W. Bend Mut. Ins. Co. v. Ixthus Med. Supply, Inc., 2017AP909

Citation923 N.W.2d 550,385 Wis.2d 580,2019 WI 19
Decision Date28 February 2019
Docket NumberNo. 2017AP909,2017AP909
Parties WEST BEND MUTUAL INSURANCE COMPANY, Plaintiff-Respondent-Petitioner, v. IXTHUS MEDICAL SUPPLY, INC. and Karl Kunstman, Defendants-Appellants, Abbott Laboratories, Abbott Diabetes Care Inc. and Abbott Diabetes Care Sales Corp., Defendants-Co-Appellants.
CourtUnited States State Supreme Court of Wisconsin

For the plaintiff-respondent-petitioner, the initial supreme court brief was filed by Kris Bartos and the reply brief was filed by Danielle N. Rousset, with whom on the briefs was Jeffrey Leavell and Jeffrey Leavell, S.C., Racine. There was an oral argument by Jeffrey L. Leavell.

For the defendants-appellants, there was a brief filed by Jason Pilmaier, Albert Solochek, and Howard, Solochek & Weber, S.C., Milwaukee. There was an oral argument by Jason Pilmaier.

For the defendants-co-appellants, there was a brief filed by Michael P. Mayer, Linda T. Coberly, and Winstron & Strawn LLP, Chicago, IL. There was an oral argument by Linda T. Coberly.

An amicus curiae brief was filed on behalf of Wisconsin Insurance Alliance by James A. Friedman, Amber Coisman, and Godfrey & Kahn, S.C., Madison.

REBECCA GRASSL BRADLEY, J.

¶1 In this duty to defend case, West Bend Mutual Insurance Company asks us to reverse the court of appeals' decision holding that the allegations in Abbott Laboratories' complaint against Ixthus Medical Supply, Inc. alleged a potentially covered advertising injury, and as a result, triggered West Bend's duty to defend under the commercial general liability policy West Bend issued to Ixthus.1 West Bend argues the court of appeals erred when it determined: (1) Abbott's complaint2 alleged a causal connection between the advertising activity and injury; and (2) the knowing violation exclusion did not apply. West Bend further contends that the criminal acts exclusion applies, thereby removing any duty to defend, or alternatively that application of the fortuity doctrine, public policy, and the reasonable expectation of an insured each independently eliminates its duty to defend.

¶2 We hold the allegations in Abbott's complaint fall within the initial grant of coverage under the "personal and advertising injury liability" provision of the commercial general liability insurance policy West Bend issued to Ixthus. We further hold that neither the knowing violation nor the criminal acts exclusions apply to remove West Bend's duty to defend. Finally, we do not address West Bend's argument that the fortuity doctrine, public policy, and the reasonable expectation of an insured eliminate its duty to defend because West Bend failed to adequately raise or develop these contentions.3 We affirm the decision of the court of appeals.

I. BACKGROUND

¶3 Ixthus is a medical supply company operating in Wisconsin. At all times relevant to this action, Ixthus was insured under a commercial general liability insurance ("CGL") policy with West Bend, which provided coverage for "personal and advertising injury." Specifically, the CGL policy provided:

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. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply....
b. This insurance applies to "personal and advertising injury" caused by an offense arising out of your business but only if the offense was committed in the "coverage territory" during the policy period.

"SECTION V—DEFINITIONS" of the CGL policy defines "advertisement" and "personal and advertising injury" as:

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. For the purposes of this definition:
a. Notices that are published include material placed on the Internet or on similar electronic means of communication; and
b. Regarding web-sites, only that part of a website that is about your goods, products or services for the purposes of attracting customers or supporters is considered an advertisement.
....
14. "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."

Under "COVERAGE B," the CGL policy contains exclusions for both "Knowing Violation of Rights of Another" and "Criminal Acts":

2. Exclusions
This insurance does not apply to:
a. Knowing Violation of Rights of Another
"Personal and advertising injury" 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."
....
d. Criminal Acts
"Personal and advertising injury" arising out of a criminal act committed by or at the direction of the insured.

¶4 Abbott is a health care company that manufactures and sells blood glucose test strips in both the domestic and international markets. Abbott's strips are trademarked under the name "FreeStyle." The test strips are functionally identical regardless of the intended market, but the labeling and instructional inserts as well as price and available rebates are substantially different between the domestic and international packaged boxes. For a variety of reasons, Abbott sells test strips for use in international markets at a much lower cost.

