Summary
identifying the key question for application of the first-publication exclusion in the trademark infringement context as when the first infringing publication occurred
Summary of this case from Scottsdale Insurance Company v. Sullivan Properties, Inc.Opinion
Civil Action No. H-01-2797
August 19, 2002
MEMORANDUM AND RECOMMENDATION ON CROSS MOTIONS FOR SUMMARY JUDGMENT
This matter was referred by United States District Judge Vanessa D. Gilmore for full pretrial management, pursuant to 28 U.S.C. § 636(b)(1)(A) and (B). (Docket Entry #29). Plaintiff Finger Furniture Company, Inc. ("Plaintiff," "Finger") has filed a motion for partial summary judgment, under Rule 56(a) of the Federal Rules of Civil Procedure. (Plaintiff's Motion for Partial Summary Judgment re Defendant's Duty to Defend and Supporting Memorandum of Law ["Plaintiff's Motion"], Docket Entry #13). Finger asks the court to enter an order on its insurer's duty to defend it in a prior lawsuit. That insurer, Travelers Indemnity Company of Connecticut ("Defendant," "Travelers") has responded to this motion, and it has filed a cross-motion for summary judgment of its own. (Memorandum of Law of Travelers Indemnity Company of Connecticut in Opposition to Plaintiff's Motion for Partial Summary Judgment and in Support of Cross-Motion for Summary Judgment ["Defendant's Motion"], Docket Entry #23). After a review of the motions, the evidence provided, and the applicable law, it is RECOMMENDED that Plaintiff's motion be GRANTED and that Defendant's motion be DENIED.
Background
This suit is based on Travelers' refusal to defend Finger in a trademark infringement action filed against it in 1997. (Complaint for Declaratory Relief, Breach of Contract and Other Relief ["Plaintiff's Complaint"] ¶¶ 12, 21, Docket Entry #1). Finger operates retail furniture and rental stores in Texas, the state in which it is incorporated. ( Id. ¶¶ 1, 10). Travelers is incorporated under the laws of Connecticut, but it conducts insurance business in Texas as well. ( Id. ¶¶ 2, 3). On August 1, 1994, Travelers issued Finger a one-year commercial general liability insurance policy (the "Policy"). ( Id. ¶ 14). In the Policy, Travelers agreed, among other things, to provide a legal defense if Finger was sued for "damages because of `personal injury' or advertising injury.'" ( Id. ¶ 16) (quoting Plaintiff's Complaint Ex. 2: Policy No. EE-SLS-521k971-A-94, 8/1/94-8-1/95, Commercial General Liability Coverage Form § I.B.1.a ["Plaintiff's Ex. 2"]). The Policy was renewed several times, and Finger's coverage was ultimately extended through August 1, 1998. (Plaintiff's Complaint ¶¶ 15-20). It is undisputed that the terms of the Policy did not change, in any material way, during this time. ( See id.).
On November 4, 1997, TruServ Corporation ("TruServ") sued Finger in the United States District Court for the Southern District of Texas, Houston Division. ( Id. ¶ 21). In its original complaint (the "TruServ Complaint"), TruServ alleged that Finger used its trade and service mark, "TRUE VALUE," without authorization, "in connection with its marketing, retail sale and rental of furniture." (Complaint, TruServ Corp. v. Finger Furniture Co., Case No. H-97-03641 ["TruServ Complaint"], attached as Ex. 1 to Plaintiff's Complaint). TruServ claimed that these acts constituted trademark infringement, dilution, and unfair competition under the Lanham Act, 15 U.S.C. § 1051, et seq., in addition to violating the laws of the state of Texas. ( Id. ¶ 1).
There is no question that, ten days after the TruServ suit was initiated, Finger's attorney contacted Travelers and requested the insurance company to defend the action. (Plaintiff's Complaint ¶ 23) (citing Plaintiff's Ex. 8: Letter from Richard L. Schwartz to Wisenberg Insurance + Risk Management, Nov. 14, 1997). Travelers acknowledged receipt of the request within one week, but it took no position in regard to its obligation to defend the furniture company at that time. ( Id. ¶ 24) (citing Plaintiff's Ex. 9: Letter from David Moffatt to Richard L. Schwartz, Nov. 21, 1997). Two months later, on January 27, 1998, "Travelers denied any defense obligation to Finger, " asserting that none of the allegations made by TruServ qualified as a "personal injury" or "advertising injury," under the Policy. ( Id. ¶ 25) (citing Plaintiff's Ex. 10: Letter from Michael A. Brown to Richard L. Schwartz, Jan. 27, 1998). Travelers claimed further that coverage was barred under two exclusions to the policy, one, the "knowledge of falsity" provision and the other, the "violation of penal statute" provision. ( Id.). Although Finger asked Travelers to reconsider its decision, the insurance company repeated its refusal to defend or indemnify Finger with respect to the TruServ litigation. ( Id. ¶¶ 27, 28) (citing Plaintiff' Ex. 11: Letter from Richard L. Schwartz to Michael A. Brown, Feb. 5, 1998; Ex. 12: Letter from Michael A. Brown to Richard L. Schwartz, Feb. 6, 1998; Ex. 13: Letter from William T. Corbett, Jr. to Richard L. Schwartz, May 14, 1998). On August 31, 1998, Finger filed a counterclaim against TruServ alleging that it had suffered damages as well, from trademark infringement and unfair competition. ( Id. ¶ 22). Apparently, Finger did not contact Travelers regarding the litigation for another two years. ( See Plaintiff's Ex. 14: Letter from Tessa A. Millikan to Vince Marci, Sept. 7, 2000).
