Opinion
No. C00-521P
July 2, 2001
AMENDED ORDER GRANTING SUMMARY JUDGMENT IN OF DEFENDANTS
This Order modifies and supercedes the Order Granting Summary Judgment in Favor of Defendants previously issued by the Court Dkt. no. 275. This matter comes before the Court on several related motions. Plaintiff and defendants have brought cross-motions for summary judgment on the issue of defendants' duty to defend and/or indemnify a series of pending class-action suits (the "duty to defend and/or indemnify" motions) Dkt nos. 155, 243. Also pending before the Court is a separate motion for summary judgment brought by Defendants Fidelity and Guaranty Insurance Company, Federal Insurance Company, Zurich American Insurance Company, TIG Insurance Company, American National Insurance Company, and National Union Insurance Company Dkt. no. 248. These defendants seek summary judgment on the grounds that the class plaintiffs' claims against Microsoft arose prior to the relevant coverage periods provided by these insurers. For purposes of clarity, this will be referred to as the "prior publication" motion. Finally, several defendants have brought motions to strike portions of plaintiff's motion for summary judgment Dkt nos. 264-65.
Defendants' motion for summary judgment relates to the duty to defend and/or indemnify the pending class-action suits Plaintiff's motion for partial summary judgment is related only to the duty to defend.
For the reasons set forth more fully below, defendants' motion for summary judgment on the duty to defend and/or indemnify is GRANTED. Plaintiff's cross-motion for partial summary judgment on the duty to defend is DENIED Defendants' motion for summary judgment on the issue of prior publication is GRANTED Defendants' motions to strike are DENIED.
FACTS
These motions concern the scope of coverage under Commercial General Liability (CGL) policies purchased by Microsoft from various defendants over a number of years Microsoft argues that the CGL insurers are obligated to defend and/or indemnify Microsoft against a host of lawsuits that have been brought against the company. These lawsuits (the "Underlying Complaints") are largely based upon allegations that Microsoft engaged in unfair, anti-competitive, and monopolistic practices which permitted the company to charge inflated and supra-competitive prices for a number of its products. The plaintiffs in the Underlying Complaints are consumers of Microsoft's products Microsoft does not dispute defendants' contention that none of the plaintiffs in the Underlying Complaints are competitors of Microsoft.
The relevant insurance policies provide a scope of coverage in pertinent part and without material difference as follows:
Insuring Agreement:
A We will pay those sums that the insured becomes legally obligated to pay as damages because of 'personal injury' or 'advertising injury' to which this coverage part applies. We will have the right and duty to defend any suit seeking those damages. We may at our discretion investigate any 'occurrence' or offense and settle any claim or 'suit' that may result.
B This insurance applies to:
(1) 'Personal injury' caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you,
(2) 'Advertising injury' caused by an offense committed in the course of advertising your goods products or services,
but only if the offense was committed in the 'coverage territory' during the policy period.
Declaration of Margaret R. Posa in Support of Consolidated Motion for Summary Judgment and attached exhibits (hereinafter "Posa Dec. ")
The relevant insurance policies define 'personal injury' and 'advertising injury' in relevant part as follows:
Only a portion of the insurance policies at issue in this litigation included coverage for advertising injury. Those policies which do not provide advertising injury coverage can be found at Posa Dec., Exs. P8-10, ES-10, and E21-25.
• 'Personal injury' means injury, other than 'bodily injury,' arising out of one or more of the following offenses. 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.
• 'Advertising injury' means injury arising out of one or more of the following offenses 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 . . .
Posa Dec.
The Underlying Complaints bring claims for violations of various anti-trust laws. None of the Underlying Complaints expressly state a cause of action for the common law tort of product disparagement. However, at least some of the complaints include factual allegations that Microsoft disparaged its competitors' products and engaged in so-called "FUD" (fear, uncertainty, and doubt) campaigns which were intended to undermine their competitors' products.
RELEVANT PRIOR LITIGATION BEFORE THIS COURT
By prior order, the Court granted partial summary judgment to Defendants National Union Insurance Company ("National Union") and Zurich American Insurance Company ("Zurich American") on the issue of prior publication. Dkt. no. 194. The Court's Order was expressly limited to insurance policies issued by National Union and Zurich American for the period of July 1, 1999 to July 1, 2000. Specifically, the Court concluded that "the facts alleged in the Underlying Complaints, even if proved, have no potential to trigger the 1999-2000 Insurers' duty to indemnify Microsoft" Id. at p. 5. Although the prior publication motion currently pending before the Court is brought by a larger group of defendants, and involves insurance policies issued at an earlier time, the substantive issues raised are quite similar to those previously litigated by National Union and Zurich American.
