TIG Insurance Co. v. Nobel Learning Communities, Inc., CIVIL ACTION NO. 01-4708 (E.D. Pa. 6/18/2002)

• Decision Date: 18 June 2002
• Docket Number: CIVIL ACTION NO. 01-4708.
• Parties: TIG INSURANCE CO. v. NOBEL LEARNING COMMUNITIES, INC., ET AL.
• Court: U.S. District Court — Eastern District of Pennsylvania

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TIG INSURANCE CO. v. NOBEL LEARNING COMMUNITIES, INC., ET AL.

CIVIL ACTION NO. 01-4708.

United States District Court, E.D. Pennsylvania.

June 18, 2002.

MEMORANDUM

GILES, Cheif District Judge.

I. INTRODUCTION

TIG Insurance ("TIG") filed this Complaint for Declaratory Judgment against its insured, Nobel Learning Communities, Inc. ("Nobel") and the underlying claimants, Dr. Deborah Levy ("Dr. Levy"), Dr. Levy's company, Development Resource Center ("DRC"), Dr. Levy's daughter, Emily Levy ("Emily") and LD Learning.com, Inc. ("LD Learning") of which Emily was the sole shareholder. TIG seeks a declaration that under the Nobel policy, it had no duty to defend a counterclaim asserted against Nobel by Dr. Levy, DRC, Ms. Levy and LD Learning (collectively "the counterclaimants") after Nobel sued them in the U.S. District Court for the Southern District of Florida in Nobel Learning Communities, Inc. and Paladin Academy, LLC v. Development Resource Center, Dr. Deborah Levy, LD Learning.com, Inc. and Emily Levy, No. 00-CV-3286 (the "Florida action"). TIG also seeks a declaration that it has no duty to reimburse Nobel for a series of expenses related to Nobel's settlement of the underlying action.

II. FACTUAL BACKGROUND

TIG issued Policy No. T7X38839398 (the "Policy") to Nobel for the period June 28, 2000 through April 1, 2001. In the Policy, TIG promised to defend Nobel and its other named insureds, including Paladin Academy, Inc., ("Paladin") against all claims of "personal and advertising injury" arising from of, inter alia, "infringement upon another's copyright." Exhibit A to Complaint, at Commercial General Liability Broadened Coverage Form, ¶ I.g.

Prior to June 1998, DRC owned and operated four schools for learning disabled students in Florida. Dr. Levy was sole shareholder and executive director of DRC and her daughter, Emily, was an employee. In June 1998, DRC sold its assets to Nobel (under its former name, Nobel Education Dynamics, Inc.) and the parties formed Nobel Learning Solutions, LLC (later named Paladin Academy). Prior to the transfer of assets, Dr. Levy had developed various items of intellectual property at DRC including The Stop and Go Multi-Sensory Phonics Program, The Stoplight Number Book, the Auditory Memory Books I and II, the Auditory Motor Teacher's Guide, the Auditory Motor Student Guide, the New Image Book.

Following the transfer of assets, Nobel employed Dr. Levy as Paladin's Director of Education in which capacity she developed special education materials entitled Visual Tracking Numbers I and II, and Visual Tracking Letters I and II. Thereafter, Dr. Levy's relationship with Nobel and Paladin soured. Employer and employee differed over the rights and scope of their relationship and, in particular, about the use of certain copyrights that Nobel asserted Dr. Levy had assigned to it pursuant to the asset purchase agreement.

On September 1, 2000, Nobel and Paladin filed the aforementioned Complaint for Declaratory Judgment of Copyright Ownership seeking a declaration of Nobel and Paladin's rights. The aforedescribed counterclaimants filed an Amended Counterclaim on October 20, 2001. There, they alleged, inter alia, willful copyright infringement. Nobel and Paladin submitted a demand for coverage on December 1, 2001 to TIG which declined to defend Nobel and Paladin against any of the claims set forth in the counterclaim.