The TruServ litigation was scheduled for trial on June 19, 2000. (Civil Docket Sheet for TruServ Corp. v. Finger Furniture Co., Case No. H-97-03641, Docket Entry #68). Two weeks before the trial, however, the parties filed a joint motion for a continuance and requested an order for mediation. ( Id., Docket Entry #69). This motion was granted on June 8, 2000, and docket call was re-set for September 8, 2000. ( Id. #70).
On September 5, 2000, TruServ filed an unopposed motion for leave to file a first amended complaint against Finger. ( Id., Docket Entry #5). TruServ's motion was granted. ( TruServ Docket Entry ¶ 74). In its amended pleading (the "TruServ Amended Complaint"), TruServ did not allege any new causes of action, but merely clarified that its claims stemmed from Finger's "use of `True Value' as a mark in its advertising." (Plaintiff's Complaint ¶ 31). Two days later, in an attempt to persuade Travelers that the TruServ litigation involved an "advertising injury" that was covered under the Policy, Finger provided the insurance company with copies of its print and television advertisements, in which "the allegedly infringing `true value' mark" was used, but apparently did not forward a copy of the proposed amended complaint. ( Id. ¶ 29) (citing Plaintiff's Ex. 14). On September 8, 2000, Finger and TruServ appeared before the district court and announced that they had reached a settlement. ( TruServ Docket Entry #73). Three months later, on December 29, 2000, Finger and TruServ finalized their settlement agreement. (Plaintiff's Complaint ¶ 33). Plaintiff notes that "[t]his agreement did not call upon Finger Furniture to pay any monies to TruServ . . . and thus no issue of indemnity regarding settlement payments is pertinent" to its claims against Travelers. ( Id.). All claims and cross-claims in the TruServ litigation were dismissed, with prejudice, on January 11, 2001, and the case was closed. ( TruServ Docket Entry #78).
It seems that Travelers did not receive a copy of the TruServ Amended Complaint until January 24, 2001. ( See Plaintiff's Ex. 16: Letter from Vincent T. Marci to Robert S. Finger, Jan. 17, 2001; Ex. 17: Letter from Tessa A. Millikan to Vince Marci, Jan. 24, 2001).
On January 31, 2001, Travelers agreed, under a reservation of rights, to "pay all reasonable and necessary fees and costs incurred [by Fingers] from the filing of the amended pleading until the matter is completed." (Plaintiff's Ex. 18: Letter from Vincent T. Marci to Robert S. Finger, Jan. 31, 2001; and see Plaintiff's Complaint ¶ 36). Finger complains, however, that "Travelers has failed and/or refused, and continues to fail and/or refuse, to defend or to pay Finger Furniture's counsel in connection with the defense of the [TruServ] action from the outset." (Plaintiff's Complaint ¶ 39). Finger alleges that, by failing to "pay all reasonable defense fees and costs incurred by [it] with respect to the defense of the TruServe Action, [Travelers] has breached its duty to defend Finger Furniture's interests," and has also "breached its contract with Finger Furniture." ( Id. ¶¶ 86, 88). Plaintiff claims that these breaches caused it harm, in that it "was obligated to retain attorneys and incur expenses in investigating, defending and settling the TruServ Action." ( Id. ¶ 89). Finger asks the court to declare that Travelers breached its duty to defend it in the underlying action. ( Id. ¶ 82). In addition, Finger wants reimbursement for the attorneys' fees and costs that it incurred in its own defense of that action, as well as "statutory interest and penalties for breach of the contract in violation of the Texas Insurance Code," and the fees and costs incurred in bringing suit before this court, under the Texas Deceptive Trade Practices Act and the Texas Insurance Code Art. 21.55, § 3. ( Id. pp. 32-33).
In its pending motion, Plaintiff asks the court for summary judgment on the issue of Travelers' duty to defend it in the TruServ action. (Plaintiff's Motion at 1). If this motion is granted, the matter of damages will remain. Finger argues that "the allegations of the TruServ Complaint set forth a duty of defense under Travelers' `advertising injury' coverage." ( Id. at 4). In the alternative, Plaintiff insists that the duty to defend was clearly triggered by the TruServ Amended Complaint, and that the claims recited in that pleading "relate back to the complaint." ( Id. at 4). Finger also disputes the notion that any Policy exclusions defeat its right to a defense from Travelers. ( Id. at 13). For its part' Defendant "seeks a declaration that it owes no duty to defend Finger . . . in connection with the [TruServ action]." (Defendant's Motion at 1). Travelers argues that "none of the underlying claims asserted" by TruServ qualify as an "advertising injury," under the Policy. ( Id. at 7). In the alternative, if the court determines that the TruServ Complaint did allege "advertising injury," then Defendant argues that coverage is, nonetheless, barred by Policy exclusions that were agreed upon by the parties. ( Id. at 1). For the reasons set out below, it is RECOMMENDED that Plaintiff's motion for partial summary judgment, on Defendant's duty to defend, be GRANTED and that Defendant's motion be DENIED.
Standard of Review
A. Declaratory Judgment
The Declaratory Judgment Act provides that "[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a) (1994). However, "[a] court need not provide declaratory judgment relief on request." ODECO Oil Gas Co., Drilling Div. v. Bonnette, 4 F.3d 401, 404 (5th Cir. 1993). The United States Supreme Court has repeatedly characterized the Declaratory Judgment Act as an "enabling" one, "which confers a discretion on the courts rather than an absolute right upon the litigant." Wilton v. Seven Falls Co., 515 U.S. 277, 278 (1995) (quoting Pub. Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952)). The Court has also explained that "the propriety of declaratory relief in a particular case will depend upon a circumspect sense of its fitness informed by the teachings and experience concerning the functions and extent of federal judicial power." Id. (quoting Wycoff, 344 U.S. at 241).
