Sunex Intern., Inc. v. Travelers Indem. Co.

• Decision Date: 17 December 2001
• Docket Number: No. CIV.A. 6:00-1521-24.,CIV.A. 6:00-1521-24.
• Citation: 185 F.Supp.2d 614
• Court: U.S. District Court — District of South Carolina
• Parties: SUNEX INTERNATIONAL, INC., Telesis Incorporated, a/k/a Telesis Corporation, Arcan, Inc., and Joseph O. Hawkins, Plaintiffs, v. The TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Defendant.

185 F.Supp.2d 614

SUNEX INTERNATIONAL, INC., Telesis Incorporated, a/k/a Telesis Corporation, Arcan, Inc., and Joseph O. Hawkins, Plaintiffs, v. The TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Defendant.

No. CIV.A. 6:00-1521-24.

United States District Court, D. South Carolina, Greenville Division.

December 17, 2001.

Gregory J. English, Wyche, Burgess, Freeman & Parham, Greenville, SC, for plaintiffs.

John E. Johnston, James L. Rogers, Jr., Laurel Renee Blair, Leatherwood, Walker, Todd & Mann, Greenville, SC, William T. Corbet, Jr., and Laura A. Brady, Drinker, Biddle & Shanley, Florham Park, NJ, for defendant.

ORDER

SEYMOUR, District Judge.

Plaintiffs Sunex International, Inc. (Sunex), Telesis Incorporated (Telesis), Arcan, Inc. (Arcan), and Joseph O. Hawkins (Hawkins) bring the instant case against Defendant The Travelers Indemnity Company of Illinois (Travelers) for claims resulting from its refusal to defend and indemnify Plaintiffs Arcan and Hawkins in an underlying patent infringement lawsuit. This matter is before the court on Travelers' motion for summary judgment and Plaintiffs' cross-motion for summary judgment or, in the alternative, certification to state court.

I. FACTS

On April 22, 1998 Troy Shockley (Shockley) and Excalibur Tool and Equipment Company (Excalibur) brought a patent infringement lawsuit against Plaintiffs Arcan and Hawkins in the United States District Court for the District of South Carolina, Greenville Division. Shockley's amended complaint alleged:

Defendants have been and, upon information and belief, are still infringing United States Patent No. Re. 35,732 [the '732 reissue] by making, using, and/or selling transformable mechanic's creepers which embody the patented inventions of said United States patent, and will continue doing so unless enjoined by this court.

Shockley's Amended Complaint, ¶ 8. At trial, the jury awarded Excalibur infringement damages on 2,841 creeper sales by Telesis and on 11,403 creeper sales by Arcan. The jury found that Excalibur lost additional sales of 40,000 creepers to Sam's Wholesale Club (Sam's) for the 1998 Christmas season. The jury assessed against Arcan lost profit damages of $15 per creeper and future lost profit damages of $3,000,000 over the life of the '732 reissue patent. The jury also found that: 1) Arcan willfully infringed; 2) Arcan did not make an offer to sell 9,180 creepers to Sam's before the '732 reissue; and 3) Arcan did in fact offer to sell 1,506 creepers to Costco before the '732 reissue. The district court issued an order granting Arcan intervening rights for its sales to Costco and denying both absolute and equitable intervening rights for its sales to Sam's. The district court awarded Excalibur a total of $3,791,070 in damages. See Shockley v. Arcan, 248 F.3d 1349, 1357 (Fed.Cir.2001)(discussing facts).

Hawkins and Arcan appealed the denial of intervening rights for Arcan's sales to Sam's, the damages award, and the ruling on Shockley's partial summary judgment motion that the '732 reissue patent was valid. See id. The Court of Appeals for the Federal Circuit vacated the district court's judgment awarding damages to Shockley and Excalibur, remitted the damages award to $791,070.00 and remanded to the district court to offer Shockley and Excalibur a choice between the remitted damage award or a new damages trial in the alternative. Id. at 1365. Shockley and Excalibur elected to accept the remitted damages over a new trial. Plaintiff's Memorandum, p. 5. On August 3, 2001, the district court entered a third amended judgment against Telesis and Arcan, jointly and severally, for $1,116,026.00 with interest thereon at the rate of 3.59% and costs.

