Opinion
HHDCV156062735S
01-24-2017
United Ohio Insurance Company v. Durafloor Industrial Flooring and Coating, Inc. et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
CESAR A. NOBLE, J.
Before the court is the motion for summary judgment of the plaintiff, United Ohio Insurance Company (United Ohio), which asserts that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law as to its complaint seeking a declaratory judgment that it owes no duty to defend and/or indemnify the defendants, Durafloor Industrial Flooring and Coating, Inc. (Durafloor) and Stephen Lipman, its insureds (Insureds), from claims of misappropriation of trade secrets asserted by the remaining co-defendant, Dur-A-Flex, Inc. (Dur-A-Flex), in a separate pending civil action (Complaint). Because the allegations of the Complaint do not state facts which bring the alleged injuries within the coverage of the insurance policy under which the Insureds seek coverage, the plaintiff's motion for summary judgment is granted.
Facts and Procedural History
The following undisputed facts are relevant to this decision. On March 5, 2014, Dur-A-Flex filed a complaint with the court in which it alleged that Samet Dy, a former employee of Dur-A-Flex, was in violation of a noncompete agreement and breached his obligations of confidentiality. Thereafter, Dur-A-Flex amended its complaint to include claims against the Insureds as appear in the Complaint which is in thirty-three counts, six of which are addressed to the Insureds. The factual nexus of all counts is the misappropriation of trade secrets. Specifically, the Complaint alleges that Dur-A-Flex was engaged in the design and manufacture of commercial and industrial flooring systems and polymer component materials. Samet is claimed to have misappropriated trade secrets in the form of formulae and processes for floor coating systems and polyurethane/urea products for the purpose of competing with United Ohio.
Count twenty of the Complaint alleges that Lipman, a former Dur-A-Flex employee, conspired with Samet and others to misappropriate Dur-A-Flex's trade secrets and confidential information as well as to promote and sell misappropriated products. Count twenty-one asserts Lipman violated the Connecticut Uniform Trade Secrets Act (CUTSA), General Statutes § 35-50 et seq., by helping Samet to manufacture and sell products based on the confidential processes and formulae misappropriated from Dur-A-Flex. In count twenty-two Dur-A-Flex claims that Lipman's conduct in assisting Samet with manufacturing and selling products based upon the processes and formulae misappropriated from Dur-A-Flex were done with intent to harm Dur-A-Flex in a malicious violation of CUTSA. Dur-A-Flex alleges in count twenty-three that Lipman deliberately interfered with its contract with Samet for the purpose of misappropriating confidential and trade secret information. Count twenty-six sounds in civil conspiracy against Durafloor as based on its working with Samet to manufacture, promote and sell products from the processes and formulate misappropriated by Samet. The last count relevant hereto, twenty-seven, claims Durafloor violated CUTSA by selling and applying products manufactured by others than Dur-A-Flex based solely on the misappropriated confidential processes and formulae.
At all times relevant to this decision, Durafloor and Lipman were insureds under a Businessowner's Policy of Insurance bearing the Policy Number: BP 0019213 (the Policy). United Ohio has provided the Insureds a defense of the above claims but reserved its rights to deny its obligation to defend or indemnify them. The Policy provides that the insurer will " pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury, ' 'property damage' or 'personal and advertising injury' to which th[e] insurance applies. We [United Ohio] 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 'bodily injury, ' 'property damage' or 'personal and advertising injury' to which this insurance does not apply." Coverage is thus afforded for " bodily injury, " " property damage" and " personal and advertising injury" to which the insurance applies.
Exhibit A to the plaintiff's motion for summary judgment, Section II.A.1.a. This section can be found on page 31 of 49 of the Policy, which was fully attached to United Ohio's complaint. United Ohio attached excerpts of the Policy in support of its motion for summary judgment.
The Policy further provides that " [t]his insurance applies . . . To 'personal and advertising injury' caused by an offense arising out of your business . . ." " Personal and advertising injury" is defined as injury " arising out of one or more of the following offenses." There are seven enumerated offenses, only one of which the Insureds claim affords coverage is for " [i]nfringing upon another's copyright, trade dress or slogan in your 'advertisement.'" " Advertisement" is defined as " 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." Additional facts will be set forth as necessary.