Disputes relating to insurance coverage are often resolved in an action for a declaratory judgment. Harris v. United State Fidelity Guaranty Co., 569 F.2d 850, 852 (5th Cir. 1978). It is well established, however, that § 2201 is merely procedural, and so it extends only to those controversies which are within the jurisdiction of the federal courts. Gaar v. Quirk, 86 F.3d 451, 453-54 (5th Cir. 1996); Lowe v. Ingalls Shipbuilding, 723 F.2d 1173, 1176-77 (5th Cir. 1984). Federal courts, therefore, may not entertain declaratory judgment actions unless there is an independent basis for subject matter jurisdiction. Lowe, 723 F.2d at 1177. As the present action is based on diversity of citizenship, it does satisfy that independent jurisdiction requirement, and Plaintiff's motion for a declaratory judgment is properly considered here.
B. Summary Judgment
Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c). Under Rule 56(c), the moving party bears the initial burden of "informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Norman v. Apache Corp., 19 F.3d 1017, 1023 (5th Cir. 1994). The party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, but need not negate the elements of the non-movant' s case. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). If the moving party fails to meet its initial burden, the motion for summary judgment must be denied, regardless of the nonmovant' s response. Id. When the moving party has met its Rule 56 burden, the non-movant cannot survive a motion for summary judgment by resting merely on the allegations in it pleadings. McCallum Highlands, Ltd. v. Washington Capital Dus, Inc., 66 F.3d 89, 92 (5th Cir. 1995). If the movant does meet his burden, the non-movant must go beyond the pleadings and designate specific facts to show that there is a genuine issue for trial. Little, 37 F.3d at 1075. Further, the non-movant must "do more than simply show that there is some metaphysical doubt as to the material facts." Webb v. Cardiothoracic Surgery Assocs., 139 F.3d 532, 536 (5th Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)).
To meet its burden, the nonmoving party must present "significant probative" evidence indicating that there are issues of fact remaining for trial. Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir. 1994). If the evidence presented to rebut the summary judgment motion is only colorable or not significantly probative, summary judgment should be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-250. (1986). But, in deciding a summary judgment motion, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor." Id. at 248. However, "Rule 56 mandates the entry of summary judgment, after adequate time for discovery, and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of poof at trial." Little, 37 F.3d at 1075.
Discussion
The parties agree that "Texas law governs [the] insurance coverage dispute" in this diversity action. (Defendant's Motion at 5 n. 2; see also Plaintiff's Motion at 1 n. 1). It is well settled, under Texas law, that an insurer owes a duty to defend its insured against allegations that are covered by the policy. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). Texas law is also well-settled that the duty to defend is a broader one than the duty to indemnify. St. Paul Fire Marine Ins. Co. v. Green Tree Financial Corp.-Tex., 249 F.3d 389, 391 (5th Cir. 2001); Gulf Chem. Metallurgical Corp. v. Assoc. Metals Minerals Corp., 1 F.3d 365, 369 (5th Cir. 1993); St. Paul Ins. Co. v. Texas Dept. of Transp., 999 S.W.2d 881, 884 (Tex.App.-Austin 1999, no pet.); Colony Ins. Co. v. H.R.K., Inc., 728 S.W.2d 848 (Tex.App.-Dallas 1987, no writ). In addition, "an insurer is obligated to defend an insured as long as the complaint alleges at least one cause of action within the policy's coverage." Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 99 F.3d 695, 701 (5th Cir. 1996); and see Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir. 1983) (citing Superior Ins. Co. v. Jenkins, 358 S.W.2d 243, 244 (Tex.Civ.App.-Eastland 1962, writ ref'd n.r.e.); Maryland Cas. Co. v. Moritz, 138 S.W.2d 1095, 1097-98 (Tex.Civ.App. — Austin 1940, writ ref'd)); American Eagle Ins. Co. v. Nettleton, 932 S.W.2d 169, 173 (Tex.App.-El Paso 1996, writ denied). Indeed, the obligation to defend arises if there is even "potentially, a case under the complaint within the coverage of the policy." Rhodes, 719 F.2d at 119; Merchants, 939 S.W.2d at 141; Heyden Newport Chem. Corp. v. Southern Gen'l Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965) (quoting 50 A.L.R.2d 458, 504). It is, however, the insured's burden to show "that the claim against it is potentially within the policy's coverage." Canutillo, 99 F.3d at 701; and see Employers Cas. Co. v Block, 744 S.W.2d 940, 944 (Tex. 1988), overruled on other grounds by State Farm Fire and Cas. v. Gandy, 925 S.W.2d 696 (Tex. 1996). On the other hand, "the insurer bears the burden of establishing that an exclusion in the policy constitutes an avoidance of or affirmative defense to coverage." Canutillo, 99 F.3d at 701 (citing TEX. INS. CODE art. 21.58(b)).
Although it is undisputed that this litigation is framed by Texas law, both Finger and Travelers have briefed extensively, and submitted repeatedly for the court's review, the law of other jurisdictions. To the extent that the parties have raised arguments that are without support in the law of this state, those arguments have been ignored.
