Plaintiffs Open Software Foundation (OSF) and Hewlett-Packard (HP) brought this diversity action against USF&G, their general commercial liability insurer, claiming that USF&G had a duty to defend a lawsuit filed against them by Addamax Corporation, a software manufacturer.
1
After OSF decided not to bundle Addamax security software into its UNIX-based operating system, Addamax sued OSF in 1989, alleging that it was a price-fixing purchasing pool. The litigation continued until 1998, when we affirmed Judge Tauro’s grant of summary judgment to OSF.
See Addamax v. Open Software Found.,
We agree with the district court that Addamax’s complaints, read in conjunction with all relevant extrinsic evidence cited by OSF, neither stated nor adumbrated a claim for damages resulting from a “personal injury” or “advertising injury” defined in the policies. Consequently, we conclude that USF&G had no duty to defend the Addamax litigation, and we affirm the decision of the district court granting summary judgment to USF&G.
I. Background
Organized in 1988 by seven computer hardware and software companies (the “sponsors”), pursuant to the National Cooperative Research Act of 1984, 15 U.S.C. §§ 4301-05 (1993), OSF was tasked with designing and marketing a UNIX-based operating system known as OSF/1 that
One necessary component of the operating system was security software. In November, 1989, OSF solicited two software developers, Addamax Corporation (Adda-max) and Secureware, to submit their security technologies for evaluation. Roughly one year later, OSF selected Se-cureware’s security technology to be incorporated into OSF/1.
In April, 1990, Addamax’s counsel sent a demand letter to OSF claiming that its decision to “bundle” Secureware software into OSF/1 violated federal and state antitrust laws, and threatening litigation if the alleged violations were not remedied. When OSF failed to respond to these demands, Addamax filed a complaint against OSF and two of its sponsors, Hewlett-Packard and Digital Electric Corporation. Addamax alleged that the sponsors and members of OSF were a “buyers’ cartel” that conspired to coerce software makers into offering their products to OSF at prices below fair market value. 2 The complaint summarized Addamax’s claims as follows:
This is an action to recover damages and obtain permanent injunctive relief against the Open Software Foundation, Inc. (“OSF”), Digital Equipment Corporation (“DEC”), and Hewlett-Packard Company (“H-P”) for violations of federal and state antitrust laws, unfair trade practice law, and the common law of the Commonwealth of Massachusetts .... OSF acts as an illegal cartel through which its Sponsors ... have illegally combined, contracted, or conspired to exercise their aggregate market power by, among other things, fixing prices for the software technology OSF acquires from software developers; setting a price ceiling in certain software markets; allocating product markets among the Sponsors; and boycotting certain independent software developers, including [Addamax], The net effect, among others, of the defendants’ activities has been and will be to unlawfully and unreasonably restrain trade, substantially lessen competition among purchasers of software, drive independent software developers out of business, and reinforce the strong market positions of OSF and its Sponsors.
Of the nine counts in the complaint, the first seven were based on federal or state antitrust statutes. The eighth count alleged that OSF’s operations constituted “unfair methods of competition and unfair or deceptive acts or practices” in violation of Mass. Gen. Laws ch. 93A, §§ 2 and 11 (“Chapter 93A”). The ninth count alleged that OSF and its sponsors “intentionally and improperly interfered with Addamax’s actual contractual relations and prospective contractual relations.” Approximately two years after filing its original complaint, Addamax filed an amended complaint to include,
inter alia,
more detailed allegations describing and illustrating OSF’s practice of coercing independent
OSF and HP successfully defended the Addamax suit. We “found that antitrust violations, even if they were assumed to have occurred, were not a material cause of Addamax’s failure in the line of business at issue,” and accordingly affirmed the district court’s grant of summary judgment to OSF.