The Court has also previously addressed cross-motions for summary judgment on the issue of defendants' duty to defend and/or indemnify. Dkt. no 194. The Court concluded that "[o]n the record before it" at the time of its prior ruling, it did not appear that defendants were obligated to defend and/or indemnify plaintiff against the anti-trust allegations raised in the Underlying Complaints. Id. at p. 3. However, in recognition of the relevance of extrinsic evidence under Washington law "to show the context in which an insurance contract was executed, for the purpose of ascertaining the intention of the parties and properly construing the writing", the Court decided "in an abundance of caution" to deny the cross-motions for summary judgment without prejudice in order to allow the parties to proceed with limited discovery Id. at p. 4. Having completed discovery as to the issue of the "negotiation, formation, and execution" of the disputed policies, the parties have now renewed their cross-motions for summary judgment Id.
ANALYSIS
1. The Duty to Defend and/or Indemnify Motions a. The scope of Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567 (1998)The parties agree that the Court must look to Washington State law in resolving the dispute over the scope of defendants' insurance policies. The lead case in Washington regarding construction of an insurance policy is Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567 (1998). The parties have devoted considerable attention to this case in their respective memoranda, and clearly read the central tenants of Kitsap in significantly different ways. Because of the dispute over Kitsap's meaning, and because of the importance of Washington State law to the Court's construction of the disputed insurance policies, the Court will clarify its understanding of the scope (and limitations) of Kitsap. Kitsap arose under circumstances not dissimilar to those underlying the litigation before this Court. In Kitsap, the United States District Court for the Western District of Washington called upon the Washington State Supreme Court to determine whether certain tort claims brought against the insured constituted actions for "personal injury" under the liability insurance policies of the insured. 136 Wn.2d at 571. In answering this question, the Supreme Court looked "to the type of offense" alleged. Id. at 580. The disputed policies included in the definition of 'personal injury' those "injuries arising out of certain specified offenses." Id. at 573 (emphasis added). Those offenses included "wrongful entry or eviction or other invasion of the right of private occupancy" Id. TheKitsap court's analysis on the issue of policy construction is straightforward. The Kitsap court looked to the claims alleged in the underlying litigation against the insured, and examined whether those claims (for trespass, nuisance, and interference) were equivalent to the claims covered in the disputed policies (wrongful entry or eviction or other invasion of the right of private occupancy). Id. at 586.
Despite plaintiff's arguments to the contrary, an analysis of the scope of coverage under Kitsap begins — and ends — with a comparison between the offenses alleged in the underlying litigation and the offenses covered in the disputed policies. While the underlying complaint need not set forth the precise cause of action covered in the disputed policy, it must at least set forth sufficient facts to substantiate an analogous cause of action.
Microsoft argues that coverage in this case is triggered under the "disparagement" clause in the disputed policies because the Underlying Complaints include factual allegation that Microsoft levied disparaging comments at its competitors. This is a significant departure from the holding of Kitsap. This Court declines to find that an insurer is obligated to provide coverage as a result of a semantic overlap between a disputed policy and the underlying litigation, absent a showing that the underlying litigation invokes a tort that is covered, or is analogous to one covered, by the disputed policy.
b. Extrinsic evidence regarding the negotiation, formation, and execution of the disputed policies
The Court deferred its ruling on summary judgment in this matter in order to allow plaintiff to discover evidence regarding the negotiation, formation, and execution of the disputed policies. This was done in recognition of the fact that under Washington law extrinsic evidence may be admissible to show the context in which an insurance contract was executed, for the purpose of ascertaining the intention of the parties and properly construing the writing. See Lynott v. Nat'l Union Fire Ins. Co., 123 Wn.2d 678 (1994). The Court thought it appropriate to allow plaintiff an opportunity to demonstrate that coverage of anti-trust litigation of the type alleged in the Underlying Complaints was contemplated by the parties in the creation of the disputed policies Plaintiff has now come forward with evidence purporting to clarify its negotiations with three of the defendants. This evidence is offered by plaintiff to show that the strict reading of the disputed policies advocated by defendants is a departure from the intent of the parties. The Court does not find plaintiff's arguments persuasive. The "personal injury" and "advertising injury" clauses in dispute were not adopted with the expectation that anti-trust allegations of the type currently pending would be covered by defendants.
