ShoLodge, Inc. v. Travelers Indem. Co. of Illinois

• Citation: 168 F.3d 256
• Decision Date: 08 February 1999
• Docket Number: No. 97-6165,97-6165
• Parties: SHOLODGE, INC., Plaintiff-Appellant, v. TRAVELERS INDEMNITY COMPANY OF ILLINOIS and Bankers Standard Insurance Company, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 256

168 F.3d 256

49 U.S.P.Q.2d 1694

SHOLODGE, INC., Plaintiff-Appellant, v. TRAVELERS INDEMNITY COMPANY OF ILLINOIS and Bankers Standard

Insurance Company, Defendants-Appellees.

No. 97-6165.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 29, 1998.

Decided Feb. 8, 1999.

Thor Y. Urness (argued and briefed), Boult, Cummings, Conners & Berry P.L.C., Nashville, TN, for Plaintiff-Appellant.

Randall C. Ferguson, Branstetter, Kilgore, Stranch & Jennings, Nashville, TN, Thomas Holden (briefed), William C. Morison-Knox (argued), Morison-Knox, Holden, Melendez, & Prough L.L.P., Walnut Creek, CA, for Defendant-Appellee Travelers Indemnity Company.

Michael E. Evans (argued and briefed), Evans, Todd & Floyd P.L.C., Nashville, TN, for Defendant-Appellee Bankers Standard Insurance Company.

Before: DAUGHTREY and MOORE, Circuit Judges; COHN, ^* District Judge.

OPINION

DAUGHTREY, Circuit Judge.

In this diversity action regarding an insurance coverage dispute, the district court granted summary judgment to the defendants, Travelers Indemnity Co. and Bankers Standard Insurance Co. (CIGNA), who were general liability insurers for the plaintiff, ShoLodge, Inc. ShoLodge was sued by a third party, SF Hotel Company, for service mark infringement and in turn sued the insurers, claiming that they had a contractual obligation to defend and indemnify ShoLodge in the underlying action. On appeal, ShoLodge contests the district court's finding that the policies did not provide coverage for service mark infringement and also claims that the district court abused its discretion in limiting discovery. We find no reversible error and affirm.

PROCEDURAL AND FACTUAL BACKGROUND

ShoLodge, Inc., a Tennessee corporation, owns and operates hotels. One of its projects is a chain of all-suite hotels identified by the service mark "Sumner Suites." In an August 1995 letter, sent prior to the opening of the first Sumner Suites Hotel, SF Hotel Co., a Kansas corporation operating all-suite hotels under the service mark "Summerfield Suites," notified ShoLodge that it considered ShoLodge's use of the mark "Sumner Suites" to constitute service mark infringement. In its letter, SF Hotels requested that ShoLodge choose a different name for its new hotel chain and asserted that if ShoLodge did not comply with this request, SF Hotels would "take appropriate action to protect its rights." ShoLodge responded by indicating that it did not believe the mark "Sumner Suites" constituted potential trademark or service mark infringement of SF Hotel's mark. As a result, SF Hotels filed a service mark infringement suit against ShoLodge in federal court in Florida. ShoLodge then notified Travelers and CIGNA of the suit.

Both CIGNA and Travelers denied coverage. In their denial letters, the insurance companies took the position that service mark infringement suits are not covered by their general liability policies. By the time ShoLodge was informed of the denials of coverage, it had already retained counsel at its own expense to defend the case. Following a jury trial, judgment in the underlying suit was entered in favor of ShoLodge.

ShoLodge subsequently filed suit in Tennessee against Travelers and CIGNA, seeking a declaratory judgment that the insurers had a duty to defend and indemnify ShoLodge in the underlying suit involving SF Hotels. It argued that the "advertising injury" provisions of the contract provide coverage for service mark infringement claims. ShoLodge also brought claims for breach of contract and bad faith denial of coverage.

DISCUSSION

The parties do not dispute the relevant facts and, therefore, we are presented only with a question of law regarding the construction of the Travelers and CIGNA policies. The relevant sections of the commercial general liability policies provided by Travelers and CIGNA are identical, stating that the insurers have a duty to defend and indemnify the insured for claims of " 'advertising injury' caused by an offense committed in the course of advertising [insured's] goods, products, or services." The contract defines "advertising injury" as follows:

"Advertising injury" means injury arising out of one or more of the following offenses:

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

ShoLodge argues that "misappropriation of advertising ideas or style of doing business" and "infringement of copyright, title, or slogan" are ambiguous terms that must therefore be interpreted in favor of the insured Under Tennessee law, courts interpreting insurance contracts must look to the contract as a whole, see Demontbreun v. CNA Ins. Cos., 822 S.W.2d 619, 621 (Tenn.Ct.App.1991), and should not apply a "forced, unnatural, or unreasonable construction." Dixon v. Gunter, 636 S.W.2d 437, 440 (Tenn.Ct.App.1982). Where there is no ambiguity, terms should be given their ordinary meaning, and neither party ought to be favored. See In re Estate of Clement, 220 Tenn. 114, 414 S.W.2d 644, 646 (Tenn.1967). Where the terms are ambiguous, however, such ambiguities are to be construed against the drafter. See Grand Valley Lakes Property Owners Ass'n, Inc. v. Cary, 897 S.W.2d 262, 267 (Tenn.Ct.App.1994). There is a strong presumption that an insurance contract is representative of the entire contract between the parties. See Lawrenceburg v. Maryland Cas. Co., 16 Tenn.App. 238, 64 S.W.2d 69, 71 (1933). In sum, in the instant case, if the terms at issue are ambiguous, they must be construed in favor of plaintiff to include service mark infringement. If the terms at issue are unambiguous, however, and do not include service mark infringement, then the defendants must prevail.

i.e., as including claims for service mark infringement. The defendants argue that these phrases are not ambiguous and clearly do not include service mark infringement.

In awarding summary judgment to the defendants, the district court relied on this court's opinion in Advance Watch Co. Ltd. v. Kemper Nat'l Ins. Co., 99 F.3d 795 (6th Cir.1996). The underlying claim in Advance Watch involved a suit by the A.T. Cross Company, which alleged that the plaintiff was manufacturing pens similar to Cross pens. As in the instant case, the underlying claim alleged violations of the Lanham Act as well as common law trademark infringement offenses and requested injunctive relief, various damages, and attorneys' fees. The policy clause examined in Advance Watch is identical to the clause in dispute in this case.

We conclude that the decision in Advance Watch is applicable here and defeats the argument made by ShoLodge that service mark infringement falls within the category of "misappropriation of advertising ideas or style of doing business." We specifically held in Advance Watch that " 'misappropriation of advertising ideas or style of doing business' does not refer to a category or grouping of actionable conduct which includes trademark or trade dress infringement." Advance Watch, 99 F.3d at 802. Advance Watch is therefore directly on point in regard to plaintiff's argument regarding misappropriation. Mor...