To determine if a duty to defend exists, a district court must limit its review to the "four corners" of the insurance policy and the "four corners" of the allegations in the underlying complaint. Merchants, 939 S.W.2d at 140; Providence Wash. Ins. Co. v. A A Coating, Inc., 30 S.W.3d 554, 555 (Tex.App.-Texarkana 2000, pet. denied); Tri-Coastal Contractors, Inc. v. Hartford Underwriters Ins. Co., 981 S.W.2d 861 (Tex.App.-Houston [1st Dist.] 1999, pet. denied). This requirement, well known as the "eight corners" or "complaint allegation" rule, governs this dispute. See Merchants, 939 S.W.2d at 141; Green Tree Financial, 249 F.3d at 391; Canutillo, 99 F.3d at 701. Under this rule, a court must begin its consideration of the insurer's duty, if any, by examining the insurance policy at issue. See, e.g., Canutillo, 99 F.3d at 700. Texas law is clear that the interpretation of an insurance policy is a question of law subject to the same rules that apply to contracts generally. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994); Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991); Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987); Coker v. Coker, 650 S.W.2d 391, 393-94 (Tex. 1983). The Texas Supreme Court has held that, in "construing a contract, the court's primary concern is to give effect to the written expression of the parties' intent." Forbau, 876 S.W.2d at 133; see also Balandran v. Safeco Ins. Co. of America, 972 S.W.2d 738, 741 (Tex. 1998); Nat'l Union Fire Ins. Co. of Pittsburgh, PA. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). This intent is determined, first, by examining "the language of the contract itself" Empire Fire and Marine Ins. Co. v. Brantley Trucking, Inc., 220 F.3d 679, 681 (5th Cir. 2000) (citing Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984)). If the policy language is susceptible to more than one reasonable interpretation then it is deemed ambiguous, and the court must "resolve the uncertainty by adopting the construction that most favors the insured." Hudson Energy, 811 S.W.2d at 555 (citing Barnett, 723 S.W.2d at 667; Ramsay v. Maryland Am. Gen. Ins. Co., 533 S.W.2d 344, 349 (Tex. 1976); Brown v. Palatine, 89 Tex. 590, 35 S.W.1060, 1061 (1896)). But a policy is not ambiguous if it is worded so that it can be given only one reasonable construction. Hudson Energy Co., 811 S.W.2d at 555; Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984). And, as the Texas high court has recognized several times:
Not every difference in the interpretation of . . . an insurance policy amounts to an ambiguity. Both the insured and the insurer are likely to take conflicting views of coverage, but neither conflicting expectations nor disputation is sufficient to create an ambiguity.State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995); Forbau, 876 S.W.2d at 134. Here, although Finger and Travelers dispute whether coverage is provided under the Policy's terms, neither argues that the contract is ambiguous. Therefore, in order to effect the parties' intent, the court must give the words of the Policy "their plain, ordinary, and generally accepted meaning unless the instrument shows that the parties used them in a technical or different sense." See Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). Further, no extrinsic evidence may be introduced "to contradict or vary the meaning of the explicit language of the parties' written agreement." CBI Indus., 907 S.W.2d at 521.
Here, Finger invokes Travelers's duty to defend it under the "advertising injury liability" provision of the Policy. The relevant part of this provision is set out below:
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of . . . "advertising injury" to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages. . . .
* * *
b. This insurance applies to:* * *
(2) "Advertising injury" caused by an offense committed in the course of advertising your goods, products or services;
(Plaintiff's Ex. 5: Policy No. Y-660-521K971A-TCT-97, 8/1/97-8/01/98, Commercial General Liability Coverage Form ["CGL Form"] § I.B.1). The Policy then defines the term "advertising injury," as follows:
1. "Advertising injury" means 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.
( Id. § V.1). Because "advertising injury" is defined in the Policy, that definition must be deemed the "written expression of the parties' intent." See Forbau, 876 S.W.2d at 133. Any other Policy term, not defined by the written agreement, will be given its "plain, ordinary, and generally accepted meaning." See Heritage Resources, 939 S.W.2d at 121.
In its motion, Plaintiff argues that the TruServ Complaint sets out factual allegations that state claims under the definition of advertising injury, that is, "misappropriation of advertising ideas or style of doing business," and "infringement of copyright, title or slogan." (Plaintiff's Motion at 11). Defendant insists that no such claim was made, and makes two arguments in its behalf. (Defendant's Motion at 1). Travelers argues, first, that because the contractual definition of "advertising injury" does not, specifically, include "trademark infringement, false designation of origin, trademark dilution and unfair competition," TruServ's claims under those legal theories are not covered by the Policy. ( Id. at 7). Second, Defendant claims that TruServ did not allege that the damages it suffered were "caused by the offending advertising." ( Id. at 6). To determine whether TruServ did, in fact, allege that it suffered an "advertising injury," the "four corners" of the underlying complaint must be examined.
The Texas Supreme Court has made clear that "an insurer's contractual duty to defend must be determined solely from the face of the [third-party's] pleadings, without reference to any facts outside the pleadings." Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997) (quoting Houston Petroleum Co. v. Highlands Ins. Co., 830 S.W.2d 153, 155 (Tex.App. — Houston [1st Dist] 1990, writ denied)). Further, in reviewing the underlying pleadings, the court must focus on the actual allegations that show the origin of the damages rather than on the legal theories alleged." Id. In other words, "it is not the cause of action alleged which determines coverage but the facts giving rise to the alleged actionable conduct." Id. (quoting Adamo v. State Farm Lloyds Co., 853 S.W.2d 673, 676 (Tex.App.-Houston [14th Dist.] 1993, writ denied)). Therefore, "[i]f a petition alleges facts that, prima facie, exclude the insured from coverage, [then] the insurer has no duty to defend." Taylor v. Travelers Ins. Co., 40 F.3d 79, 81 (5th Cir. 1994) (quoting Adamo, 863 S.W.2d at 677); and see Fidelity Guar. Ins. Underwriters, Inc. v. McManus, 633 S.W.2d 787, 788 (Tex. 1982). On the other hand, if it is unclear whether the third party's factual allegations do, in fact, state a covered cause of action, then the underlying complaint "must be liberally construed in favor of the insured." St. Paul Fire Marine Ins. Co. v. Green Tree Financial Corp.-Tex., 249 F.3d 389, 392 (5th Cir. 2001) (citing Terra Int'l v. Commonwealth Lloyd's Ins. Co., 829 S.W.2d 270, 272 (Tex.App. — Dallas 1992, writ denied); and see Merchants, 939 S.W.2d at 141; Heyden, 387 S.W.2d at 26. In addition, it should be noted that "[t]he duty to defend is determined by examining the latest . . . pleading upon which the insurer based its refusal to defend the action." Cornhill Ins. PLC v. Balsamis, Inc., 106 F.3d 80, 84 (5th Cir. 1997); Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 99 F.3d 695, 701 (5th Cir. 1996) (both citing Rhodes v. Chicago Ins. Co., 719 F.2d 116, 120 (5th Cir. 1983)). Here, Travelers refused to defend the original TruServ Complaint, but later agreed to defend Finger against the allegations stated in the amended complaint. In considering similar facts, under Texas law, the United States Court of Appeals for the Fifth Circuit held that "[i]f . . . the duty to defend arose under the original . . . complaint, the duty was clearly breached by the insurer's denial of coverage and failure to defend. . . . The subsequent filing of an amended complaint does not erase the breach or the penalties therefor." Rhodes, 719 F.2d at 120. It follows that, in this instance, if a duty to defend arose from the allegations in TruServ's original complaint, then that duty was breached by Travelers' refusal to defend Finger in January 1998. See id.