Addamax Corp. v. Open Software Found.,
Anticipating the costs of defending the Addamax suit, OSF’s corporate counsel sent a letter to USF&G on March 5, 1992, requesting that they defend the claim pursuant to the primary and excess liability policies issued by USF&G. In a memorandum appended to the letter, OSF’s associate general counsel, Sue Schlener, argued that the Addamax claims were covered by OSF’s policy with USF&G under the “advertising injury” or “personal injury” clauses of the policies. After consulting outside counsel, USF&G notified OSF on August 25, 1992, that it did not consider any of the claims to fall within the coverage furnished by the primary and excess liability policies, and therefore declined to accept tender of the defense.
Approximately six years later, OSF filed this lawsuit against USF&G while Adda-max’s appeal in the underlying action was still pending before this court. Claiming that USF&G had a duty to defend the Addamax claim, OSF requested a declaratory judgment to this effect as well as damages in the amount of reasonable defense costs. OSF specifically contended that Addamax’s suit alluded to “personal injuries,” including defamation, and “advertising injuries,” including unfair competition; and asserted that since both types of claims were listed in USF&G’s general and excess liability policies, USF&G had a duty to defend. In a thoughtful opinion, the district court found both arguments unpersuasive and granted USF&G’s motion for summary judgment. OSF appeals, arguing that both the personal injury and advertising injury clauses of the GCL triggered a duty to defend.
II. Interpreting the Policies
Like most other jurisdictions, Massachusetts imposes a broad duty to defend on insurers: “[i]t is axiomatic that an insurance company’s duty to defend is broader than its duty to indemnify.”
Boston Symphony Orchestra v. Commercial Union Ins. Co.,
[T]he question of the initial duty of a liability insurer to defend third-party actions against the insured is decided by matching the third-party complaint with the policy provisions: if the allegations of the complaint are “reasonably susceptible” of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense.... Otherwise stated, the process is one of envisaging what kinds of losses may be proved as lying within the range of allegations of the complaint, and then seeing whether any such loss fits the expectation of protective insurance reasonably generated by the terms of the policy.
Continental Cas. Co. v. Gilbane Bldg. Co.,
Determining whether complaints “adumbrate” a claim can be a difficult interpretive exercise. OSF and USF&G advance widely varying accounts of how the court, applying Massachusetts law, is to analyze the complaints and facts extrinsic to them when “envisaging what kinds of losses may be proved as lying within the range of allegations of the complaint.”
Continental Cas. Co.,
Massachusetts courts generally use extrinsic facts (such as those set forth in demand letters to the insurer) to aid interpretation of the complaint, and not as independent factual predicates for a duty to defend. In attempting to “envisag[e] what kinds of losses may be proved as lying within the range of allegations of the complaint,” the insurer must examine the plaintiffs allegations in conjunction with facts that it knows or readily should know in order to determine whether coverage exists under the policy.
Boston Symphony,
The language of
Boston Symphony
undercuts OSF’s position that facts extrinsic to the plaintiffs allegations in the complaints, uncovered at any stage of the underlying action, can independently trigger a duty to defend that does not arise from
We therefore treat the extrinsic facts known or readily knowable to USF&G as an aid to interpreting the Addamax complaints. We do not consider them as independent grounds for a duty to defend. Functioning in this limited role, extrinsic facts work in tandem with the “adumbrate” standard to add substance and meaning to skeletal claims only adumbrated in the complaint. These facts, brought to the insurer’s attention in a timely fashion by the insured, aid the insurer’s informed review of the-tender of defense by painting a fuller picture of the underlying action.
However, extrinsic facts can also be misused by insureds seeking to transform a skeletal claim in the underlying complaint into an allegation arguably covered by the liability policy but unrelated to an actual claim in the complaint. Employed in this way, extrinsic facts could stretch the terms of the liability policy to encompass lawsuits beyond the contemplation of the parties when they contracted for the insurance. Hence, we must be mindful of the SJC’s admonition in
Boston Symphony
that the insured cannot, “in the absence of a complaint that requires coverage, force its insurers to defend the insured by simply telling the insurer facts that would create coverage.”
