United Nat'l Ins. Co. v. SST Fitness Corp., PLAINTIFF-APPELLEE

• Decision Date: 09 March 1999
• Docket Number: No. 98-3270,DEFENDANT-APPELLANT,PLAINTIFF-APPELLEE,98-3270
• Citation: 182 F.3d 447
• Parties: (6th Cir. 1999) UNITED NATIONAL INSURANCE COMPANY,, v. SST FITNESS CORPORATION, Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 447

182 F.3d 447 (6th Cir. 1999)

UNITED NATIONAL INSURANCE COMPANY, PLAINTIFF-APPELLEE, v. SST FITNESS CORPORATION, DEFENDANT-APPELLANT.

No. 98-3270

U.S. Court of Appeals, Sixth Circuit

Argued: March 9, 1999

June 28, 1999

Appeal from the United States District Court for the Southern District of Ohio at Cincinnati. No. 97-00113-Herman J. Weber, District Judge.

Clement J. DeMichelis, McCaslin, Imbus and McCaslin, Cincinnati, Ohio, James Christian Nielsen (argued and briefed), Wright, Robinson, Osthimer & Tatum, San Francisco, California, for Appellee.

Gerald W. Simmons (argued and briefed), Thompson, Hine & Flory, LLP, Cincinnati, Ohio, for Appellant.

Before: Jones, Suhrheinrich, and Moore, Circuit Judges.

OPINION

Nathaniel R. Jones, Circuit Judge.

Plaintiff-Appellee United National Insurance Co. is the commercial general liability insurer for defendant-appellant SST Fitness Corp. SST was sued by a third-party, Precise Exercise Equipment, Inc., for patent infringement, unfair competition and unjust enrichment. United National thereafter filed a motion for summary judgment, asserting that it had no duty to defend SST pursuant to the terms of the parties' insurance policy. The district court granted summary judgment to United National, agreeing that United National had no duty to defend under the terms of the insurance policy. SST now appeals. For the reasons stated herein, we AFFIRM.

I.

Precise, a New Jersey corporation which markets and sells exercise equipment, invented and patented the "AB Trainer," an abdominal exercise machine. SST, an Ohio corporation, advertises, markets, and sells exercise equipment, including the "Smart Crunch" line of abdominal exercisers. In 1996, Precise filed a complaint in the United States District Court for the Central District of California, alleging, inter alia, that SST "advertises, markets, and sells products" which infringe two of Precise's patents, and that SST induced other companies into manufacturing, using, advertising and selling products which infringed these patents. Precise requested a declaration of willful infringement, an accounting of profits, injunctive relief and damages.

As a result of this litigation, SST tendered its defense to United National, which accepted the duty to defend, subject to a reservation of rights. United National thereafter filed a declaratory judgment action against SST, requesting a determination that it had no duty to defend, and a motion for summary judgment asserting that, as a matter of law, it was entitled to such a finding. The district court referred the case to a magistrate Judge, who heard oral argument, and thereafter recommended that United National's motion for summary judgment be granted. The district court adopted the magistrate Judge's recommendation and granted United National's motion for summary judgment. SST filed this timely appeal.

II.

A.

We review the district court's order granting summary judgment de novo. See Advance Watch Co., Ltd. v. Kemper Nat. Ins. Co., 99 F.3d 795, 799 (6th Cir. 1996). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the non-movant, establishes "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see Terry Barr Sales Agency, Inc. v. All-Lock Co., 96 F.3d 174, 178 (6th Cir. 1996). The facts in this case are not disputed, and thus, we are "presented solely with a question of law concerning the correct construction" of the commercial general liability insurance policy. Advance Watch, 99 F.3d at 799.

B.

Pursuant to the insurance policy, United National agreed to "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." J.A. at 63. The policy provides that "advertising injury" applies to "an offense committed in the course of advertising [SST's] goods, products or services," and is defined as "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."

J.A. at 63, 68. The term "personal injury" applies to injury arising from, inter alia, "[o]ral 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" or "[o]ral or written publication of material that violates a person's right of privacy." J.A. at 70. The policy also lists various exclusions from coverage. The policy does not refer to trademark, trade dress or patent infringement in defining coverage or in setting forth the exclusions from coverage.

