State Farm Fire and Cas. Co. v. Steinberg

• Decision Date: 17 December 2004
• Docket Number: No. 03-12565.,03-12565.
• Citation: 393 F.3d 1226
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, an Illinois corporation authorized to do business in Florida, Plaintiff-Appellee, v. Richard STEINBERG, Norman Fine, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

393 F.3d 1226

STATE FARM FIRE AND CASUALTY COMPANY, an Illinois corporation authorized to do business in Florida, Plaintiff-Appellee, v. Richard STEINBERG, Norman Fine, et al., Defendants-Appellants.

No. 03-12565.

United States Court of Appeals, Eleventh Circuit.

December 17, 2004.

Scott Konopka, Stephen C. Page, Page, Mrachek, Fitzgerald & Rose, P.A., Stuart, FL, for Defendants-Appellants.

Kara Berard Rockenbach, Gaunt, Pratt, Radford & Methe, West Palm Beach, FL, Edward B. Galante, Stuart, FL, Spencer Meredith Sax, Rachelle R. McBride, Sachs, Sax & Klein, P.A., Boca Raton, Fl, for Plaintiff-Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before BLACK and MARCUS, Circuit Judges, and SMITH^*, District Judge.

FERN M. SMITH, District Judge:

At issue on this appeal is whether plaintiff-appellee State Farm Fire & Casualty Company ("State Farm") is obligated under its commercial general liability ("CGL") business policy to defend and indemnify its insured against a lawsuit alleging misappropriation of confidential business information. Specifically, we consider whether the policy's "advertising injury" coverage extends to the allegations at issue in the underlying lawsuit. Defendants-Appellants Richard Steinberg and Norman Fine (the "Steinberg defendants") and Steinberg Global Asset Management, Ltd. ("SGAM") appeal from the District Court's entry of a declaratory judgment in favor of State Farm, holding that there was no duty to defend or indemnify its insured in a lawsuit alleging that the defendants misappropriated trade secrets of a competing investment firm.

Following careful review of the policy language and of the allegations of the complaint in the underlying lawsuit, we conclude that State Farm has no obligation to defend or to indemnify the insureds under the policy's "advertising injury" coverage. We therefore affirm the judgment of the District Court.

I. FACTUAL BACKGROUND

At all times relevant to this action, SGAM, of which Richard Steinberg and Norman Fine were principals, was covered by the State Farm policy at issue. The policy covers legal actions alleging any of four kinds of injury by the insured: bodily injury, property damage, personal injury or advertising injury. The coverage for an advertising injury is limited to "advertising injury caused by an occurrence committed in the coverage territory during the policy period. The occurrence must be committed in the course of advertising your goods, products or services."

"Advertising injury" is defined in the policy to include:

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.

"Occurrence" is defined in pertinent part to mean: "the commission of an offense, or a series of similar or related offenses, which results in personal injury or advertising injury."

The policy excludes coverage for "advertising injury," inter alia,"arising out of the wilful violation of a penal statute or ordinance committed by or with the consent of the insured."

In 1998, the events occurred that formed the basis of a lawsuit (the "underlying lawsuit") by Nicholson-Kenny Capital Management, Inc. ("Nicholson-Kenny") against various defendants the same year. The underlying lawsuit initially did not name the Steinberg defendants or SGAM as defendants. On April 25, 2000, however, Nicholson-Kenny filed a second amended complaint naming the Steinberg defendants and SGAM for the first time, and pleading four causes of action against them: tortious interference with business relationships; misappropriation of trade secrets; unfair competition; and civil conspiracy.¹

The allegations of the second amended complaint are summarized as follows: Before the alleged events, Nicholson-Kenny was an investment firm managing over $80 million in assets. In May 1998, the Steinberg defendants, using SGAM as a "commercial vehicle," conspired with three Nicholson-Kenny employees to form Helios International Asset Management, Inc. ("Helios"), which was established for the unlawful purpose of tortiously interfering with plaintiff's business relationships, misappropriating trade secrets, and unfairly competing with plaintiff. These employees conspired with the Steinberg defendants to misappropriate confidential client information belonging to Nicholson-Kenny and on June 15, 1998, they closed and departed from Nicholson-Kenny's offices, taking with them Nicholson-Kenny's "confidential" client information. The confidential client information was not a mere "customer list" but was "a compilation that derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." The next day, the former Nicholson-Kenny employees began serving many of Nicholson-Kenny's clients from the offices of Helios. Within three weeks, Helios was managing $60 million of assets of former Nicholson-Kenny clients, something that would have been impossible without misappropriating confidential client information. Within three months, more than 80% of Helios's clients were former clients of Nicholson-Kenny. The defendants' actions caused "substantial damage" to Nicholson-Kenny's business. The Steinberg defendants, acting in conspiracy with the former Nicholson-Kenny employees, committed theft of trade secrets, a third degree felony under Florida law.