During the aforementioned case, Plaintiffs requested that their insurance carrier, Travelers, assume the defense of the case and acknowledge coverage under the general liability policies and umbrella policies Plaintiffs purchased from Travelers. Complaint, ¶ 16. Travelers refused to do so on the grounds that the case did not qualify as an "advertising injury" within the meaning of the policies. Id. at ¶ 17. Plaintiffs filed their complaint against Travelers on April 3, 2000 in state court alleging breach of contract and bad faith on the part of Travelers. Travelers removed the action to this court. Travelers filed the herein motion for summary judgment on August 20, 2001. Plaintiffs filed a response and cross motion for summary judgment on September 19, 2001. Travelers argues that the language of the policies clearly does not provide coverage for patent infringement. Plaintiffs argue that the clauses of the policies that address advertising injuries are ambiguous and should be interpreted broadly so as to include patent infringement. Plaintiffs' motion for summary judgment essentially responds to Travelers' arguments and argues alternatively that the coverage issue should be certified to state court.

II. DISCUSSION

A. Summary Judgment Standard

Summary judgment "shall be rendered forthwith when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. Proc. 56(c).

The court's duty in deciding a motion for summary judgment "is not ... to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party moving for summary judgment must demonstrate a lack of sufficient evidence while the non-moving party must set forth "specific facts showing that there is a genuine issue of material fact for trial." Fed. R. Civ. Proc. 56(e).

An issue of fact is "material" only if establishment of the fact might affect the outcome of the lawsuit under the governing substantive law. See id. Production of a "mere scintilla of evidence" in support of an essential element will not prevent the court from granting a properly supported motion for summary judgment. Anderson, 477 U.S. at 251, 106 S.Ct. 2505. The court must determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as matter of law." Id. at 251-52, 106 S.Ct. 2505.

B. Interpretation of Insurance Policies

The parties disagree as to whether the portions of the policies that address "advertising injuries" should be interpreted to include coverage for the underlying patent infringement suit. Travelers argues that the plain language of the policies does not provide coverage for patent infringement. Plaintiffs argue that the portions of the policies which discuss "advertising injuries" are ambiguous and should be construed in favor of Plaintiffs.

Under South Carolina law, insurance policies are subject to the general rules of contract construction. Nationwide Mut. Ins. Co. v. Commercial Bank, 325 S.C. 357, 479 S.E.2d 524, 526 (1996)(citing Standard Fire Ins. Co. v. Marine Contracting & Towing Co., 301 S.C. 418, 392 S.E.2d 460 (1990)). A court must give policy language its plain, ordinary, and popular meaning. Diamond State Ins. Co. v. Homestead Indus. Inc., 318 S.C. 231, 456 S.E.2d 912, 915 (1995). An insurer's obligation under a policy of insurance is defined by the terms of the policy and cannot be enlarged by judicial construction. See South Carolina Ins. Co. v. White, 301 S.C. 133, 390 S.E.2d 471, 474 (1990). However, where present, ambiguous or conflicting terms in an insurance policy must be construed liberally in favor of the insured and strictly against the insurer. Diamond State Ins. Co., 456 S.E.2d at 915. The extent to which courts construe the language of an insurance policy differently is evidence of ambiguity. See Greenville County v. Insurance Reserve Fund, 313 S.C. 546, 443 S.E.2d 552, 553 (1994). Courts may look to a dictionary to determine the meaning of ambiguous, undefined terms. See id. Nevertheless, if the intention of the parties is clear, the court has no authority to torture the meaning of policy language or to extend or defeat coverage that was never intended by the parties. Diamond State Ins. Co., 456 S.E.2d at 915.

Where a motion for summary judgment presents a question concerning the construction of a written contract, the question is one of law if the language employed by the contract is plain and unambiguous. Moss v. Porter Bros., Inc., 292 S.C. 444, 357 S.E.2d 25, 27 (1987)(citing First-Citizens Bank & Trust Co. v. Conway Nat'l Bank, 282 S.C. 303, 317 S.E.2d 776 (1984)). Summary judgment is proper in such a case where the intention of the parties regarding the legal effect of the contract may be gathered from its four corners. Id.

The burden of proof is on the insured to show that a claim falls within the coverage of an insurance contract. Gamble v. Travelers Ins. Co., 160 S.E.2d 523, 525 (S.C.1968). The insurer bears the burden of establishing exclusions to coverage. Boggs v. Aetna Cas. & Sur. Co., 272 S.C. 460, 252 S.E.2d 565, 568 (1979).

The coverage sections of the general liability policies state the following:

COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages. We may at our discretion investigate any "occurrence" or offense and settle any claim or "suit" that may result. But:

(1) The amount we will pay for damages is limited as described in

LIMITS OF INSURANCE (SECTION III);

(2) Our right and duty to defend end when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverage A or B or medical expenses under Coverage C.

No other...