Union Ins. Co. v. Land and Sky, Inc.

• Decision Date: 31 March 1995
• Docket Number: No. S-93-518,S-93-518
• Citation: 247 Neb. 696,529 N.W.2d 773
• Parties: UNION INSURANCE COMPANY, Appellee, v. LAND AND SKY, INC., et al., Appellants, and Charles Prior Hall and WBX Partners, a California Partnership, Appellees.
• Court: Nebraska Supreme Court

Page 773

529 N.W.2d 773

247 Neb. 696

UNION INSURANCE COMPANY, Appellee, v. LAND AND SKY, INC., et al., Appellants, and Charles Prior Hall and WBX Partners, a California Partnership, Appellees.

No. S-93-518.

Supreme Court of Nebraska.

March 31, 1995.

Syllabus by the Court

1. Summary Judgment: Appeal and Error. In appellate review of a summary judgment, the court views the evidence in the light most favorable to the party against whom the judgment is granted and gives such party the benefit of all reasonable inferences deducible from the evidence.

2. Insurance: Contracts: Liability. An insurer has a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy.

3. Insurance: Contracts. When an insurance contract can fairly be interpreted in more than one way, there is ambiguity to be resolved by the court as a matter of law.

4. Insurance: Contracts. While an ambiguous insurance policy will be construed in favor of the insured, ambiguity will not be read into policy language which is plain and unambiguous in order to construe it against the preparer of the contract.

5. Contracts: Appeal and Error. Whether a document is ambiguous is a question of law, and an appellate court considering such a question is obligated to reach a conclusion independent of the trial court's decision.

6. Contracts: Words and Phrases. A contract is ambiguous when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings.

7. Declaratory Judgments: Justiciable Issues. Declaratory judgment cannot be used to decide the legal effect of a state of facts which are future, contingent, or uncertain. There must, at the time that declaration is sought, be an actual justiciable issue.

David A. Gauntlett and David A. Stall, of Callahan & Gauntlett, Irvine, CA, and Tyler J. Sutton and Victor E. Covalt III, of Woods & Aitken, Lincoln, for appellants.

Danene J. Tushar, of DeMars, Gordon, Olson, Recknor & Shively, Lincoln, for appellee Union Ins. Co.

WHITE, C.J., CAPORALE, FAHRNBRUCH, LANPHIER, WRIGHT, and CONNOLLY, JJ.

CONNOLLY, Justice.

Union Insurance Company (Union) brought this declaratory judgment action seeking a declaration that it was not obligated under the terms of an insurance policy to defend or indemnify Land and Sky, Inc., against a suit for patent infringement. Both parties filed motions for summary judgment. The district court for Lancaster County granted Union's motion for summary judgment and held that Union was not obligated to defend or indemnify. Land and Sky, Inc., and Lynn and Ronald Larson, principals of the corporation (all hereinafter collectively Land and Sky), have appealed. We find that the trial court was in error, and its order must be reversed and the cause remanded for further proceedings.

I. FACTUAL BACKGROUND

1. UNDERLYING ACTION

Charles Prior Hall holds U.S. patent No. 3,585,356, which claims a waterbed, including the waterbed mattress and a suitable frame and heater. Land and Sky is a corporation which manufactures flexible liquid storage containers that are used as waterbed mattresses. Land and Sky advertises its products to wholesale and retail markets and distributes pamphlets that describe the manner in which its products could be incorporated into a waterbed mattress frame.

In 1991, Hall filed a lawsuit (the Hall action) against Land and Sky for patent infringement under 35 U.S.C. § 271 (1988), which states in pertinent part:

(a) ... Whoever without authority makes, uses or sells any patented invention ... infringes the patent.

(b) Whoever actively induces infringement of a patent shall be liable as an infringer.

(c) Whoever sells a component of a patented machine ... constituting a material part of the invention, knowing the same to be especially made ... for use in an infringement of such patent, and not a staple article ... of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.

After Hall filed his lawsuit, Land and Sky requested its insurer, Union, to defend and indemnify the Hall action. Union claimed that it had no obligation to defend or indemnify.

2. THE POLICIES

Union insured Land and Sky from January 12, 1985, through March 31, 1988, under two policies of liability insurance: a "Comprehensive General Liability Insurance" policy (primary policy) and a "Blanket Commercial Catastrophe Liability Policy" (excess policy). The issue in the case at bar is whether the primary policy's coverage for "advertising injury" affords coverage for inducing or contributing to a patent infringement. If the primary policy does afford such coverage, and if Land and Sky is potentially liable to Hall for patent infringement due to Land and Sky's advertising activities, then Union must defend Land and Sky in the Hall action.

