Super Duper v. Pennsylvania Nat. Mut.
| Decision Date | 14 September 2009 |
| Docket Number | No. 26717.,26717. |
| Citation | 385 S.C. 201,683 S.E.2d 792 |
| Parties | SUPER DUPER INC., dba Super Duper Publications, Plaintiff, v. PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, The Travelers Indemnity Company of America, and Travelers Property Casualty Company of America, Defendants. |
| Court | South Carolina Supreme Court |
Esten B. Leinster, III, of Greenville, and Eugene Clark Covington, Jr., of Covington, Patrick, Hagins, Stern & Lewis, of Greenville, for Plaintiff.
Heather M. Hughes, Laura A. Brady, and William T. Corbert Jr., of Drinker Biddle & Reath, of Florham Park, New Jersey; M. Dawes Cooke, Jr. and John W. Fletcher, of Barnwell, Whaley, Patterson & Helms, of Charleston; Timothy A. Domin and Christina R. Fargnoli, both of Clawon & Staubes, of Charleston, for Defendant.
The United States District Court for the District of South Carolina presents certified questions concerning commercial general liability (CGL) insurance policies. We are asked, as an issue of first impression in South Carolina, whether the respective policies' inclusion of an advertising injury may encompass trademark infringement. Generally, based on the policy terms before us, we answer in the affirmative. We are not asked nor do we attempt to offer an opinion on the ultimate issues of coverage in this case. The ultimate questions of coverage remain with the federal district court.
Super Duper, Inc., a South Carolina corporation, manufactures education and therapy materials for children. Mattel, Inc., an international toy manufacturer, challenged Super Duper's registration of four trademarks and filed formal notices of opposition and petitions for cancellation with the United States Patent and Trademark Office. Super Duper brought a declaratory judgment action in the federal district court to determine if its trademark infringed on Mattel's trademarks. Mattel counterclaimed asserting trademark infringement along with other claims.
Super Duper was insured by Travelers Indemnity Company of America and Travelers Property Casualty Company of America (collectively "Travelers") and Pennsylvania National Mutual Casualty Insurance Company ("Penn National") under commercial general liability insurance policies for "advertising injury." Super Duper notified Travelers and Penn National about the trademark infringement counterclaims and requested coverage. Travelers and Penn National denied coverage and refused to provide Super Duper a defense. Thus, Super Duper defended itself. Subsequently, Mattel prevailed on its trademark infringement claims.
Super Duper brought this action in the federal district court seeking a declaratory judgment and damages for failure to defend or indemnify, breach of contract, and bad faith.
This case involves three CGL policies provided by Travelers: 1999 policy (effective from August 26, 1999 through August 26, 2000), 2000 policy (effective from August 26, 2000 through August 26, 2001), and 2005 policy (effective from August 26, 2005 through August 26, 2006). The 1999 and 2000 CGL policies include the following definition:
"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.
(emphasis added).1 The 2005 policy redefined "advertising injury" as arising out of one or more of the following offenses:
a. Oral, written or electronic publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services, provided that claim is made or "suit" is brought by a person or organization that claims to have been slandered or libeled, or whose goods, products or services have allegedly been disparaged;
b. Oral, written or electronic publication of material that appropriates a person's likeness, unreasonably places a person in a false light or gives unreasonable publicity to a person's private life; or
c. Infringement of copyright, title or slogan, provided that claim is made or "suit" is brought by a person or organization claiming ownership of such copyright, title or slogan.
(emphasis added).2
Effective from August 26, 2005 to August 26, 2006, Travelers provided a Commercial Excess Liability Umbrella (CUP) insurance policy for Super Duper. This policy also included "[i]nfringement of copyright, title or slogan" in its definition of "advertising injury."
We turn next to the Penn National CGL policies, which were in effect August 26, 2001 through August 26, 2002 (referred to as "2001 policy") and August 26, 2002 through August 26, 2003 (referred to as "2002 policy"). The 2002 policy was renewed for consecutive one-year terms, ending on August 26, 2006. Unlike the Traveler policies, the relevant Penn National Policies (2001 policy and 2002 policy) defined "advertisement." The 2001 Penn National policy stated, "`[a]dvertisement' means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters."3 The 2002 Penn National policy mirrored the precedent policy only adding references about the Internet and websites.
The 2001 and 2002 Penn National policies also included definitions for "personal and advertising injury":
"Personal and advertising injury" means injury, including consequential "bodily injury," arising out of one or more of the following offenses:
. . .
f. The use of another's advertising idea in your "advertisement"; or
g. Infringing upon another's copyright, trade dress or slogan in your "advertisement".4
The 2002 Penn National CGL policy also included the following exclusion:
"Personal and advertising injury" arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.
However, this exclusion does not apply to infringement, in your "advertisement," of copyright, trade dress or slogan.
Quoting portions of the above Penn National and Travelers policies, the federal court certified the following questions in the indemnification action, which this Court accepted:
1. Whether an underlying suit premised upon trademark infringement by the insured qualifies as injury arising out of the offense of "misappropriation of advertising ideas or style of doing business?"
2. Whether an underlying suit premised upon alleged trademark infringement by the insured qualifies as injury arising out of the offense of "infringement of copyright, title or slogan?"
3. Whether an underlying suit premised upon trademark infringement by the insured qualifies as injury arising out of the offense of "use of another's advertising idea in your `advertisement?'"
4. Whether an underlying suit premised upon trademark infringement by the insured qualifies as injury arising out of the offense of "infringing [upon] another's copyright, trade dress or slogan in your `advertisement?'"5
Although the federal district court quoted language from the Travelers and Penn National policies in the certified questions posed to this Court, the federal court did not seek our determination on the ultimate coverage questions, and we offer no such opinion today. Moreover, we neither reach the insurers' challenge to the pleadings in the federal district court, nor do we reach the express exclusion in Penn National's 2002 policy.
We now turn to the first two certified questions as they implicate Super Duper's policies with Travelers.
Question 1: Whether an underlying suit premised upon trademark infringement by the insured qualifies as injury arising out of the offense of "misappropriation of advertising ideas or style of doing business?"
In State Auto Property & Casualty Insurance Co. v. Travelers Indemnity Co. of America, 343 F.3d 249, 255-58 (4th Cir.2003), the federal court of appeals interpreted the same contract language applying North Carolina law. We find the State Auto opinion well-reasoned and sound, drawing on basic contract interpretation law to which South Carolina also adheres.6 Today, we adopt its analysis regarding whether trademark infringement constitutes an advertising injury.
State Auto began by recognizing the phrase "misappropriation of advertising ideas or style of doing business" presents two distinct questions: "(1) whether `misappropriation' under the Travelers Policy is limited to common law misappropriation, or whether it encompasses any claim related to the wrongful use of a trademark; and (2) whether a trademark can constitute an advertising idea or a style of doing business." State Auto, 343 F.3d at 255.
The court in State Auto rejected Travelers' contention the undefined term misappropriation refers to the common law tort of misappropriation7 for a multitude of reasons: (1) North Carolina's refusal to limit a similar phrase, "unfair competition," to its common law meaning when interpreting the phrase in an insurance policy; (2) the majority of courts interpreting "misappropriation" apply a general meaning, not the common law meaning; and (3) an ambiguity must be resolved in the policyholder's favor. 343 F.3d at 255-57.
We too reject Travelers' contention the undefined term misappropriation refers to the common law tort of misappropriation as the insurance policy makes no such limitation and instead uses the general term misappropriation, to which we apply its common meaning. See Schulmeyer v. State Farm Fire & Cas. Co., 353 S.C. 491, 495, 579 S.E.2d 132, 134 (2003) (...
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