Given this legal framework, then, it is clear that Travelers' duty to defend Finger is determined on the factual allegations that TruServ asserted in its original complaint. See Merchants, 939 S.W.2d at 141; Cornhill, 106 F.3d at 84; Canutillo, 99 F.3d at 701; Rhodes, 719 F.2d at 120. The legal appellation ascribed to TruServ's claims is irrelevant, as is Travelers' later agreement to provide a defense to the amended complaint. See id. And, again, it must be emphasized, that if TruServ's allegations, even "potentially," state a claim for "damages because of . . . `advertising injury,'" then Travelers was obligated to defend Finger against that claim. See Merchants, 939 S.W.2d at 141; Heyden, 387 S.W.2d at 26.
In its original complaint, TruServ made the following allegations, among others:
10. Commencing at a time subsequent to the first use of the TRUE VALUE mark by TruServ, Finger began using the identical mark TRUE VALUE in connection with the marketing and retail sale and rental of furniture store goods and service. . . .
* * *
12. Finger's use of the infringing mark TRUE VALUE in connection with the marketing and retail sale and rental of furniture store goods and services, without the consent of TruServ, in markets including in Texas, in which TruServ offers similar services pursuant to its TRUE VALUE mark, infringes upon TruServ's trademark rights in the TRUE VALUE mark.
13. Upon information and belief, Finger's use of the infringing mark TRUE VALUE, without the consent of TruServ, in connection with the marketing, sale and rental of furniture, is likely to continue to cause confusion, or to cause mistake, or to deceive the public as to the origin, sponsorship or approval of the goods in connection with which Finger uses the TRUE VALUE mark.
* * *
17. [T]he distinctive TRUE VALUE mark is unique and represents to the consuming public the reputation and goodwill of TruServe.
* * *
19. By its infringing use of the mark TRUE VALUE on its advertising, Finger has unlawfully traded and capitalized on the goodwill and value of TruServ's TRUE VALUE mark.
20. Finger's aforesaid acts are likely to cause confusion or mistake or to deceive the public into believing that Finger's services emanate from TruServ, or are sponsored or authorized or otherwise associated with TruServ; and such acts have caused a likelihood of confusion, mistake and deception, all to TruServ's irreparable injury and to Finger's benefit.
(TruServ Complaint) (emphasis added). Finally, in its prayer for relief, TruServ asked the court to "direct Finger to identify and destroy all infringing or diluting materials, including but not limited to printed material, packaging and advertising bearing the mark TRUE VALUE or any other word or words, or design or designs confusingly similar to TruServ's TRUE VALUE mark." ( Id. at 9, ¶ E) (emphasis added).
In its motion, Travelers argues that TruServ did not claim damages from "advertising injury," because it did not make any "allegation that Finger's infringement of [the] TRUE VALUE mark was committed in the course of its advertising." (Defendant's Motion at 14). This argument is wholly without merit. TruServe alleged plainly that, " [b]y its infringing use of the mark TRUE VALUE on its advertising, Finger has unlawfully traded and capitalized on the goodwill and value of TruServ's TRUE VALUE mark." (TruServ Complaint ¶ 19) (emphasis added). Further, TruServe claimed, several times, that this alleged infringement occurred "in connection with [Finger's] marketing . . . of furniture store goods and services." ( Id. ¶¶ 10, 12, 13).
To counter the obvious, Defendant argues that a distinction should be made between the use of the terms "marketing" and "advertising." (Defendant's Motion at 14-15). It contends that "when TruServ complains of Finger's `marketing,' . . . it refers to Finger's offers for sale" but not "to any advertising in which Finger is claimed to have engaged." ( Id. at 15). Such an interpretation of the term "marketing" is not reasonable. See Nat'l Union Fire lns. Co. of Pittsburgh, PA. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991). Courts commonly construe the term "advertising" to include any "widespread promotional activities directed to the public at large." 5 J. THOMAS MCCARTHY, TRADEMARKS AND UNFAIR COMPETITION § 33:6 (4th ed. 2002) (citing Peerless Lighting Corp. v. Am. Motorists, Ins. Co., 98 Cal.Rptr.2d 753, 764 (Cal.Ct.App. 2000); Int'l Ins. Co. v. Florists' Mut. Ins. Co., 559 N.E.2d 7, 10 (III. App. Ct. 1990); see also ANR Prod. Co. v. Am. Guar. Liab. Ins. Co., 981 S.W.2d 889, 891-91 (Tex.App.-Houston [1st Dist.] 1998, no pet.) (stating that "advertising" is designed to "call a matter to the public's attention"). Further, "one of the basic functions of a trademark is to advertise the product or services of the registrant." 5 McCARTHY § 33:7 (quoting Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group, 59 Cal.Rptr.2d 36, 38 (Cal.Ct.App. 1996)). Here, TruServe alleged that, by using the TRUE VALUE mark, Finger "represent[ed] to the consuming public . . . that Finger's services emanate from TruServ." ( See TruServ Complaint ¶¶ 17, 19). It is easy to conclude, therefore, that TruServ's use of the term "marketing" included references to "advertising." Moreover, to the extent that the term might, in some context, be considered ambiguous, it "must be liberally construed in favor of [Finger]." See St. Paul Fire Marine Ins. Co. v. Green Tree Financial Corp.-Tex., 249 F.3d 389, 392 (5th Cir. 2001); Terra Int'l v. Commonwealth Lloyd's Ins. Co., 829 S.W.2d 270, 272 (Tex.App. — Dallas 1992, writ denied). It follows that the TruServ Complaint claimed "damages because of' trademark infringement that was "committed in the course of advertising [Finger's] goods, products or services." ( See CGL Form § I.B.1.a, b(2); TruServ Complaint ¶¶ 10, 12, 13, 19, E).