C.

We are faced with an issue of first impression in this case, i.e., whether allegations of patent infringement constitute "an offense committed in the course of advertising [an insured's] goods, products, or services" as defined by the insurance policy. On appeal, SST asserts that the policy language is ambiguous, Precise's complaint alleges offenses which constitute "advertising injury" or "personal injury" pursuant to the policy, and United National has a duty to defend. Conversely, United National contends that the policy language is unambiguous, Precise's allegations of patent infringement do not constitute "advertising injury" or "personal injury" as contemplated by the insurance policy, and it has no duty to defend SST in the underlying litigation.

The parties agree that Ohio law governs our interpretation of the insurance policy. Under Ohio law, the construction of an insurance contract is a matter of law for the court. In interpreting the insurance policy, "words and phrases used in an insurance policy must be given their natural and commonly accepted meaning." United States Fidelity & Guar. Co. v. Lightning Rod Mut. Ins. Co., 687 N.E.2d 717, 719 (Ohio 1997); see also Watkins v. Brown, 646 N.E.2d 485, 487 (Ohio Ct. App. 1994)("Contract terms are to be given their `natural and usual' meaning if they are not defined in the policy, unless it is clear from the policy that the parties intended to use some specialized or technical definition."). Further, "[c]courts are required to interpret the contract in such a way as to give effect to the intention of the parties at the time the agreement was entered into, as evidenced by the provisions of the contract....When a contract term is defined in the policy, that definition controls what the term means." Watkins, 646 N.E.2d at 487. Finally, "[b]ecause it is the insurance carrier that typically drafts the policy, where policy language is ambiguous, that language is to be construed in the way that is most favorable to the insured." Id.; see also 57 Ohio Jur. 3d § 287 (1977)(liberal rule of construction in favor of insured does not apply where contract language is "unambiguous or where ambiguity can be resolved through ordinary rules of interpretation").

In construing a commercial general liability insurance policy, we are also "required to consider the allegations pleaded in the [underlying] action in the light of the coverage provisions and exclusions in the policy[.]" Advance Watch, 99 F.3d at 798. As previously stated, Precise alleged in its complaint that SST, among other things, "advertises" products which infringe Precise's patent. However, the insurance policy does not use "advertises" or "advertising" in the general sense, but details the four specific types of offenses that constitute "advertising injury." Consequently, regardless of whether Precise's complaint includes the term "advertises" in general, the complaint must allege that SST specifically committed one of the four types of "advertising injury" specified in the policy before United National has a duty to defend.

D.

We are substantially aided in our inquiry in this case by two of our prior decisions-Advance Watch and ShoLodge, Inc. v. Travelers Indem. Co., 168 F.3d 256 (6th Cir. 1999). In those cases, we discussed an insurer's duty to defend the insured where a third-party raised claims of trademark/trade dress infringement (Advance Watch) and service mark infringement (ShoLodge). Indeed, the commercial general liability policies at issue in Advance Watch and ShoLodge contained "advertising injury" language identical to that contained in SST's policy. See Advance Watch, 99 F.3d at 798-99; ShoLodge, 168 F.3d at 258-59. In Advance Watch, we reasoned that the phrases "advertising injury," "misappropriation," "advertising ideas," and "style of doing business" were not ambiguous terms because "[e]ach of these terms has either an established dictionary meaning or a meaning derived from case law." Advance Watch, 99 F.3d at 802. We concluded that, as a matter of law, the insurer had no duty to defend the insured in the underlying action because the "advertising injury" language in the policy did not provide coverage for the trademark/trade dress infringement offenses alleged in the third-party's complaint. Id. at 806. We reached a similar Conclusion in ShoLodge. See 168 F.3d at 259-60. Thus, although the underlying litigation in this case involves assertions of patent infringement, not trademark/trade dress or service mark infringement, we find that due to the identical nature of the policy language in each of these cases, our findings of unambiguity in Advance Watch and ShoLodge are equally applicable here.¹

SST, however, contends that Advance Watch is not "controlling precedent" because the rules regarding the interpretation of insurance polices under Ohio law are different from the rules under Michigan law. We disagree, and find that SST's attempts to...