After declining the Steinberg defendants' and SGAM's request for a defense in the lawsuit, State Farm filed suit in the District Court and ultimately moved for summary judgment on all theories of coverage advanced by the Steinberg defendants. On April 14, 2003, the District Court granted State Farm's motion. The court held that, because the underlying complaint alleged "several types of criminal behavior when [the defendants] stole and destroyed trade secrets and confidential information protected by law," advertising injury coverage was not triggered, and further stated: "it cannot be the case that these terms include or even contemplated the inclusion of embezzlement and fraud and criminal taking and destruction of trade secrets and confidential information, as alleged in the complaint." The court also held that the policy's exclusion for "wilful violation of a penal statute or ordinance" barred coverage. This appeal ensued.

II. DISCUSSION

A.

We review a district court's order granting summary judgment de novo. Iraola & CIA, S.A. v. Kimberly-Clark Corp., 325 F.3d 1274, 1283 (11th Cir.2003). Because federal jurisdiction over this matter is based on diversity, Florida law governs the determination of the issues on this appeal. Davis v. National Medical Enterprises, Inc., 253 F.3d 1314, 1319 n. 6 (11th Cir.2001). In insurance coverage cases under Florida law, courts look at the insurance policy as a whole and give every provision its "full meaning and operative effect." Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, 1186 (11th Cir.2002), citing Dahl-Eimers v. Mutual of Omaha Life Ins. Co., 986 F.2d 1379, 1381 (11th Cir.1993) and Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So.2d 938, 941 (Fla.1979).

Florida courts start with "the plain language of the policy, as bargained for by the parties." See Auto-Owners Ins. Co. v. Anderson, 756 So.2d 29, 34 (Fla.2000). If that language is unambiguous, it governs. If the relevant policy language is susceptible to more than one reasonable interpretation, one providing coverage and the other limiting coverage, the insurance policy is considered "ambiguous," and must be "interpreted liberally in favor of the insured and strictly against the drafter who prepared the policy." Id.

Under Florida law, the general rule is that an insurance company's duty to defend an insured is determined solely from the allegations in the complaint against the insured, not by the true facts of the cause of action against the insured, the insured's version of the facts or the insured's defenses. Amerisure Ins. Co. v. Gold Coast Marine Distributors, Inc., 771 So.2d 579, 580-81 (4th Fla. Dist.Ct.App.2000). If the allegations in the complaint state facts that bring the injury within the policy's coverage, the insurer must defend regardless of the merits of the lawsuit. Id. Furthermore, any doubt about the duty to defend must be resolved in favor of the insured. Id. at 581-82. Coverage is determined from examining the most recent amended pleading, not the original pleading. Cf. id. at 582. Conclusory "buzz words" unsupported by factual allegations are not sufficient to trigger coverage. Id.

In 1998, one district court observed that "[a]n insurance company's duty to defend intellectual property claims under the rubric of `advertising injury' is the subject of countless lawsuits — indeed, a recent litigation explosion — throughout the country." Winklevoss Consultants, Inc. v. Federal Ins. Co., 991 F.Supp. 1024, 1026 (N.D.Ill.1998). The following year, the Third Circuit commented that "[t]he applicability of [advertising injury coverage] to a variety of torts has been the subject of numerous cases in federal courts. With varying degrees of success, insured parties have sought coverage for the underlying actions of patent infringement, trademark or trade dress infringement, misappropriation of trade secrets or other confidential information." Frog, Switch & Mfg.Co. v. Travelers Ins. Co., 193 F.3d 742, 747 (3d Cir.1999).

In the ensuing years, courts have been called on to examine the...