Summary
holding that a slogan is an “attention-getting phrase” or a “phrase used to promote or advertise a house mark or product mark”
Summary of this case from CGS Industries, Inc. v. Charter Oak Fire InsuranceOpinion
02 CV 675 (LLS)
July 15, 2002
Opinion and Order
In this diversity suit, plaintiff Ultra Coachbuilders, Inc. ("Ultra"), claims defendant General Security Insurance Co. ("General Security"), wrongfully breached its duty of defense under an excess/umbrella liability insurance policy ("the policy") when it refused to defend Ultra in a lawsuit brought against Ultra by the Ford Motor Company, alleging federal and common law trademark infringement. Ultra Ford automobiles and sports utility vehicles into stretch limousines which it sells, predominantly to livery rental businesses.
Ford Motor co. v. Ultra coachbuilders, Inc., United States District court, central District of california (ED cv-oo-243 VAP [RCx]). This action was subsequently stayed when Ultra filed for bankruptcy. In Re: Ultra coachbuilders, Inc., United States Bankruptcy court, central District of california (RS 00-28795 DN).
Ultra moves for partial summary judgment declaring that General Security is obliged to defend it under the policy. General Security cross-moves for a declaratory judgment holding that the policy excludes coverage for the trademark infringement claims asserted in the complaint, and that General Security accordingly has no duty to defend or indemnify.
The issue is more subtle than appears from the bald statement above. In fact, Ultra's concern is not primarily over what is alleged in Ford's present complaint, but that the complaint would allow proof of facts and circumstances which might support claims as to which Ultra would have a right to General Security's defense. Such claims, Ultra fears, would be that Ultra infringed a Ford slogan, or misappropriated a Ford advertising idea or style of doing business. If the alleged infringement of Ford's unregistered marks "Quality Vehicle Modifier" or the abbreviation, "QVM," could support a claim of slogan infringement, there is a duty to defend. Similarly, if the complaint supports a claim of misappropriation, not based on trademark infringement, there is a duty to defend.
"Quality Vehicle Modifier," or "QVM," is the name of an authorization program created by Ford in 1989 in response to the National Highway Traffic Safety Administration's safety concerns about modifications made to stretch vehicles into limousines. Certification under the program permits a converter to sell stretched Ford vehicles with Ford's registered product marks intact. While Ford itself uses the symbol in promoting its program, QVM certification does not entitle a converter to use it as a badge or trademark on its limousines. Ford claims that Ultra's use of the confusingly similar abbreviation, "VQM," in connection with advertising and selling converted Ford vehicles, infringes on its "QVM" mark. See Ford Compl. ¶¶ 9-10, 14-16. In addition, Ultra is not certified under the QVM program, but allegedly sells the converted limousines with the Ford marks still in place and with "QVM" displayed on the vehicles. Ford Compl. ¶ 16, Ex. D.
1. The Policy
The policy provides that General Security will defend any suit likely to involve damages covered by its excess/umbrella liability policy and not covered by the underlying primary insurer.
Ultra's underlying primary insurance policy excludes coverage for all trademark infringement claims, and makes no exception for infringement of slogan. See Hartford Policy, West Decl. Ex. 2.
The policy defines covered advertising injury as:
. . . injury, other than personal injury, arising out of one or more of the following offenses committed in the course of the Insured's advertising activities during the Policy Period.
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 to privacy;
c. Misappropriation of advertising ideas or style of doing business; or
d. Infringement of copyright, title or slogan.
General Security Policy, Definitions, at p. 6. See Ultra Compl. Ex. A.
The policy excludes coverage for any advertising injury arising out of:
a. d.
e. Infringement of trademark, service mark, or trade name, other than titles or slogans, by use thereof on or in connection with goods, products or services sold, offered for sale or advertised;
f. unfair, deceptive practices and misrepresentations of your [Ultra's] goods, services or products.
General Security Policy, Exclusions p. 4 and "Advertising Injury Amendatory Endorsement" (endorsement amends the policy to add (f) to list of exclusions).
Thus, it is clear that infringement of a slogan is a covered risk. Misappropriation of advertising ideas appears to be covered, unless it is excluded as an "unfair, deceptive practice [or] misrepresentation" of Ultra's product.
2. Interpretation of the Policy
There is no material conflict between the law of New York and California regarding an insurer's duty to defend or regarding relevant principles of insurance contract interpretation.