With that conclusion, the court must next determine whether a trademark infringement claim is covered under an "advertising injury," as defined in the Policy. See Merchants, 939 S.W.2d at 141; Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). It is true, as Defendant notes, that the standard commercial general liability form incorporated in the Policy does not list "[t]rademark infringement . . . among the specified enumerated `advertising injury' offenses." 5 MCCARTHY § 33:7 ( See also CGL Form § V.1). However, it must be emphasized that the clear rule in Texas is to interpret insurance policies broadly, and a duty to defend exists so long as the underlying claim against the insured has the "potential" for coverage. Merchants, 939 S.W.2d at 141; Heyden Newport Chem. Corp. v. Southern Gen'l Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965). Here, Plaintiff argues that trademark infringement can be considered as either a "misappropriation of advertising ideas or style of doing business," or as an "infringement of copyright, title or slogan." (Plaintiff's Motion at 11) (citing CGL Policy § V.1.c, d). Because the phrases "advertising ideas" and "title or slogan" are not defined under the Policy, they must be given their plain meanings. See Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996).
In its original complaint, TruServ alleges that it "creates and runs extensive national and regional advertising programs in print and on radio and television to promote the TRUE VALUE ® name and, thereby, help its members sell products in their stores." (TruServ Complaint ¶ 6). Obviously, TruServ claimed that its "advertising idea," "TRUE VALUE" was used "extensive[ly]" to "sell products." Further, as discussed earlier, the complaint alleged that Finger appropriated the TRUE VALUE mark to advertise its own goods, products, and services. ( Id. ¶¶ 10, 12, 13). It is reasonable to conclude, then, that the TruServ Complaint stated a claim for the "misappropriation of advertising ideas," the third type of "advertising injury" under the disputed policy. ( See CGL Policy § V.1.c). Moreover, "TRUE VALUE" could certainly be considered a "title or slogan," and an infringement of that mark potentially fits within the Policy, under the fourth definition of "advertising injury." ( See id. § V.1.d).
Courts in other jurisdictions have drawn the same conclusion. 5 MCCARTHY § 33:7 (citing Adolfo House Distrib. Corp. v. Travelers Prop. Cas. Ins. Co., 165 F. Supp.2d 1332, 1337 (S.D. Fla. 2001); CAT Internet Sys., Inc. v. Providence Wash. Ins. Co., 153 F. Supp.2d 755, 757 (E.D. Pa. 2001); U.S.A. Nutrasource, Inc. v. CNA Ins. Co., 140 F. Supp.2d 1049, 1052 (N.D. Cal. 2001); Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co., 61 F. Supp.2d 611, 615 (S.D. Tex. 1999); Arnette Optic Illusions, Inc. v. ITT Hartford Group, Inc., 43 F. Supp.2d 1088, 1095 (C.D. Cal. 1998); Dogloo, Inc. v. Northern Ins. Co. of NY, 907 F. Supp. 1383, 1391 (C.D. Cal. 1995); Poof Toy Prods., Inc. v. U.S. Fidel. Guar. Co., 891 F. Supp. 1228, 1233 (E.D. Mich. 1995); Allou Health Beauth Care, Inc. v. Aetna Cas. Sur. Co., 703 N.Y.S.2d 253, 254 (N.Y.App.Div. 2000); Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group, 59 Cal.Rptr.2d 36, 38 (Cal.Ct.App. 1996)).
See MCCARTHY § 33:9.
As it must construe the Policy in the manner most favorable to Finger, this court finds that "advertising injury" includes an "injury arising out of [trademark infringement]." ( See id. § V.1). See also Hudson Energy, 811 S.W.2d at 555. It follows then that TruServ's allegations triggered Travelers' duty to defend Finger against the 1998 claim for damages. ( See CGL Policy § 1.a., b).
In anticipating that finding, Travelers insists that, even if TruServ did state a claim for an "advertising injury," two Policy exclusions bar coverage for the underlying action. (Defendant's Motion at 1). The first provision Travelers cites is the so-called "prior publication" exclusion. ( Id. at 15). This exclusion is specific in detailing that the Policy "does not apply to . . . `advertising injury' . . . [a]rising out of oral or written publication of material whose first publication took place before the beginning of the policy period." (CGL Policy § I.B.2.a(2)). Defendant claims that Finger admitted, in its counterclaim against TruServ, that it "used the words `True Value' in its print advertising, television and radio commercials, and/or in-store advertising and hang tags continuously since at least as early as 1959." (Defendant's Motion at 16) (quoting Travelers Indemnity Company of Connecticut's Appendix of Exhibits to Memorandum of Law in Opposition to Plaintiff's Motion for Partial Summary Judgment and in Support of Cross-Motion for Summary Judgment, Docket Entry #24, Ex. B: Finger Furniture Company's Counterclaims Against TruServ Corporation, TruServ Corp. v. Finger Furniture Co., Case No. H-97-03641 ["Defendant's Ex. B"]). Travelers contends, therefore, that Finger's "first publication of `True Value' occurred prior to the inception of the Travelers Policies in 1994," and so "the `prior publication' exclusion bars coverage." (Defendant's Motion at 16).