¶5 In November 2015, Abbott filed a lawsuit in New York federal court against Ixthus and over 100 other defendants asserting thirteen federal statutory and common law claims for relief based on its belief that the defendants were "import[ing], advertis[ing] and subsequent[ly] distribut[ing]" boxes of Abbott's international test strips in the United States. The thirteen claims alleged were: (1) Federal Trademark Infringement under Section 32 of the Lanham Act; 15 U.S.C. § 1114(1) ; (2) Federal Unfair Competition under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(i)(A) ; (3) Common Law Unfair Competition (New York law); (4) Federal Trademark Dilution under Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c) ; (5) State Law (New York) Trademark Dilution; (6) State Law (New York) Deceptive Business Practices; (7) Unjust Enrichment; (8) Violation of Federal RICO, 18 U.S.C. § 1962(c) ; (9) Conspiracy to Violate Federal RICO, 18 U.S.C. § 1962(d) ; (10) Importation of Goods Bearing Infringing Marks under 15 U.S.C. § 1124 ; (11) Fraud and Fraudulent Inducement; (12) Aiding and Abetting Fraud; and (13) Contributory Trademark Infringement.4

¶6 Upon being served, Ixthus tendered its defense to West Bend. In a March 2016 letter to Ixthus, West Bend denied Ixthus's tender, and explained why it took the position that the Abbott lawsuit was not covered by the CGL policy. In August 2016, West Bend filed a complaint in the circuit court seeking a declaratory judgment that West Bend had no duty to defend or indemnify Ixthus in Abbott's lawsuit. In March 2017, West Bend filed a motion for summary judgment. The circuit court granted West Bend's motion, concluding that although the allegations in Abbott's complaint fell within the initial grant of coverage, the knowing violation exclusion applied, thereby eliminating any duty West Bend had to defend Ixthus.5

¶7 Both Ixthus and Abbott appealed to the court of appeals, which reversed the circuit court's decision. The court of appeals agreed with the circuit court that the allegations in Abbott's complaint fell within the initial grant of coverage, but disagreed with the circuit court as to the applicability of the knowing violation exclusion. See West Bend Mut. Ins. Co. v. Ixthus Med. Supply, Inc., No. 2017AP909, unpublished slip op., ¶¶ 10, 12-14, 381 Wis. 2d 472, 2018 WL 1583124 (Wis. Ct. App. Mar. 28, 2018) (per curiam). The court of appeals concluded the knowing violation exclusion did not apply because several of the claims alleged in the complaint could be established without having to prove Ixthus's actions were intentional; therefore, the court of appeals held that the complaint asserted potentially covered claims not consumed by the knowing violation exclusion. Id. Accordingly, the court of appeals concluded West Bend had a duty to defend Ixthus. Id., ¶ 20.

¶8 West Bend petitioned for review by this court, which we granted.

II. STANDARD OF REVIEW

¶9 "We independently review a grant of summary judgment using the same methodology of the circuit court and the court of appeals."

Water Well Sols. Serv. Grp., Inc. v. Consolidated Ins. Co., 2016 WI 54, ¶ 11, 369 Wis. 2d 607, 881 N.W.2d 285. "Summary judgment is appropriate when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law." Id. (citing Wis. Stat. § 802.08(2) (2013-14)).6 Declaratory judgments determining whether an insurer has a duty to defend require interpretation of the insurance policy, which also presents questions of law reviewed de novo. Water Well Sols. Serv. Grp., 369 Wis. 2d 607, ¶ 12, 881 N.W.2d 285 ; Air Eng'g, Inc. v. Industrial Air Power, LLC, 2013 WI App 18, ¶ 9, 346 Wis. 2d 9, 828 N.W.2d 565.7

III. ANALYSIS
A. General Insurance Principles—Advertising Injury

¶10 The sole issue presented is whether West Bend has the duty to defend its insured, Ixthus, under the terms of the CGL policy—specifically the "Personal and Advertising Injury Liability" provision. In assessing whether a duty to defend exists, we "compare the four corners of the underlying complaint to the terms of the entire insurance policy." Water Well Sols. Serv. Grp.,...

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