Sorbee Intern. Ltd. v. Chubb Custom Ins. Co.

• Decision Date: 21 July 1999
• Parties: SORBEE INTERNATIONAL LIMITED, Appellant, v. CHUBB CUSTOM INSURANCE COMPANY, Chubb Group of Insurance, Appellee.
• Court: Pennsylvania Superior Court

735 A.2d 712

1999 Pa. Super. 178

SORBEE INTERNATIONAL LIMITED, Appellant, v. CHUBB CUSTOM INSURANCE COMPANY, Chubb Group of Insurance, Appellee.

Superior Court of Pennsylvania.

Argued January 27, 1999.

Filed July 21, 1999.

Allan D. Windt, Wynnewood, for appellant.

Michael J. Plevyak, Paoli, for appellee.

Before McEWEN, President Judge, and POPOVICH and BECK, JJ.

BECK, J.:

¶ 1 We address in the context of an insurance policy the meaning of the term "misappropriation of advertising ideas." We affirm the trial court's grant of summary judgment in favor of defendant-appellee Chubb Custom Insurance Company ("Chubb").

¶ 2 Appellant Sorbee International Limited ("Sorbee") makes hard candy, and so does its competitor, Simply Lite Food Corporation ("Simply Lite"). Sorbee brought an action against Simply Lite in the United States District Court for the Eastern District of New York. Simply Lite filed a counterclaim against Sorbee in the New York litigation asserting, inter alia, that Sorbee improperly used the terms "low calorie," "sugar free," "fat free," and "cholesterol free" in its candy package labeling. Specifically, Simply Lite alleged that Sorbee's use of the terms violated FDA policies and regulations, that Sorbee's packaging contains "false and misleading factual misrepresentations of the nature, characteristic and qualities of its product," and that Sorbee "intentionally made its low calorie claim and other labeling violations in order to obtain an unfair advantage over its competitors, including Simply Lite." R.R. 133a-145a. Simply Lite further alleged that Sorbee used improper descriptions of serving size, contents, and the wrong print size. Simply Lite also claimed that Sorbee's actions were deceptive and unfair business practices designed to "unfairly garner the largest market share of sugar free hard candies." R.R. 144a.

¶ 3 Sorbee's request that its insurance carrier, Chubb, defend the counterclaim in the New York litigation was denied. Sorbee then brought the instant declaratory judgment action in the Court of Common Pleas of Philadelphia County seeking a declaration that Chubb had a duty to defend. Sorbee sought coverage by characterizing the counterclaim as a claim of "misappropriation of advertising ideas," since the Chubb policy covers such claims. The trial court granted summary judgment in favor of Chubb declaring that Chubb did not have a duty to defend.

¶ 4 The Chubb policy provides coverage for damages Sorbee is legally obligated to pay by reason of liability for "advertising injury." In the policy, "advertising injury":

means injury arising solely out of one or more of the following offenses committed in the course of advertising your goods, products or services:

1. 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 2. oral or written publication of material that violates a person's right of privacy;

3. misappropriation of advertising ideas or style of doing business; or

4. infringement of copyrighted advertising materials, titles or slogans.

R.R. 37a.

¶ 5 Sorbee asserted that Chubb had a duty to defend the Simply Lite counterclaim because the counterclaim made allegations of "misappropriation of advertising ideas." That term is not defined in the policy. After the parties submitted the matter to the trial court on a Stipulation of Facts pursuant to Pennsylvania Rule of Civil Procedure 1038.1, the trial judge held that the Simply Lite counterclaim did not allege a "misappropriation of advertising ideas," and entered judgment in Chubb's favor. Post trial motions were denied, and this timely appeal followed.

¶ 6 The duty to defend is a distinct obligation, separate and apart from the insurer's duty to provide coverage. Britamco Underwriters, Inc. v. Grzeskiewicz, 433 Pa.Super. 55, 639 A.2d 1208, 1210 (1994). The obligation to defend arises whenever the allegations of the complaint filed against the insured comprehend an injury that is actually or potentially within the scope of the insurance policy. Gedeon v. State Farm Mut. Auto. Ins. Co., 410 Pa. 55, 188 A.2d 320 (1963); Britamco, supra; Aetna Cas. & Surety Co. v. Roe,

437 Pa.Super. 414, 650 A.2d 94 (1994). The determination of whether the allegations of a complaint come within the coverage of the policy is a matter of interpreting the insurance contract, and that is a question of law that properly may be decided by the court. Riccio v. American Republic Ins. Co., 453 Pa.Super. 364, 683 A.2d 1226, 1233 (1996),

aff'd,

550 Pa. 254, 705 A.2d 422 (1997) (citing Gamble Farm Inn, Inc. v. Selective Ins. Co., 440 Pa.Super. 501, 656 A.2d 142, 143 (1995)). We must look to the factual allegations of Simply Lite's counterclaim against Sorbee to see whether those allegations are actually or potentially covered by the policy, i.e., whether the counterclaim alleges a "misappropriation of advertising ideas." We conclude that the counterclaim does not.