In its motion, Finger argues that Travelers failed to raise the prior publication exclusion in its letter denying coverage of January 27, 1998," and so it waived the right to rely on that exclusion now. (Finger's Motion at 16). To support this argument, Plaintiff cites the Texas intermediate appellate court decision in Lancon v. Employers Nat'l Life Ins. Co., 424 S.W.2d 321, 322-23 (Tex.Civ.App.-Houston [1st Dist.] 1968, writ ref'd n.r.e.), for the proposition that an "insurer denying liability on certain grounds is estopped to deny liability on grounds not asserted in [a] denial letter if [the] insurer had full knowledge of the facts of the claim." ( Id. at 16 n. 50). That contention, however, misreads Lancon. Indeed, the Houston court expressly declined to reach the question of "whether the insurance company, by denying liability on one specific ground, is estopped to insist that the insured prove facts bringing himself within the coverage of the policy." 424 S.W.2d at 323. Plaintiff's reliance on the holding of that case is clearly misplaced. Moreover, "[i]t has been generally held in Texas, as in most jurisdictions, that the doctrines of waiver and estoppel are not available to bring within an insurance policy's coverage, risks not covered by its terms or expressly excluded therefrom." Gov't Employees Ins. Co. (Geico) v. Lichte, 792 S.W.2d 546, 548 (Tex.App. — El Paso 1990), writ denied per curium, 825 S.W.2d 431 (Tex. 1991). And, in this instance, Travelers advised Finger, specifically, that the January 1998 letter should not "be deemed or construed as a waiver of any of the rights and defenses available to [it], including but not limited to those rights and defenses provided under the contract of insurance." (Plaintiff's Ex. 10, p. 2). It follows that Defendant has not waived its right to argue that the "prior publication" exclusion bars the coverage that Plaintiff seeks.
But it is important to emphasize, once again, that Travelers' duty to defend is determined though an examination of the Policy and the TruServ Complaint, and those documents only. See Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 140 (Tex. 1997); Cornhill Ins. PLC v. Balsamis, Inc., 106 F.3d 80, 84 (5th Cir. 1997); Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 99 F.3d 695, 701; Rhodes v. Chicago Ins. Co., 719 F.2d 116, 120 (5th Cir. 1983). More importantly, it should be reiterated that if the duty to defend arose under the TruServ Complaint, then that duty was breached by Travelers' January 1998 letter denying coverage. See Cornhill, 106 F.3d at 84; Canutillo, 99 F.3d at 701; Rhodes, 719 F.2d at 120. At that time, Finger's counterclaims against TruServ had not yet been filed. ( See Plaintiff's Ex. 10; Defendant's Ex. B). The assertions in that counterclaim, therefore, are not a proper consideration here. The only appropriate consideration is whether TruServ's original complaint made claims that implicate the "prior publication" exclusion.
It also bears repeating that the duty to defend a broader one than the duty to indemnify. St. Paul Fire Marine Ins. Co. v. Green Tree Financial Corp.-Tex., 249 F.3d 389, 391 (5th Cir. 2001); Gulf Chem. Metallurgical Corp. v. Assoc. Metals Minerals Corp., 1 F.3d 365, 369 (5th Cir. 1993); St. Paul Ins. Co. v. Texas Dept. of Transp., 999 S.W.2d 881, 884 (Tex.App.-Austin 1999, no pet.); Colony Ins. Co. v. H.R.K., Inc., 728 S.W.2d 848 (Tex.App.-Dallas 1987, no writ). Indeed, Travelers may not be obligated to indemnify Finger for any damage to TruServe, especially given the allegations in its counterclaim. However, this has no bearing on whether Travelers was required to defend the TruServ Complaint.
Further, it is noteworthy that, on January 31, 2001, Travelers agreed to defend plaintiff against the TruServ claims in the Amended Complaint arguably, four months after it was aware of the allegations made in Finger's counterclaim. ( See Plaintiff's Ex. 14; Plaintiff's Ex. 18; Defendant's Ex. B).
In its original complaint, TruServ alleges that Finger infringed on twenty-three different trademarks. (TruServ Complaint ¶ 7). At least nine of those marks were registered after August 1, 1994, the date the Policy was issued. (See id., Ex. A). Plaintiff argues that the complaint should be read so that an infringement of each mark is considered a separate cause of action. (Plaintiff's Opposition to Defendant's Motion for Summary Judgment re Defendant's Duty to Defend and Supporting Memorandum of Law ["Plaintiff's Response"] at 15, Docket Entry #32). If so, then Finger contends that it could not have infringed on a trademark that was registered after August 1, 1994, with an advertisement that was published before that date. (Id.). It insists, therefore, that Travelers had a duty to defend to it based on those nine claims. ( Id.). A similar argument, made with respect to identical policy language, was rejected by another court in this district and division. Matagorda Ventures Inc. v. Travelers Lloyds Ins. Co., 203 F. Supp.2d 704, 718 (S.D. Tex. 2000), aff'd, slip op. No. 01-20403 (5th Cir. May 14, 2002). In that decision, the court agreed that "if some of the causes of action alleged were not subject to the [prior publication] exclusion . . . Travelers would have a duty to defend the entire lawsuit." Id. (citing Canutillo, 99 F.3d at 701; Rhodes, 719 F.2d at 119). The court concluded, however, that it was the date that the offending advertisements were published, and not the date of registration, that controlled whether the exclusion applied. Id. at 717-18. That reasoning is persuasive. More importantly, though, in Matagorda the underlying pleadings were clear that the alleged harm stemmed from "written materials first published before the beginning of the policy period." Id. at 714. Here, then, the relevant question is whether TruServ alleges that its claims arose from material that Finger published before the beginning of the Policy period. See id. If the pleadings allege clearly that Finger infringed upon TruServ's mark before August 1, 1994, then the prior publication clause excuses Travelers from its duty to defend that allegation. On the other hand, if the pleadings are not explicit, and there is, even potentially, a claim within the Policy's coverage, then the relevant exclusion does not apply to obviate a duty to defend. See St. Paul Fire Marine Ins. Co. v. Green Tree Financial Corp.-Tex., 249 F.3d 389, 392 (5th Cir. 2001); Merchants, 939 S.W.2d at 141; Heyden Newport Chem. Corp. v. Southern Gen'l Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965).