Boston Symphony,
We now discuss each of the two contested clauses of the policies in turn.
III. Advertising Injury
OSF argues that Addamax’s suit was covered under the “advertising injury” provisions of the primary and excess insurance policies in effect at the time of OSF’s announcement of the selection of Secure-ware. The pivotal definition in the Primary Policy reads as follows:
“Advertising Injury” means injury arising out of an offense committed during the policy period occurring in the course of the named insured’s advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan.
The Umbrella Policy providing excess coverage similarly covers damages resulting from:
Advertising injury — meaning] injury arising out of one or more of the following acts committed during the policyperiod by or for the Named Insured in any advertisement, publicity article, broadcast or telecast:
(a) libel, slander or defamation;
(b) infringement of copyright or of title or of slogan;
(c) piracy or unfair competition or idea misappropriation under an implied contract;
(d) invasion of the right of privacy.
Of all the acts listed in the advertising injury provisions of the two policies, only “unfair competition” is invoked by OSF as an underlying cause of the advertising injuries adumbrated in the Addamax complaints. In interpreting the phrase “unfair competition,” we note that courts are generally obliged to construe ambiguous terms in an insurance contract in favor of the insured.
See
Kenneth H. York & John W. Whelan,
Insurance Law
41, 42 (2d ed.1988) (discussing the doctrine of
contra proferentum); Mass. Bay Transp. Auth. v. Allianz Ins. Co.,
Given the well-settled meaning of the term “unfair competition” in Massachusetts law, the leading ease in the Commonwealth interpreting the phrase “unfair competition” in a general commercial liability insurance policy not surprisingly limits the injury to “palming off.”
See Smartfoods, Inc. v. Northbrook Prop. & Cas. Co.,
Massachusetts’s decision to construe the advertising injury of unfair competition in a general commercial liability insurance policy as equivalent in scope to the state common law tort of the same name reflects the approach of a majority of jurisdictions.
See Atlantic Mut. Ins. Co. v. Brotech Corp., 857
F.Supp. 423, 429 (E.D.Pa.1994) (collecting cases);
Standard Fire Ins. Co. v. People’s Church of Fresno,
OSF nonetheless contends that Adda-max’s complaint triggered a duty, to defend under the advertising injury clauses of the policies because several claims in the Addamax complaint — including antitrust, Chapter 93A, and interference with business relations claims — convey “unfair competition” in common parlance. The district court acknowledged that, “In a general sense, [such] violations might be thought of as a species of ‘unfair competition’ because they entail methods of competition that are illegal and thus unfair.”
OSF,
In its general sense, “unfair competition” is defined as “all dishonest or' fraudulent rivalry in trade and commerce” (Black’s Law Dictionary), thus encompassing a potentially large number of different offenses....
However, the definition of unfair competition quoted above goes on to state that the term “is particularly applied to the practice of endeavoring to substitute one’s own goods or products in the markets for those of another having an established reputation and extensive sales, by means of imitating or counterfeiting the name, title, size, shape, or distinctive peculiarities of the article, or the shape, color, label, wrapper, or general appearance of the package ... the imitation being carried far enough to mislead the general public or deceive an unwary purchaser, and yet not amounting to an absolute counterfeit or to the infringement of a trade-mark or trade-name.” In this more limited meaning, which seems more likely to be applicable in the context of advertising injury, unfair competition is much the same as ... misappropriation of advertising ideas or style of doing business.