Exhibit A to plaintiff's motion for summary judgment, Section II.A.1.b(2). This section can also be found on page 31 of 49 of the Policy.
Exhibit A to plaintiff's motion for summary judgment, Section II.F.14. This section can also be found on page 45 of 49 of the Policy.
Exhibit A to plaintiff's motion for summary judgment, Section II.F.14.g. This section can also be found on page 45 of 49 of the Policy.
Exhibit A to plaintiff's motion for summary judgment, Section II.F.1. This section can also be found on page 43 of 49 of the Policy.
United Ohio asserts in its motion for summary judgment, filed on April 5, 2016, that the allegations of the Complaint do not state facts which bring Dur-A-Flex' injuries within the coverage provided by the Policy for " bodily injury, " " property damage" or " personal and advertising injury." The Insureds filed an objection on July 1, 2016. They argue that although it is clear that the Complaint does not involve " claims of personal injury or property damage as defined by the policy" the allegations of the Complaint fall within coverage for advertising injury because it alleges they engaged in promoting and selling products. According to the Insureds, the promotion and selling of the products is so inextricably intertwined with advertising that these acts result in covered injuries. The Insureds advance a definition from Merriam Webster that includes " something . . . that is shown or presented to the public to help sell a product." The objection of the Insureds references no legal authority for the position that the allegations in the Complaint of the promotion and sale of products manufactured with misappropriated trade secrets and confidential information constitute an advertising injury. The Insureds also assert that it is premature for the court to enter summary judgment because not all interested parties received notice nor had an opportunity to be heard. Dur-A-Flex has not opposed the motion for summary judgment. United Ohio filed a reply memorandum to the Insureds' objection on September 21, 2016. The court heard argument on October 3, 2016.
" [P]ersonal injury is defined as an injury affecting one's physical and mental person . . ." Kilduff v. Adams, Inc., 219 Conn. 314, 337, 593 A.2d 478 (1991). Generally the term " personal injury" is broader than " bodily injury" and includes emotional and mental injury in addition to the physical element encompassed in the latter term. See e.g., Wastel v. Kosloff, Superior Court, judicial district of New London, Docket No. 5002019, (Apr. 20, 2007, Gordon, J.) (43 Conn.L.Rptr. 277, 278, ). Although the insureds have not specifically conceded a lack of coverage for bodily injury, their failure to argue that it is covered and their concession that there is no coverage for personal injury-which is commonly held to include bodily injury-provides the basis for concluding they have abandoned a claim of coverage for bodily injury.
Standard
" Summary judgment is a method of resolving litigation when pleadings, affidavits, and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." (Citation omitted; footnote omitted; internal quotation marks omitted.) Grenier v. Commissioner of Transportation, 306 Conn. 523, 534, 51 A.3d 367 (2012); see also Practice Book § 17-49.
The court may address the merits of a declaratory judgment action upon a motion for summary judgment. United Services Automobile Ass'n v. Marburg, 46 Conn.App. 99, 102 n.3, 698 A.2d 914 (1997). " There is no question that a declaratory judgment is a suitable vehicle to test the rights and liabilities under an insurance policy." St. Paul Fire & Marine Ins. Co. v. Shernow, 22 Conn.App. 377, 380, 577 A.2d 1093 (1990). Declaratory judgment actions have been used to determine whether an insurer has a duty to defend and indemnify its insured. See, e.g., Holy Trinity Church of God in Christ v. Aetna Casualty & Surety Co., 214 Conn. 216, 217, 571 A.2d 107 (1990).
