Spandex House, Inc. v. Hartford Fire Ins. Co.

• Decision Date: 26 August 2019
• Docket Number: 18-CV-8367 (VEC)
• Citation: 407 F.Supp.3d 242
• Parties: SPANDEX HOUSE, INC., Plaintiff, v. HARTFORD FIRE INSURANCE COMPANY and Hartford Casualty Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of New York

407 F.Supp.3d 242

SPANDEX HOUSE, INC., Plaintiff,

v.HARTFORD FIRE INSURANCE COMPANY and Hartford Casualty Insurance Company, Defendants.

18-CV-8367 (VEC)

United States District Court, S.D. New York.

Signed August 26, 2019

Benjamin James Little, Steven Stern, Richard Scott Schurin, Stern & Schurin LLP, Garden City, NY, Evgeny Krasnov, Stern & Schurin LLP, Mineola, NY, for Plaintiff.

Katherine E. Tammaro, Tressler LLP, Newark, NJ, for Defendants.

OPINION AND ORDER

VALERIE CAPRONI, United States District Judge:

Plaintiff Spandex House, Inc. ("Spandex House") has sued its insurers, Hartford Fire Insurance Company and Hartford Casualty Insurance Company (collectively, "Hartford"), for breach of contract and for a declaratory judgment. See Compl., Dkt. 6. Spandex House alleges that Hartford has a duty to defend and indemnify it against claims asserted by a third party, Rex Fabrics, in an action for copyright infringement, Rex Fabrics v. Spandex House, Inc. , No. 1:17-CV-4736-SHS (S.D.N.Y.) (the "Rex Fabrics Action" or the "Action"). The parties have cross-moved for summary judgment, pursuant to Federal Rule of Civil Procedure 56.

For the following reasons, Hartford's motion for summary judgment is GRANTED. Spandex House's motion for summary judgment is DENIED. This case is DISMISSED. The Court enters this ruling, however, without prejudice to Spandex House moving, in a letter-brief of no more than five pages, to reopen this case should circumstances in the Rex Fabrics Action change in such a way that a reasonable possibility of coverage of that Action arises.

BACKGROUND¹

I. Hartford's Insurance Coverage

Hartford provides commercial general liability insurance to Spandex House. See Defs.' 56.1 Stmt. ¶ 9; Pl.'s 56.1 Stmt. ¶ 9. As relevant here, the parties' insurance agreement provides coverage for "personal and advertising injury" as follows (the "General Coverage Provision"):

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. We may, at our discretion, investigate any offense and settle any claim or "suit" that may result.

Compl. Ex. A at 167; see also Defs.' 56.1 Stmt. ¶ 12; Pl.'s 56.1 Stmt. ¶ 12. The policy defines "[p]ersonal and advertising injury," in relevant part, as "injury ... arising out of":

f. Copying, in your "advertisement", a person's or organization's "advertising idea" or style of "advertisement"; [or]

g. Infringement of copyright, slogan, or title of any literary or artistic work, in your "advertisement."

Compl. Ex. A at 179; Defs.' 56.1 Stmt. ¶ 13; Pl.'s 56.1 Stmt. ¶ 13.²

These coverage provisions are subject to a number of exclusions. See Defs.' 56.1 Stmt. ¶ 22; Pl.'s 56.1 Stmt. ¶ 22. As relevant here, the policy contains a provision generally excluding coverage for allegations of infringement of intellectual-property rights (the "IP Exclusion"). The IP Exclusion states that Hartford's insurance does not apply to:

i. Infringement Of Intellectual Property Rights

(1) "Personal and advertising injury" arising out of any actual or alleged infringement or violation of any intellectual property right, such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity; or

(2) Any injury or damage alleged in any claim or "suit" that also alleges an infringement or violation of any intellectual property right, whether such allegation of infringement or violation is made by you or by any other party involved in the claim or "suit", regardless of whether this insurance would otherwise apply.

Compl. Ex. A at 161; see also Defs.' 56.1 Stmt. ¶¶ 25, 56–57; Pl.'s 56.1 Stmt. ¶¶ 25, 56–57. The IP Exclusion is, however, subject to an exception (the "Advertising Exception"), which states:

[The IP Exclusion] does not apply if the only allegation in the claim or "suit" involving any intellectual property right is limited to:

(1) Infringement, in your "advertisement", of:

(a) Copyright;

(b) Slogan; or

(c) Title of any literary or artistic work; or

(2) Copying, in your "advertisement", a person's or organization's "advertising idea" or style of "advertisement".