General security is a New York corortion its principal place of business in New York, New York. Ultimately California corporation with its principal place of business in Central California. The insured risk in this case is located in California the policy was negotiated and delivered in california, and Ford's suit is pending in a california federal district court in the same district as is Ultra's bankruptcy.
An insurer's duty to defend, in both jurisdictions, is broader than its duty to indemnify. See Hugo Boss Fashions, Inc. v. Federal Insurance Company, 252 F.3d 608, 620 (2d Cir. 2001); accord Industrial Indemnity Co. v. Apple Computer, Inc., 79 Cal.App.4th 817, 826 (1999). The duty "arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be." Seaboard Surety Co. v. Gillette Company, 64 N.Y.2d 304, 310, 476 N.E.2d 272, 275 (1984); accord Industrial Indemnity 79 Cal.App.4th at 826.
To avoid the duty to determine burden is on the insurer to show that, as a matter law, "there is no possible factual or legal basis on which the insurer might eventually be held to indemnify the insured." City of Johnstown, New York v. Bankers Standard Ins. Co., 877 F.2d 1146, 1149 (2d Cir. 1989); accord Montrose Chem. Corp. v. Superior Ct., 6 Cal.4th 287 (1993).
3. Potential Infringement of Slogan Claim
The reasonable possibility that "Quality Vehicle Modifier" or "QVM" may qualify as a slogan is sufficient to give rise to the duty to defend all claims brought against Ultra. See Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 70 (1991) (duty to defend exists when, "notwithstanding the complaint allegations, underlying facts made known to the insurer create a reasonable possibility that the insured may be held liable for some act or omission covered by the policy") . This is true even if infringement of the phrase gives rise to a trademark claim, because slogans are excepted from the bar to coverage for trademark infringement.
Therefore, whether or not Ford has in fact acquired trademark rights in "QVM" or "Qualified Vehicle Modifier," as it alleges in ¶ 9 of the Ford complaint, infringement of the phrase creates a duty of defense if it is potentially a slogan.
Under both California and New York law, there is a reasonable possibility that the descriptive phrase, "Quality Vehicle Modifier," is a slogan.
The Second Circuit, construing a policy governed by New York law, defined "trademarked slogans" as "phrases used to promote or advertise a house mark or product mark, in contradistinction to the house or product mark itself." Hugo Boss, 252 F.3d at 618 (emphasis in original).
The Supreme Court of California offers this definition of slogan: "A slogan is a brief attention-getting phrase used in advertising or promotion or a phrase used repeatedly, as in promotion." Palmer v. Truck Insurance Exchange, 90 Cal.Rptr.2d 647, 656, 988 P.2d 568, 576 (1999) (citing and quoting Webster's Collegiate Dictionary (10th ed. 1993) and American Heritage College Dict. (3d ed. 1993) (emphasis in original)). The court there recognized that "there may be instances where the name of a business, product or service, by itself is also used as a slogan." Id.
"QVM" or "Quality Vehicle Modifier" could potentially qualify as a slogan under either of these articulations. While the phrase "Quality Vehicle Modifier" is the descriptive name of a service program, Ford also claims it uses the phrase to promote both the program itself and use of its other products, Ford vehicles, to limousine converters. Furthermore, the Ford complaint asserts that QVM is distinctive, that it has acquired secondary meaning, and that consumers are likely to confuse "VQM," the term used by Ultra, with "QVM," the Ford certification program. See Compl. ¶¶ 9, 13, 14-22. However conclusory, these allegations trigger a duty to defend. See Seaboard Surety Co., 64 N.Y.2d at 310, 476 N.E.2d at 275. On the other hand, the fact that the Ford complaint does not refer to QVM as a slogan "does not mean that the complaint could not be read as alleging slogan infringement." Hugo Boss, 252 F.3d at 621, n. 13; see also Fed.R.Civ.p. 15(a)-(b) (leave to amend a complaint under civil procedural rules is freely given, and a complaint may be amended to conform to the evidence).
4. Misappropriation or Dilution Claims
Because the complaint potentially states a claim for slogan infringement, which suffices to invoke General Security's duty to defend the Ford action, this Court need not decide whether any potential common law misappropriation or trademark dilution claims give rise to a duty to defend because the policy covers "misappropriation of advertising ideas or style of doing business."
CONCLUSION
Ultra's motion for partial summary judgment is granted, and the cross-motion is denied, to the extent of adjudicating that General Security has a duty to defend Ultra in the Ford action.
A conference will be held at 2:30 p.m. on Friday, August 9, 2002 with respect to the management and scheduling appropriate for issues remaining in the action.