" The question of whether an insurer has a duty to defend its insured is purely a question of law, which is to be determined by comparing the allegations of [the] complaint with the terms of the insurance policy." (Internal quotation marks omitted.) Wentland v. American Equity Ins. Co., 267 Conn. 592, 599 n.7, 840 A.2d 1158 (2004). " An insurer's duty to defend . . . is determined by reference to the allegations contained in the [underlying] complaint . . . The obligation of the insurer to defend does not depend on whether the injured party will successfully maintain a cause of action against the insured but on whether he has, in his complaint, stated facts which bring the injury within the coverage. If the latter situation prevails, the policy requires the insurer to defend, irrespective of the insured's ultimate liability . . . It necessarily follows that the insurer's duty to defend is measured by the allegations of the complaint . . . Hence, if the complaint sets forth a cause of action within the coverage of the policy, the insurer must defend . . . Indeed, [i]f an allegation of the complaint falls even possibly within the coverage, then the insurance company must defend the insured. On the other hand, if the complaint alleges a liability which the policy does not cover, the insurer is not required to defend." State Farm Fire & Casualty Co. v. Tully, 322 Conn. 566, 574, 142 A.3d 1079 (2016). " [T]he insurer has a duty to defend only if the underlying complaint reasonably alleges an injury that is covered by the policy." (Emphasis in original.) Misiti, LLC v. Travelers Property Casualty Co. of America, 308 Conn. 146, 156, 61 A.3d 485 (2013).
Analysis
a. Lack of Joinder or Notice to Interested Parties
The assertion that summary judgment is premature because not all interested parties were joined or received notice of the declaratory judgment action is not persuasive. The Insureds note that they have moved to join as additional parties individuals and entities who are also named as defendants in the Complaint. The Insureds advance without legal citation the argument that summary judgment is not appropriate because the issue of coverage for them by United Ohio will affect the financial contributions of the other Dur-A-Flex Complaint defendants, and the absence of counsel for the Insureds may significantly hinder the process of the Du-A-Flex litigation.
The procedure for declaratory judgments is governed by Practice Book § 17-56. Subsection (b) of § 17-56 provides in relevant part that " [a]ll persons who have an interest in the subject matter of the requested declaratory judgment that is direct, immediate and adverse to the interest of one or more of the plaintiffs or defendants in the action shall be made parties to the action or shall be given reasonable notice thereof." Subsection (c) of § 17-56 clarifies the consequence of, and vehicle to address, the failure to join or give notice to persons with direct immediate and adverse interests. " Except as provided in Sections 10-39 and 10-44, no declaratory judgment action shall be defeated by the nonjoinder of parties or the failure to give notice to interested persons. The exclusive remedy for nonjoinder or failure to give notice to interested persons is by motion to strike as provided in Sections 10-39 and 10-44." Practice Book § 17-56(c). See South Windsor Cemetery Ass'n, Inc. v. Lindquist, 114 Conn.App. 540, 553, 970 A.2d 760, cert. denied, 293 Conn. 932, 981 A.2d 1076 (2009) (affirming sole remedy for nonjoinder or failure to give notice is by motion to strike); see also Practice Book § § 10-39(a)(3) and 11-3. The Insureds' complaint of the lack of joinder or notice to other parties may thus only be addressed in the form of a motion to strike and does not serve to defeat this summary judgment motion.
Finally, as noted by United Ohio, the Dur-A-Flex Complaint defendants have no direct or immediate interest in the policy itself and thus are not persons § 17-56(b) requires to be joined or receive notice. Their interests are only prospective and contingent upon their ultimate liability relative to the claims asserted in the Complaint. See, e.g., AMICA Mut. Ins. Co. v. Acey, Superior Court, judicial district of New Haven, Docket No. CV-05-40005583-S, (November 22, 2005, Zoarski, J.T.R.) (2005 WL 3508670, at *2-3) . To the extent that the Dur-A-Flex defendants have any interest in the present action, these interests have been represented adequately by the current parties. Batte-Holmgren v. Commissioner of Public Health, 281 Conn. 277, 290, 914 A.2d 996 (2007).