• The "Russell Claim"
In 1990, a Microsoft employee by the name of Dorothy Russell filed suit against Microsoft alleging age and sex discrimination and infliction of emotional distress Declaration of David Brenner in Support of Microsoft's Second Motion for Partial Summary Judgment on Defendants' Duty to Defend (hereinafter "Brenner Dec."), Ex. 2 Ms. Russell did not assert a cause of action for disparagement in her complaint, although she did include a single factual allegation that her supervisor made disparaging remarks about her Id. Defendant Federal Insurance Company ("Federal") chose to defend the Russell action under a reservation of rights. Brenner Dec., Ex. 3. This was done in recognition of the fact that "the definition of personal injury does include injury arising out of oral or written publication of material that slanders or libels a person or organization or disparages a person or organizations (sic) goods, product or services." Id. Microsoft now indicates that it relied on Federal's "policy interpretation" regarding the Russell claim "when deciding to renew coverage with Federal during the following year" Brenner Dec., Ex 5, ¶ 4.
Federal's choice to defend the Russell claim does not have any bearing on the scope of coverage question currently before the Court. Defense of the Russell claim was consisted with the holding of Kitsap. Despite the labels Ms. Russell placed upon her causes of action, her claims clearly set forth the elements of several torts analogous to those enumerated in the Federal policy, including libel and slander.
The Court notes that at the time of the Russell litigation, Kitsap had not yet been decided, nor had it been decided at the time that many of the disputed policies relevant to this litigation were created Plaintiff could not, therefore, have relied on its somewhat novel reading of Kitsap in deciding what significance to place upon Federal's handling of the Russell claim Plaintiff also could not have been relying on its interpretation of Kitsap in agreeing to the language in the disputed policies.
Even if the Court were to accept, arguendo, that Microsoft perceived Federal's defense of the Russell claim as indicative that Federal tended to broadly read its coverage obligations, that information is irrelevant here Microsoft has provided no evidence that the perceptions of its Risk Manager regarding Federal's handling of the Russell claim was ever communicated to any of the defendants in negotiating any of the disputed policies "Unilateral or subjective intentions about the meanings of what is written do not constitute evidence of the parties' intentions."Lynott, 123 Wn.2d at 684, (citing Watkins v. Restorative Care Ctr. Inc., 66 Wn.App. 178, 192 (1992)).
• Negotiations with Twin City Fire Insurance Company
In 1993, Microsoft negotiated the terms of its personal injury coverage with Twin City Fire Insurance Company ("Twin City") The policy included a special endorsement that provided personal injury coverage for "discrimination or humiliation that results in injury to the feelings or reputation of a natural person" Brenner Dec., Ex. 6. The rest of the personal injury coverage applied to any "injury, other than bodily injury." Microsoft objected to the limitation of coverage for acts of discrimination or humiliation, which would apply only to injury to feeling or reputation Microsoft asked Twin City to broaden the scope of coverage for acts of discrimination or humiliation, but Twin City refused.
The evidence proffered by Microsoft simply shows that Twin City considered and then rejected Microsoft's proposal by way of an internal memorandum. Id., Ex 7. It is therefore not evidence of the negotiation, formation, or execution of the contract at issue. Even if Microsoft were able to demonstrate that the parties had carefully negotiated this clause, the Court fails to see how Twin City's refusal to broaden the scope of its coverage advances plaintiff's position that a broad reading of the disputed policies is warranted in the litigation before this Court.
• Negotiations with Fidelity and Guaranty Insurance Company
Finally, Microsoft suggests that negotiations with Fidelity and Guaranty Insurance Company ("FG") are indicative that the parties intended to adopt plaintiff's broad reading of personal injury coverage Plaintiff points to three separate negotiations with FG in support of its position.
In 1997, FG agreed to provide personal injury coverage for "humiliation or racial or religious discrimination." Brenner Dec., Ex. 10. Plaintiff argues that because humiliation is not a tort in Washington, this demonstrates that FG was willing to provide coverage for enumerated categories of conduct, and not simply enumerated causes of action. The Court disagrees with this analysis. Although humiliation is not a tort in Washington, it is a recognized tort in other jurisdictions. See, e.g., North Bank v. The Cincinnati Ins. Cos. 125 F.3d 983, 986 (6th Cir. 1997). Under Kitsap, the Court must look to the Underlying Complaints to determine if a tort analogous to those covered is alleged. Had the Underlying Complaints made out a tort action for humiliation, coverage would arguably be required.
