313 F. Supp. 3d 646
E.D. Pa.2018Background
- TELA Bio was sued by LifeCell in New Jersey state court alleging misappropriation of trade secrets, employee raiding, and related torts; suit focused on allegedly stolen confidential information and recruitment of LifeCell employees.
- TELA Bio notified Federal Insurance under its commercial liability policy and sought a defense; Federal Insurance denied coverage and declined to defend.
- TELA Bio filed a declaratory-judgment action arguing the Policy’s Libel and Slander provision required a defense; Federal Insurance moved to dismiss for failure to state a claim.
- The Policy contains an "IP Rights Exclusion" that (A) excludes losses related to asserted or alleged intellectual-property violations and (B) explicitly excludes "the entirety of all allegations in any claim or suit" that contains any allegation or reference to an IP rights violation; the Policy defines IP rights to include trade secrets and confidential proprietary information.
- The transferee court applied Pennsylvania choice-of-law rules (because the case was transferred from New Jersey) and concluded Pennsylvania law governs the insurer’s duty-to-defend analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law | New Jersey law applies; court may consider facts outside the underlying complaint | Pennsylvania law applies; duty-to-defend limited to underlying complaint allegations | Pennsylvania law applies (principal location of insured risk and parties' expectations) |
| Whether underlying complaint triggers Libel & Slander coverage | Allegations (e.g., calling product "next generation Strattice", exploiting LifeCell's reputation, claiming a hiring "strategy") permit inference of defamatory publications | Underlying complaint contains no allegations that TELA Bio made statements harming LifeCell's reputation; allegations concern business conduct and trade secrets | No duty to defend under Libel & Slander — complaint does not reasonably allege defamatory statements |
| Whether court may consider extrinsic facts to trigger duty to defend | TELA Bio: extrinsic discovery facts can be considered (advocating New Jersey rule) | Fed. Ins.: under Pennsylvania law, only the underlying complaint governs | Court applies Pennsylvania law and declines to consider facts outside the underlying complaint |
| Applicability of IP Rights Exclusion | TELA Bio: exclusion covers only IP claims, not any non-IP allegations (e.g., defamation) | Fed. Ins.: Paragraph B excludes entire suit if it contains any allegation of IP violation (including trade-secret allegations) | IP Rights Exclusion unambiguously bars coverage for the entire suit because LifeCell alleged appropriation of trade secrets; insurer has no duty to defend |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (standard for plausibility on a motion to dismiss)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
- Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) (duty to defend determined solely from the underlying complaint)
- Abouzaid v. Mansard Gardens Assocs., LLC, 23 A.3d 338 (N.J. 2011) (New Jersey allows extrinsic facts to trigger duty to defend)
- Gen. Acc. Ins. Co. of Am. v. Allen, 692 A.2d 1089 (Pa. 1997) (insurer owes duty to defend if complaint alleges facts that would support recovery covered by the policy)
- Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660 (3d Cir. 2016) (interpret insurance terms by ordinary meaning)
- Ventana Medical Sys., Inc. v. St. Paul Fire & Marine Ins. Co., 2010 WL 1752509 (discussed as consistent precedent on broad IP exclusions) (Note: not included as an official reporter citation in the opinion for the exclusion discussion)
- Britamco Underwriters, Inc. v. Emerald Abstract Co., Inc., 855 F. Supp. 793 (E.D. Pa. 1994) (courts deny coverage where underlying allegations clearly fall within policy exclusions)