¶ 7 In order to arrive at our conclusion, we must examine the meaning of the term "advertising ideas" and if Simply Lite's counterclaim can be characterized as a claim that Sorbee misappropriated advertising ideas. A careful examination of the counterclaim leads to the conclusion that the counterclaim does not implicate "advertising ideas." Simply Lite essentially made claims of unfair competition and false advertising, asserting that Sorbee had improperly used terms to describe its product that have led to increased sales for Sorbee at the expense of Simply Lite's own sales. The terms in question are "low calorie," "sugar free," "fat free," or "cholesterol free." We do not see how, under such circumstances, Sorbee's use of the terms—although allegedly in violation of FDA policies and regulations—constitutes an advertising idea.

¶ 8 In determining what is an advertising idea, we have been unable to find, nor have counsel directed our attention to, binding definitions as used in the context of this case. We take guidance from Thomas v. R.J. Reynolds Tobacco Co., 350 Pa. 262, 38 A.2d 61 (1944), in which the Pennsylvania Supreme Court described an "advertising idea" as an idea for advertising that is "novel and new," and "definite and concrete," such that it is capable of being identified as having been created by one party and stolen or appropriated by another. Id. at 267-68, 38 A.2d at 63-64. See also Silver v. Television City, Inc., 207 Pa.Super. 150, 215 A.2d 335 (1965)

(requiring "a new and novel idea reduced to concrete form" in order to warrant legal protection). The terms at issue here do not constitute an original, novel idea that was created by Simply Lite and stolen by Sorbee. They are straightforward descriptive material not formed or sequenced in any way so as to constitute novel or special usage.

¶ 9 More to the point, nothing in the Simply Lite counterclaim suggests that Simply Lite is accusing Sorbee of stealing an original, novel advertising idea. Simply Lite is instead claiming that Sorbee has not met the requirements for using these terms to describe its product.

¶ 10 We are also guided by several relevant more recent cases. Most compelling is the decision by the United States District Court for the Eastern District of Pennsylvania in Applied Bolting Technology Products, Inc. v. United States Fidelity & Guaranty Co., 942 F.Supp. 1029 (E.D.Pa.1996), aff'd, 118 F.3d 1574 (3d Cir.1997).¹ In that case, the same policy language was at issue when the insured plaintiff sought coverage from the defendant insurer for underlying litigation in which plaintiff's competitor accused it of improperly using certain language to advertise its product, direct tension indicators, or DTIs, used with bolts. Specifically, the competitor accused Applied Bolting of using the latest industry standard to describe its DTIs, advertising "all DTIs made to ASTM F959-94a," when the DTIs allegedly did not conform to this industry standard. Applied Bolting's competitor made no claim that it owned the offending language, but simply that Applied Bolting used it improperly in its advertising, resulting in lost sales for the competitor.

¶ 11 Applied Bolting sought coverage from its insurer, claiming the underlying lawsuit made allegations of a "misappropriation of advertising ideas." The court rejected this argument:

Reading the policy's words as they are written, ASTMF959-94a cannot be considered an "advertising idea." The policy is worded to cover "misappropriation of advertising ideas;" it is not worded, as Applied reads it, to cover "misuse in advertising of any idea regardless of the nature of that idea." Turner [the competitor] does not allege that ASTMF959-94a is or ever was an "idea" for "advertising" DTIs; rather, Turner alleges that ASTM F959-94a is a testing standard that enables a manufacturer to determine whether its DTIs are fit for sale in the marketplace ... In addition to there being no coverage under the plain meaning of the policy's terms, the courts that have considered the meaning of "misappropriation of advertising ideas" have defined it as "the wrongful taking of the manner by which another advertises its goods or services." ... Turner alleges that Applied falsely advertises compliance with an industry testing standard, thereby causing Turner to lose sales to Applied. Turner intends to present evidence that Applied's DTIs do not comply with ASTM F959-94a. Turner does not intend to argue that Applied has wrongfully taken from Turner the idea to advertise the claim "all DTIs made to ASTM F959-94a."

942 F.Supp. at 1033-34 (citations omitted). We find this reasoning to be equally applicable here. Simply Lite does not claim that Sorbee stole from Simply Lite the terms "low calorie," "sugar free," "fat free" and "cholesterol free," but that Sorbee's product does not comply with the FDA requirements for the use of these terms.

¶ 12 This case is also easily distinguishable from others...