The relevant sections of the policies define covered “advertising injuries” as those arising out of “libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan” (in the general policy) and “(a) libel, slander or defamation; (b) infringement of copyright or of title or of slogan; (c) piracy or unfair competition or idea misappropriation under an implied contract; (d) invasion of the right of privacy” (in the excess policy). Applying the interpretive principle of noscitur a sociis 8 to language in an almost identical GCL policy, the Seventh Circuit observed that:
A word sometimes picks up meaning from its neighbors; and all the other terms in the list of wrongs insured under the rubric of “advertising injury” concern the misuse of information, as befits the word “advertising.” Piracy and the infringement of copyrights, titles (presumably of books, songs, products, services, and so forth), and slogans (advertising and other) are simply different forms of theft (broadly conceived) of information. And defamation involves the use of false information, while invasion of the right of privacy the use of true, though sometimes misleading or offensive, information. Libel and slander are the two halves of defamation .... [I]f tortious interference [and similar claims are] covered by the policy, the policy has a bulge not easy to make sense of or to attribute to the deliberate choice of the parties.
Curtis-Universal, Inc. v. Sheboygan Emergency Med. Servs.,
The terms surrounding “unfair competition” in the advertising injury provisions of the USF & G policies exclusively denote communicative harms (injuries that occur as a direct result of communication), not illegal courses of conduct that merely involve communication. We are not persuaded by the appellant’s attempt to apply the latter gloss to the term, just as the Seventh Circuit was unmoved by the same tactic in Curtis-Universal: “[W]e find it highly implausible to suppose that ‘unfair competition’ in a list of torts otherwise concerned mainly with harmful speech in various forms (defamation, invasion of the right of privacy, copyright infringement) would sweep under the policy a general, albeit only prima facie, liability for antitrust damages” and other causes of action not constituted by communicative harms. Id. at 1123. 9
The only terms in the “personal injury” sections of the two policies that possibly pertain to Addamax’s suit are harms caused by communication. The harms are defined as
injury arising out of one or more of the following offenses committed during the policy period ... (3) a publication or utterance (a) of a libel or slander or other defamatory or disparaging material, or (b) a publication or utterance in violation of an individual’s right of privacy; except publications or utterances in the course of or related to advertising, broadcasting, publishing or telecasting activities conducted by or on behalf of the named insured shall not be deemed personal injury.
The Umbrella Policy providing excess coverage similarly covers damages from
injury arising out of ... (b) the publication or utterance of a libel or slander or other defamatory or disparaging material or a publication or utterance in violation of an individual’s right of privacy; except publications or utterances in the course of or related to advertising activities.
Addamax makes no reference to a claim for defamation or disparagement in either of its complaints or in its initial demand letter to OSF. Nonetheless, OSF argues that the complaints, considered in light of extrinsic evidence either provided to or readily knowable by USF&G, “adumbrate” defamation and disparagement claims. See
Continental Cas. Co.,
Maneuvering within the interpretive boundaries of the “adumbrate” standard, see supra note 4, OSF insists that liability coverage is triggered under the personal injury provisions of its policies on the theory that Addamax’s “damages[] allegedly occurred, at least in part, because the communications [by OSF] to [its] Sponsors and Members about the selection of Secure-ware as superior lowered Addamax in rank and estimation.” OSF further contends that such “allegedly false statements ... [could] prejudice the plaintiff in the conduct of its business ... [and therefore] are sufficient to state a claim for disparagement as to products and defamation as to the source of these goods under Massachusetts law.”
As noted, OSF’s personal injury coverage extends to liability from injuries arising out of “other defamatory or disparaging material,” and not just to liability for “defamation” and “disparagement” actions themselves. Interpreting this phrase in a similar GCL policy, the SJC observed that “[disparage means, among other things, ‘to lower in rank and estimation by actions or words,’ or ‘to speak slightingly of.’”
Boston Symphony,
OSF contends that all of Addamax’s claims — including its antitrust, Chapter 93A, and tortious interference claims' — ■ were based (at least in part) on words and actions of OSF that explicitly or implicitly lowered Addamax in rank and estimation. OSF’s initial tender of the defense arguably alerted USF&G to the publication of disparaging and defamatory materials in various forms: 1) OSF advertisements promoting the RFT process generally, 2) the RFT process itself, 3) a “Security Rationale document” that identified Addamax and Seeureware as the two companies
We assume arguendo that these facts, identified in the Addamax complaints or extrinsic to them, constituted “disparaging or defamatory material” in the
Boston Symphony
sense of diminishing Adda-max’s reputation. We further assume that USF&G can be charged with knowledge of all the extrinsic facts cited by OSF. USF&G does not argue (with respect to OSF) that re-tender of the defense through this declaratory judgment action violated particular notice requirements in the USF&G policies.