b. Duty to Defend and Indemnify
United Ohio asserts, and the court agrees, that the allegations of the complaint do not articulate an injury covered by the Policy. The harm alleged in the Complaint is caused by the misappropriation of trade secrets, not by the advertising of the trade secrets. The allegations required to secure the advertising injury coverage offered by the Policy language must necessarily include a potential for liability under one of the offenses listed in the policies and a causal connection between the alleged injury and the advertising activity. Erie Ins. Exchange v. Compeve Corp., 2015 IL App. (1st) 142508, 392 Ill.Dec. 160, 32 N.E.3d 160, 167 (Ill.App.) (2015) (construing identical policy provisions to require allegation of infringement of one of three enumerated offenses). The Policy provision which the Insureds argue is implicated by the Complaint provides coverage for " [i]nfringing upon another's copyright, trade dress or slogan in your 'advertisement.'" Because the allegations of the Complaint contain no mention of any copyright, trade dress or slogan infringement, the injuries claimed are not brought even possibly within the coverage. Cf. QSP, Inc. v. Aetna Casualty & Surety Co., 256 Conn. 343, 368, 773 A.2d 906 (2001) (coverage for advertising injury caused by an offense requires underlying action allege not only offense itself but also that it arose out of insured's advertising activities); Julian v. Liberty Mutual Ins. Co., 43 Conn.App. 281, 291-92, 682 A.2d 611 (1996) (construing identical policy language to conclude that advertising activities for purpose of sale of product protected by patent is not infringing offense in claim of patent infringement).
Significantly, the Complaint contains no allegation of advertisement as that word is defined in. the Policy, which is " 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." Neither does the Complaint allege facts that would even possibly suggest that Dur-A-Flex's injury was caused by an enumerated offense occasioned by an advertisement. The absence of an allegation of an enumerated offense, " advertisement" and a causal connection between them compel the conclusion that no coverage is afforded to the Insureds under the Policy.
The conclusion reached here that the " personal and advertising injury" Policy provision does not provide coverage for the misappropriation of trade secrets is consonant with the decisions of courts in other jurisdictions construing identical or similar policy provisions. " [A] complaint charging trade secret misappropriation does not allege advertising injury." Lexmark International, Inc. v. Transportation Ins. Co., 327 Ill.App.3d 128, 138, 761 N.E.2d 1214, 260 Ill.Dec. 658 (2001), cert. denied, 198 Ill.2d 617, 770 N.E.2d 220, 264 Ill.Dec. 326 (2002); see also Feldman Law Group, P.C. v. Liberty Mutual Ins. Co., 476 Fed.Appx. 913, 916 (2d Cir. 2012) (" It is well established that [m]erely advertising a misappropriated product does not cause an advertising injury; to inflict a covered advertising injury, the advertisement, and not the product being advertised, must itself infringe the underlying plaintiff's rights" [internal quotation marks omitted]). Hyundai Motor America v. National Union Fire Ins. Co. of Pittsburgh, PA, 600 F.3d 1092, 1103 (9th Cir. 2010) (" [T]he advertising activities must cause the injury-not merely expose it" [emphasis in original]); Murphy v. Federal Ins. Co., 50 Fed.Appx. 384, 385 (9th Cir. 2002) (insurance policy covering bodily injury, personal injury, property damage, and advertising injury did not cover the trade secret misappropriation). " [T]he alleged 'advertising activity' which causes the injury must occur in the very act of advertising ." (Internal quotation marks omitted; emphasis in original.) State Farm Fire & Cas. Co. v. Christie, United States District Court, Docket No. 10:CV:2699 (CM), (D.Kan. February 23, 2015) (2015 WL 751808, at *5).
Conclusion
Because the Complaint contains no factual allegations which bring the injury within coverage, the court grants summary judgment to United Ohio as to Durafloor Industrial Flooring and Coating, Inc., Steen Lipman and Dur-A-Flex, Inc. and declares:
a. that the Policy does not provide coverage to Durafloor Industrial Flooring and Coating, Inc. for the claims asserted against it in the Dur-A-Flex Complaint;
b. that United Ohio is not obligated to provide a defense or indemnification to Durafloor Industrial Flooring and Coating, Inc. with respect to the Dur-A-Flex Action;
c. that United Ohio may withdraw its defense of Durafloor Industrial Flooring and Coating, Inc. in the Dur-A-Flex Action;
d. that the Policy does not provide coverage to Lipman for the claims asserted against him in the Dur-A-Flex Complaint;
e. that United Ohio is not obligated to provide a defense or indemnification to Lipman with respect to the Dur-A-Flex Action; and
f. that United Ohio may withdraw its defense of Lipman in the Dur-A-Flex Action.