Plaintiff also refers to Defendant FG's decision to exclude patent infringement claims and to forgo an anti-trust exclusion in its 1997 policy Plaintiff's arguments as to these pieces of extrinsic evidence are unpersuasive. Most significantly, Microsoft has not shown that FG's internal decision-making process was communicated to Microsoft as part of the negotiation, formation, or execution of the disputed policies.
c. Limitations of the "arising out of" clause in the disputed policies
The disputed policies provide coverage for "personal injury . . . arising out of . . . 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 . . ." Plaintiff argues that the Underlying Complaints clearly "allege injury 'arising from' Microsoft's supposed disparaging statements" Plaintiff's Memorandum in Support of Second Motion for Summary Judgment, p. 18. Thus, although plaintiff recognizes that the Underlying Complaints state causes of action for anti-trust violations, plaintiff nonetheless argues that these alleged violations "arise from" acts of disparagement, and are therefore within the parameters of the disputed policies.
Plaintiff's reading of the "arising from" language is too broad.Kitsap makes clear that the Court must examine whether the types of offenses alleged in the Underlying Complaints are analogous to any of the torts enumerated in the disputed policies. It is undisputed that the policies at issue do not provide coverage for allegations of anti-trust violations. However, the disputed policies arguably do provide coverage for product disparagement. The Court must therefore look to the elements of the tort of product disparagement to determine whether the Underlying Complaints have set forth facts constituting a claim under that law. The Court concludes that the Underlying Complaints have not done so.
A claim for product disparagement must allege (1) a false statement; (2) that impugns the quality or integrity of plaintiff's goods or services; and (3) special damages in the form of lost profits from the loss of specific sale(s) to a specifically identified purchaser that would have occurred but for that purchaser hearing the false statement and declining to engage in that purchase. Restatement (Second) of Torts § 623A (1977) It is a well-established principle of First Amendment jurisprudence that the injured party in an action for product disparagement must establish that the disparaging communication was personally directed to his or her product. See Rosenblatt v. Baer, 383 U.S. 75, 81-82 (1966), Unelko Corp. v. Rooney, 912 F.2d 1049, 1057-58 (9th Cir. 1990); Auvil v. 60 Minutes, 800 F. Supp. 928, 933 (E.D. Wash. 1992). This is known as the "of and concerning" rule.
The parties appear to agree that the Underlying Complaints contain some references, however minimal, to disparaging statements made by Microsoft about its competitors' products. Significantly, the Underlying Complaints contain no allegations that Microsoft disparaged the complainants nor any product created by the complainants. The allegations of disparagement clearly are not "of and concerning" the consumers who have brought the Underlying Complaints.
The Court's reasoning is bolstered by the plain language of the disputed policies Defendants are obligated only to pay for "those sums that the insured becomes legally obligated to pay as damages because of 'personal injury' or 'advertising injury.'" Because the Underlying Complaints cannot be read to include any causes of action for disparagement, it is fan to conclude that plaintiff will never become legally obligated to pay damages arising from any allegations of disparagement in the pending anti-trust litigation.
d. Advertising injury
Some, although not all, of the disputed policies provide coverage for advertising injury. Plaintiff has not moved for summary judgment on the issue of duty to defend under this portion of the disputed policies. In their original Consolidated Motion for Summary Judgment defendants urged the Court to find that there was no duty to defend and/or indemnify under the advertising injury coverage in the disputed policies Dkt. no 155. Although defendants have not specifically renewed or supplemented their arguments on this issue, they do refer back to their original motion in the Consolidated Memorandum of Law in Support of Renewal of Motion for Summary Judgment Dkt. no. 251. The Court will therefore briefly address tins argument.
Coverage for advertising injury is triggered only when there is: (1) an offense enumerated in the definition of "advertising injury" (2) committed in the course of advertising (3) which results in injury caused by the advertising of the policyholder. Similar to the "personal injury" provision of the disputed policies, the "advertising injury" provisions allow for coverage only for specifically enumerated offenses. The Court's reasoning with regard to personal injury coverage is similarly applicable to covering for advertising injury. The Underlying Complaints do not set forth specific facts which could reasonably be construed to be analogous to any of the offenses enumerated in the disputed advertising injury clauses. Moreover, the Court is unconvinced that Microsoft has committed "advertising injury" as to the complainants in the underlying suits. Even if Microsoft has committed actions which could be considered to be one of the enumerated "advertising injury" offenses, the complainants were clearly not the victims of these offenses. For all of the reasons set forth above, defendant's motion for summary judgment on the duty to defend and/or indemnify is GRANTED Plaintiff's cross-motion for partial summary judgment on the duty to defend is DENIED.