Reg. No. 1,882,703, registered March 7, 1995; Reg. No. 1,926,713, registered October 10, 1995; Reg. No. 1,971,101, registered April 30, 1996; Reg. No. 1,993,439, registered August 13, 1996; Reg. No. 2,015,085, registered Nov. 12, 1996; Reg. No. 2,038,165, registered Februrary 18, 1997; Reg. No. 2,041,789, registered March 4, 1997; Reg. No. 2,057,479, registered April 29, 1997; Reg. No. 2,085,647, registered Aug. 5, 1997. (TruServ Complaint, App. A).
The TruServ Complaint alleges that, "[c]ommencing at a time subsequent to the first use of the TRUE VALUE mark by TruServ, Finger began using the identical mark TRUE VALUE." (TruServ Complaint ¶ 10). In fact, TruServ alleges that it first used the marks "approximately thirty-five years" ago. ( Id. ¶ 8). The complaint does not specify, however, whether Finger's alleged publication began immediately "subsequent" to TruServ's first use, or many years "subsequent." This factual allegation is unclear, but it is certainly possible to construe the TruServ Complaint to allege that Finger's first infringing publication occurred after the Policy period began. Because Travelers has a duty to defend Finger as long as the pleadings "potentially" allege a covered claim, the "prior publication" clause does not negate the insured's right to a defense against TruServ's original complaint. See Green Tree Financial, 249 F.3d at 392; Merchants, 939 S.W.2d at 141; Heyden, 387 S.W.2d at 26.
Finally, Travelers argues that "coverage for the underlying action is barred by the `knowledge of falsity' exclusion." (Defendant's Motion at 18). This clause provides that "insurance does not apply to . . . `advertising injury' . . . [a]rising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity." (CGL Policy § I.B.2.a(1)). Defendant contends that because "TruServ specifically alleges that `Finger's unauthorized use of its infringing mark has been intentional and willful' . . . the application of this exclusion is required as a matter of law." (Defendant's Motion at 18) (quoting TruServ Complaint ¶ 14). Plaintiff argues that, on the contrary, the exclusion is inapplicable because intent is not a required element of a trademark infringement claim" and liability can be premised on infringing action taken without "knowledge of falsity." (Plaintiff's Motion at 14).
It is well settled that in the absence of an express finding that the insured published an advertisement with "knowledge of [its] falsity," the exclusion "is unlikely to bar coverage except where the allegations of an underlying complaint are worded so that a finding of willfulness is necessary for the insured to be held liable." 5 J. THOMAS MCCARTHY, TRADEMARKS AND UNFAIR COMPETITION § § 33:16 (4th ed. 2002). Stated another way, "[w]here the underlying plaintiff's allegations leave open the possibility that the insured acted without knowledge of the falsity of its conduct, the exclusion does not apply." Id. Because "a party can be held liable without regard to intent," under the Lanham Act, those courts that have considered the question have determined that the "knowledge of falsity" exclusion does not bar coverage for claims made under that Act. Id. (citing Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co., 61 F. Supp.2d 611, 619 (S.D. Tex. 1999) (applying Texas law); Elcom Techs. v. Hartford Ins. Co. of Midwest, 991 F. Supp. 1294, 1298 (D. Utah 1997) (Pennsylvania law); Union Ins. Co. v. Knife Co., Inc., 897 F. Supp. 1213, 1217 (W.D. Ark. 1995) (Arkansas law)). That reasoning is persuasive, as it is consistent with the requirement, under Texas law, that the allegations in a complaint must be read broadly and in favor of the insured. See Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997); Heyden Newport Chem. Corp. v. Southern Gen'l Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965). Because Finger could have been found liable under the TruServ Complaint without any finding that it had knowledge of the alleged falsity, the cited exclusion does not bar coverage for the underlying suit. Accordingly, Travelers had a duty to defend Finger in the TruServ litigation from the outset. It is RECOMMENDED that Plaintiff's motion for partial summary judgment, on this matter, be GRANTED and that Defendant's motion be DENIED.
Conclusion
Based on the foregoing, it is RECOMMENDED that the motion for partial summary judgment by Finger Furniture Company, on the issue of Defendant's duty to defend, be GRANTED.
It is further RECOMMENDED that Defendant's motion for summary judgment be DENIED.
The Clerk of the Court shall send copies of the memorandum and recommendation to the respective parties, who will then have ten (10) days from the receipt of it to file written objections thereto, pursuant to 28 U.S.C. § 636(b)(1)(c), General Order 80-5, S.D. Texas. Failure to file written objections within the time period provided will bar an aggrieved party from attacking the factual findings and legal conclusions on appeal.
The original of any written objections shall be filed with the United States District Clerk, P.O. Box 61010, Houston, Texas 77208; copies of any such objections shall be delivered to the chambers of Judge Vanessa D. Gilmore, Room 9513, and to the chambers of the undersigned, Room 7007.
The Clerk shall enter this Order and provide a true copy to all counsel of record.