The primary policy defines "advertising injury" as an "injury arising out of an offense committed during the policy period occurring in the course of the named insured's advertising activities, if such injury arises out of ... piracy, unfair competition, or infringement of copyright, title or slogan." The excess policy defines "advertising policy" in essentially the same terms, with the exception that it expressly excludes coverage for patent infringement.

3. THE CASE AT BAR

Union filed the instant action for declaratory judgment seeking a declaration that it was not obligated to defend or indemnify Land and Sky. Union filed a motion for summary judgment, and Land and Sky filed a motion for partial summary judgment seeking a declaration that Union had a duty to defend the Hall action. The trial court granted Union's motion for summary judgment, holding that neither the primary nor the excess policy bound Union to defend a lawsuit for patent infringement. This appeal followed.

II. ASSIGNMENTS OF ERROR

Land and Sky claims that the trial court erred in (1) failing to find that the primary and excess policies required Union to defend the Hall action, (2) failing to find that the primary and excess policies required Union to indemnify Land and Sky's potential liability in the Hall action, and (3) failing to award Land and Sky attorney fees.

III. STANDARD OF REVIEW

In appellate review of a summary judgment, the court views the evidence in the light most favorable to the party against whom the judgment is granted and gives such party the benefit of all reasonable inferences deducible from the evidence. New Light Co. v. Wells Fargo Alarm Servs., 247 Neb. 57, 525 N.W.2d 25 (1994); Maloley v. Shearson Lehman Hutton, Inc., 246 Neb. 701, 523 N.W.2d 27 (1994).

Summary judgment is to be granted only when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. New Light Co. v. Wells Fargo Alarm Servs., supra; Double K, Inc. v. Scottsdale Ins. Co., 245 Neb. 712, 515 N.W.2d 416 (1994).

The construction of an insurance contract is purely a question of law. See Central Waste Sys. v. Granite State Ins. Co., 231 Neb. 640, 437 N.W.2d 496 (1989). Regarding a question of law, an appellate court has an obligation to reach a conclusion independent of that of the trial court in a judgment under review. New Light Co. v. Wells Fargo Alarm Servs., supra; Murphy v. City of Lincoln, 245 Neb. 707, 515 N.W.2d 413 (1994).

IV. ANALYSIS

1. DUTY TO DEFEND

Although an insurance policy may impose an obligation to defend and thereby impose a duty greater than the obligation to indemnify, the nature of the duty to defend is defined by the insurance policy as a contract. Allied Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 243 Neb. 779, 502 N.W.2d 484 (1993). An insurer has a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy. Allstate Ins. Co. v. Novak, 210 Neb. 184, 313 N.W.2d 636 (1981).

Land and Sky's argument that Union is obligated to defend the Hall action has two elements. The first element is Land and Sky's claim that the language in the primary policy is ambiguous and should be read in favor of Land and Sky as the insured. The second element is the claim that Land and Sky's potential liability arose out of insured advertising activities. We will address the elements individually.

(a) Ambiguity

The initial question we must address is whether the terms "piracy" and "unfair competition," as used in the primary and excess policies, encompass patent infringement. These terms are not defined in either policy.

We have stated that when an insurance contract can fairly be interpreted in more than one way, there is ambiguity to be resolved by the court as a matter of law. Economy Preferred Ins. Co. v. Mass, 242 Neb. 842, 497 N.W.2d 6 (1993). While an ambiguous insurance policy will be construed in favor of the insured, ambiguity will not be read into policy language which is plain and unambiguous in order to construe it against the preparer of the contract. Id.

Whether a document is ambiguous is a question of law, and an appellate court considering such a question is obligated to reach a conclusion independent of the trial court's decision. Gables CVF v. Bahr, Vermeer & Haecker Architect, 244 Neb. 346, 506 N.W.2d 706 (1993). A contract is ambiguous when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings. Kropp v. Grand Island Pub. Sch. Dist. No. 2., 246 Neb. 138, 517 N.W.2d 113 (1994); Plambeck v. Union Pacific RR. Co., 244 Neb. 780, 509 N.W.2d 17 (1993).

Land and Sky claims that two terms in the advertising injury portion of the policies--"piracy" and "unfair competition"--could be understood to cover patent infringement. Land and Sky...