plaintiff's] business", its reputation "and its * * * products", and featured Alberto's trademark "without [plaintiff's] authorization or consent". The complaint specifically asserted violations of several Federal and State laws, including an Illinois statute prohibiting deceptive trade practices (defined as "disparag[ing] the goods, services or business of another by false or misleading representation of fact" [Ill.Rev.Stat., 1973, ch. 121 1/2, § 270a, subd. (a); §§ 311-313] ), and another prohibiting the unauthorized use of brand names or trademarks (Ill.Rev.Stat., 1973, ch. 140, §§ 26, 28).

At the commencement of the Alberto action, Gillette and Thompson requested that Seaboard provide them with a defense under their separate insurance policies. Seaboard disclaimed all coverage under the policies and declined. Repeated requests throughout the course of the action met with continued refusal. Finally, in 1979, the Alberto action was settled by Gillette and Thompson and they demanded that Seaboard pay their settlement as well as defense costs. Again Seaboard refused.

Shortly thereafter, Seaboard commenced this action for a declaration that it properly refused to defend Gillette and Thompson in the Alberto action, and that it has no duty to indemnify them for any part of the settlement in that action or for any costs or legal expenses they incurred. Gillette and Thompson counterclaimed for reimbursement of their defense costs and for the amount of the settlement. The action against Gillette was dismissed by Special Term by reason of the pendency of a similar action instituted by Gillette in Massachusetts. In the action against Thompson, Special Term granted that party's motion for partial summary judgment, holding that Seaboard had a duty to defend Thompson in the Alberto action, despite the possible limitations on Seaboard's duty to indemnify. The Appellate Division affirmed, without an opinion. 1

In the interim, the Appellate Division reversed Special Term's prior dismissal of Seaboard's action as against Gillette. Then, in a motion identical to Thompson's, Gillette sought partial summary judgment on Seaboard's duty to defend, and both Gillette and Thompson sought summary judgment awarding them actual defense costs incurred in the Alberto action or an immediate trial to determine the amount of damages. 2 Special Term granted Gillette's motion on Seaboard's duty to defend and granted the joint motion by ordering a severance and trial on the defense cost claims.

The Appellate Division affirmed, again without opinion, and subsequently granted Seaboard's motion for leave to appeal to this court certifying the following question: "Was the order of the Supreme Court, as affirmed by this Court, properly made?" We now affirm, 99 A.D.2d 736, 472 N.Y.S.2d 863, and answer the certified question in the affirmative for the following reasons.

The insurance policies issued by Seaboard to Gillette and Thompson, in effect at all relevant times, are virtually identical. They each contain sections which outline with some specificity what is covered and what is excluded from coverage. Under the heading "insuring agreements", each policy contains the following pertinent provisions describing the scope of coverage:

"Indemnity 1. To pay on behalf of the Insured all sums which the Insured shall become obligated to pay by reason of the liability imposed upon him by law, or assumed by him under contract as defined herein, as the result of any final judgment for money damages resulting from

"(a) libel, slander, defamation or

"(b) any infringement of copyright or of property rights or title or of slogan or

"(c) piracy, plagiarism or unfair competition or idea misappropriation under implied contract or

"(d) any invasion of rights of privacy committed or alleged to have been committed in any advertisement, publicity article, broadcast or telecast and arising out of the Insured's advertising activities. 3

"Service 2. To defend, in the name and on behalf of the Insured, any suit seeking damages for any of the above causes, even if such suit is groundless, false or fraudulent."

Under the heading "this agreement is subject to the following conditions", each policy contains a list of what is not included in its coverage. As modified by certain endorsements, these sections provide in pertinent part:

"Exclusions A. This Policy does not cover any liability for:

* * *

* * *

"4. Incorrect description of any article or commodity, or any claim or suit based upon or arising out of alleged false, misleading, deceptive, fraudulent or misrepresenting advertising or to any claim or suit for unfair competition based thereon. 4

* * *

* * *

"8. Any claim, suit or action brought against the Insured because of an act committed by that Insured with knowledge the same constituted any of the hazards insured by this policy." 5

While Seaboard concedes that the allegations in the Alberto complaint fall within the scope of the inclusory sections of each policy entitled "insuring agreements", it, nevertheless, contends that the exclusory provisions upon which the agreements are explicitly conditioned negate coverage for the Alberto action and, thereby, freed it from any duty to defend Gillette and Thompson therein. Under the rules governing an insurer's duty to defend and the effect to be given exclusory provisions in a policy, Seaboard's contentions must fail and the policies in question must be construed to provide Gillette and Thompson with coverage for defending against the Alberto action.

Where an insurance policy includes the insurer's promise to defend the insured against specified claims as well as to indemnify for actual liability, the insurer's duty to furnish a defense is broader than its obligation to indemnify. (International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 326, 361 N.Y.S.2d 873, 320 N.E.2d 619; Lionel Freedman, Inc. v. Glens Falls Ins. Co., 27 N.Y.2d 364, 368, 318 N.Y.S.2d 303, 267 N.E.2d 93.) The duty to defend arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be. (Goldberg v. Lumber Mut. Cas. Ins. Co., 297 N.Y. 148, 154, 77 N.E.2d 131.) The duty is not contingent on the insurer's ultimate duty to indemnify should the insured be found liable, nor is it material that the complaint against the insured asserts additional claims which fall outside the policy's general coverage or within its exclusory provisions. Rather, the duty of the insurer to defend the insured rests solely on whether the complaint alleges any facts or grounds which bring the action within the protection purchased. (Ruder & Finn v. Seaboard Sur. Co., 52 N.Y.2d 663, 669-670, 439 N.Y.S.2d...

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