All parties to the Florida action then entered into settlement negotiations. Nobel gave TIG written notice of the pendency of the settlement discussions, but TIG again declined to provide a defense. The Florida action was marked settled and discontinued by stipulation on May 14, 2001. In exchange for the release of claims of all copyright infringement, Nobel paid LD Learning $185,000. In May 2001, Nobel and Paladin demanded that TIG indemnify them for the settlement payment as well as for $315,000 in attorney's fees incurred in connection with the Florida action. On May 29, 2001, TIG's counsel wrote to Nobel's counsel denying any obligation to Nobel under the policy. TIG now asks this court to declare that it had, and has, no duty to reimburse Nobel, or any other party, for any sums, attorney's fees or costs allegedly incurred by Nobel in prosecuting, defending or settling the Florida action.

In the present action, Nobel has filed a counterclaim seeking declaratory judgment as to TIG's liability for Nobel's defense, settlement and prosecution costs in the Florida action, as well as the costs of defending against TIG's complaint for declaratory judgment in its favor. The movants seek judgment on the pleadings.

For the reasons that follow, TIG's request for declaratory judgment is granted, in part and denied in part; and, Nobel's counterclaim for declaratory judgment is also granted, in part and denied in part.

A. The Nobel Policy

The Nobel Policy contains the following relevant provisions:

SECTION I — COVERAGES

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. (General Policy Section I. Coverages A. 1.a.)

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b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence." (General Policy Section I. Coverages A. 1.b(1).)

1. Exclusions

This insurance does not apply to:

a. Expected or Intended Injury

"Bodily injury" or "property damage" expected or intended from the standpoint of the insured. (General Policy Section I. Coverages A. 2.a.)

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e. Employer's Liability

"Bodily injury" to:

(1) An "employee" of the insured arising out of and in the course of

(a) Employment by the insured; or

(b) Performing duties related to the conduct of the insured's business;(General Policy Section I. Coverages A. 2.e.(1)(a-b)).

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The exclusion applies:

(1) Whether the insured may be liable as an employer or in any other capacity;

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j. Damage to Property

"Property damage" to:

(4) Personal property in the care, custody or control of the insured;

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SECTION V — DEFINITIONS

1. "Advertisement" 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. (General Policy Section V. 1.)

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3. "Bodily injury" means bodily injury, sickness or disease sustained by a person. This includes mental anguish, mental shock, fright, humiliation, emotional distress or death resulting from bodily injury, sickness or disease. (General Policy Section V. 3.)

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13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. (General Policy Section V. 13.)

14. "Personal and advertising injury" means injury, including consequential "bodily injury" arising out of one or more of the following offenses:

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g. Infringing upon another's copyright, trade dress or slogan in your "advertisement."

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17. "Property damage" means:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

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EMPLOYMENT — RELATED PRACTICES EXCLUSION

This endosement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY PART

A. The following exclusion is added to paragraph 2.,

Exclusions of Section I — Coverage A — Bodily Injury

And Property Damage Liability:

B. The following exclusion is added to paragraph 2., Exclusions of Section I — Coverage B — Personal and Advertising Injury Liability:

The insurance does not apply to:

"Bodily injury" to

(1) A person arising out of any:

(a) Refusal to employ that person;

(b) Termination of the person's employment; or

(c) Employment-related practices, policies, acts or omissions. Such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person; or

(2) The spouse, child, parent, brother or sister of that person as a consequence of "bodily injury" to the person at whom any of the employment-related practices described in Paragraphs (a), (b), or (c) above is directed.

This exclusion applies:

(1) Whether the insured may be liable as an employer or in any other capacity; and

(2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.

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 and advertising injury" to which this insurance applies.

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2. Exclusions

This insurance does not apply to:

a. "Personal and advertising injury"

(1) Caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury."

(2) Arising out of publication of material, including but not limited to, oral, written, televised, videotaped or electronically transmitted publication of material, if done at the direction of the insured with knowledge of its falsity.

(3) Arising out of publication of material, including but not limited to, oral, written, televised, videotaped or electronically transmitted publication of material, whose first publication took place before the beginning of the policy period.

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(6) Arising out of a breach of contract except an implied contract to use another's advertising idea in your "advertisement";

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B. The Counterclaim in the Underlying Florida Action

The Amended Counterclaim in the Florida action pled a cause of...