2. The Prior Publication Motion
Because of the Court's ruling on the parties' cross-motions for summary judgment on the duty to defend and/or indemnify, the Court need not reach the substance of defendants' motion for summary judgment on the issue of prior publication. However, in the interest of developing a complete record, the Court will provide its bases for granting this motion.
By prior Order, the Court ruled that the Underlying Complaints did not state any cause of action for disparagement which could have arisen after 1999 Dkt. no. 194. Multiple defendants now seek the same ruling regarding the time period 1997-1999. Plaintiff has conceded that all allegations regarding disparagement of the OS/2 and DR-DOS products are irrelevant, as those products had been removed from the market prior to 1997. Plaintiff has isolated additional allegations in the Underlying Complaints which refer to Java and Navigator, two additional rival programs. Based upon these allegations, plaintiff now argues that summary judgment on the issue of prior publication is precluded.
All of the policies at issue in this particular motion were in effect during the time period July 1, 1997 to July 1, 1999, and contained an exclusion for "personal injury . . . arising out of oral or written publication of material whose first publication took place before the beginning of the policy period."
The Court has carefully reviewed all sections of the Underlying Complaints proffered by plaintiff. On the record before it, the Court can find no allegations of disparagement said to have occurred during the period of time relevant to this motion.
The only Underlying Complaint that comes close to alleging acts of disparagement by Microsoft during the relevant time period is Hagan v. Microsoft Corp., (W.D. Wash. filed Jan. 7, 2000). However, the Court finds that the allegations in the Hagan complaint are so vague and unsubstantiated that they do not create a genuine issue of material fact and thus do not defeat defendants' motion for summary judgment.
The Hagan complaint does not allege any specific acts of "disparagement." The word "disparaged" appears only in that portion of the complaint which brings a cause of action for "attempted monopolization" under 15 U.S.C. § 2. The relevant language is as follows:
• Defendant has engaged in anticompetitive conduct that has suppressed, concealed and disparaged the development and availability of other operating systems and Platforms that could potentially compete with Windows
• Defendant had a specific intent to monopolize when it suppressed, concealed and disparaged the development and availability of other operating systems and Platforms that provide application delivery platforms
• Microsoft unlawfully used its market power in the Intel-compatible PC operating system and Platform markets when it suppressed, concealed and disparaged, with a specific intent to monopolize, the market for Web browsers. did so to preserve its market power in the operating system and Platform markets and to stabilize Windows pricesHagan complaint, ¶¶ 74, 75, 77.
A pleading must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). The conclusory use of the word "disparaged" in the Hagan complaint does not provide any basis for this Court to conclude that the Hagan plaintiffs have alleged acts of disparagement, much less the tort of disparagement. Moreover, the limited use of the word "disparaged" in the Hagan complaint is entirely without any chronological context. Even if the Court were to find that the complaint alleges facts sufficient to plead the tort of product disparagement, the Court cannot find within the language of the complaint any time frame during which these alleged acts occurred. For all of these reasons, defendants' motion for summary judgment on the issue on prior publication is GRANTED.
3 Motions to Strike
Defendant FG has brought a motion to strike exhibits 9, 12, 14, and 15 of the Declaration of David M. Brenner in Support of Microsoft's Second Motion for Partial Summary Judgment on Defendants' Duty to Defend. Defendant FG's motion is DENIED. Although the Court agrees that the materials included in the disputed exhibits are not particularly persuasive (See section I.b., above), the Court disagrees with defendant's assertion that this evidence is inadmissible for purposes of a summary judgment motion.
Defendant Twin City has joined defendant FG's motion to strike. In addition, defendant Twin City brings its own motion to strike exhibits 6, 7, and 8 of the Brenner Declaration. All of Twin City's objections arise from their assertion that the disputed documents are irrelevant to show the mutual intent of the parties in the negotiation, formation, and execution of the disputed policies. While the Court finds that while this evidence is insignificant (See section I.b., above) it is admissible. Defendant Twin City's motion is DENIED.
CONCLUSION
For all of the reasons set forth above, defendants' motion for summary judgment on the duty to defend and/or indemnify is GRANTED. Plaintiff's cross-motion for partial summary judgment on the duty to defend is DENIED. Defendants' motion for summary judgment on the issue of prior publication is GRANTED. Defendants' motions to strike are DENIED. The clerk of the Court is directed to distribute a copy of this Order to all counsel of record.