Compl. Ex. A at 161; see also Defs.' 56.1 Stmt. ¶ 28; Pl.'s 56.1 Stmt. ¶ 28.³

II. The Rex Fabrics Action

In December 2016, Rex Fabrics, a fabric wholesaler based in California, sued Spandex House for copyright infringement. See Schurin Decl. Ex. E; Defs.' 56.1 Stmt. ¶¶ 3–4, 40–41; Pl.'s 56.1 Stmt. ¶¶ 3–4, 40–41.⁴ In its Complaint, Rex Fabrics alleged that Spandex House and certain unnamed co-Defendants illicitly "created, sold, manufactured, caused to be manufactured, imported and/or distributed" fabrics and garments identical to five of Rex Fabrics's designs. Schurin Decl. Ex. E ¶¶ 13, 19, 25, 30, 35; see also Defs.' 56.1 Stmt. ¶¶ 5–8; Pl.'s 56.1 Stmt. ¶¶ 5–8. In subsequent filings, Rex Fabrics alleged that Spandex House infringed its copyrights through Spandex House's "marketing" and "advertising," in addition to its manufacturing, distribution, and sales activities. Schurin Decl. Ex. J at 2. Spandex House counterclaimed, seeking a declaratory judgment that Rex Fabrics's copyrights were invalid because Rex Fabrics had obtained them by misleading the U.S. Copyright Office. Schurin Decl. Ex. F at 13–14. The litigation in the Rex Fabrics Action is ongoing.

In February 2017, Spandex House tendered to Hartford a claim for the defense and indemnification of the Rex Fabrics Action. See Defs.' 56.1 Stmt. ¶ 46; Pl.'s 56.1 Stmt. ¶ 46. Hartford denied coverage because, in its view, the allegations in the Rex Fabrics Action fall within the IP Exclusion and do not fall within the Advertising Exception. See Defs.' 56.1 Stmt. ¶ 55; Pl.'s 56.1 Stmt. ¶ 55.

DISCUSSION

I. Standard of Review

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Scott v. Harris , 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) (internal quotation marks omitted) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586–87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). To defeat summary judgment, the nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." Sista v. CDC Ixis N. Am., Inc. , 445 F.3d 161, 169 (2d Cir. 2006). Courts "construe the facts in the light most favorable to the nonmoving party and ... resolve all ambiguities and draw all reasonable inferences against the movant." Delaney v. Bank of Am. Corp. , 766 F.3d 163, 167 (2d Cir. 2014) (per curiam).

II. The Applicable Law

The parties agree that New York law applies to this case. See Defs.' Mem. of Law at 6; Pl.'s Mem. of Law at 8–9. Under New York law, "[i]nsurance policies are, in essence, creatures of contract, and, accordingly, subject to principles of contract interpretation." In re Estates of Covert , 97 N.Y.2d 68, 76, 735 N.Y.S.2d 879, 761 N.E.2d 571 (2001) ; see also Lepore v. Hartford Fire Ins. Co. , 374 F. Supp. 3d 334, 343 (S.D.N.Y. 2019). The interpretation of a contract "is a matter of law for the court to decide." Int'l Multifoods Corp. v. Commercial Union Ins. Co. , 309 F.3d 76, 83 (2d Cir. 2002). As the Second Circuit has explained:

In determining a motion for summary judgment involving the construction of contractual language, a court should accord that language its plain meaning giving due consideration to the surrounding circumstances and apparent purpose which the parties sought to accomplish. Where contractual language is ambiguous and subject to varying reasonable interpretations, intent becomes an issue of fact and summary judgment is inappropriate. The mere assertion of an ambiguity does not suffice to make an issue of fact. Ambiguity resides in a writing when—after it is viewed objectively—more than one meaning may reasonably be ascribed to the language used. Only where the language is unambiguous may the district court construe it as a matter of law and grant summary judgment accordingly.

Palmieri v. Allstate Ins. Co. , 445 F.3d 179, 187 (2d Cir. 2006) (quoting Thompson v. Gjivoje , 896 F.2d 716, 721 (2d Cir. 1990) ). Any ambiguity in an insurance contract is construed against the insurer. Ment Bros. Iron Works Co. v. Interstate Fire & Cas. Co. , 702 F.3d 118, 124 (2d Cir. 2012) (citing Belt Painting Corp. v. TIG Ins. Co. , 100 N.Y.2d 377, 383, 763 N.Y.S.2d 790, 795 N.E.2d 15 (2003) ).

An insurer has a duty to defend its insured against a third party's claims "whenever the allegations in [the third party's] complaint state a cause of action that gives rise to the reasonable possibility of recovery under the policy." Fieldston Prop. Owners Ass'n, Inc. v. Hermitage Ins. Co. , 16 N.Y.3d 257, 264, 920 N.Y.S.2d 763, 945 N.E.2d 1013 (2011). "[W]hatever may later prove to be the limits of the insurer's responsibility to pay," Hugo Boss Fashions, Inc. v. Fed. Ins. Co. , 252 F.3d 608, 620 (2d Cir. 2001), the insurer has a duty to defend against claims if there is any "possible factual or legal basis on which [the insurer] might eventually be held to be obligated to indemnify [the insured]," Allianz Ins. Co. v. Lerner , 416 F.3d 109, 115 (2d Cir. 2005) (emphasis added); see also Century 21, Inc. v. Diamond State Ins. Co. , 442 F.3d 79, 82 (2d Cir. 2006) ; Auto. Ins. Co. of Hartford v. Cook , 7 N.Y.3d 131, 137, 818 N.Y.S.2d 176, 850 N.E.2d 1152 (2006). In other words, the duty to...