See Transamerica Ins. Co. v. Norfolk and Dedham Mut. Fire Ins. Co.,
Significantly, the USF&G policies only provide coverage for “injur[ies]
arising out of ...
defamatory or disparaging material ... committed [or created] during the policy period” (emphasis added). Interpreting identical language in the “advertising injury” clause of a similar policy, the Second Circuit recently held that “the relevant causation issue with regard to insurance coverage is not whether ‘the injury could have taken place without the advertising,’ but ‘whether the advertising did in fact
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contribute materially to the injury.’ ”
R.C. Bigelow v. Lib. Mut. Ins.
We conclude that Massachusetts courts would impose a similar “material contribution” requirement when construing this language in a commercial general liability-insurance policy.
Cf. Eagle-Picher Indus., Inc. v. Liberty Mut. Ins. Co.,
[t]he Massachusetts Supreme Judicial Court confirmed in Rischitelli: “The expression ‘arising out of indicates a wider range of causation than the concept of proximate causation in tort law.” By way of further explanation, Rischitelli went on. to say: “However, the expression does not refer to all circumstances in which the injury would not have occurred ‘but for’ the involvement of a motor vehicle.”
Merchants Ins. Co.,
The SJC recently reaffirmed its interpretation of the phrase “arising out of’ in
Rischitelli. See Ruggerio Ambulance Serv., Inc. v. National Grange Mut. Ins. Co.,
There is no claim for defamation or disparagement in the Addamax complaints, and no reliance on defamatory or disparaging materials circulated by OSF as a cause of injury. Indeed, the complaints pursue a different theme entirely by focusing on OSF’s structure and activities while largely ignoring its words. This presentation
Addamax subsequently chronicles the diminishing purchasing power of vendors outside the OSF membership group, and asserts that a software producer’s failure to successfully market its product to OSF was tantamount to foreclosure from the entire market. ‘"Whereas previously ... Addamax had a potential market of numerous computer vendors, ... the formation of OSF has caused a consolidation of that market into one dominant customer, i.e. OSF. As a result, the software developers, such as Addamax, that are not selected by the cartel are foreclosed from the market.” Id. at 14-15; see also First Amended Complaint at 22-23. Not surprisingly, the complaints attribute Adda-max’s injuries solely to the purchasing decisions of OSF members without mentioning vendors outside the OSF group:
OSF and its Sponsors ... have foreclosed Addamax from selling its Blst product to the more than 70% of the UNIX operating system market represented by OSF and its membership. Accordingly, Addamax has been injured in its business and property through the loss of millions of dollars in past, present, and future profits, by loss of customers and potential customers, by loss of goodwill, and by the prospective destruction of its business.
Complaint at 22, 25, 30 (emphasis added); see also First Amended Complaint at 20-21, 25, 30-31, 34.
The noteworthy absence of any defamation or disparagement claim against OSF is consistent with Addamax’s understanding of the UNIX software market as memorialized in the complaints. If vendors outside the OSF membership group were a minimal presence in the market for UNIX operating system software, any disparaging or defamatory materials published by OSF (which by that time had already decided to bundle Secureware’s product into OSF/1) could not have materially contributed to Addamax’s injuries.
No extrinsic facts or documents proffered by OSF contradict Addamax’s characterization of OSF in its complaints as a monopsonist in the market for UNIX operating system software, or allude to the presence of a significant consumer base outside of OSF’s membership.
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Therefore, even if we assume that every extrinsic fact referenced by OSF was properly brought to USF&G’s attention when OSF tendered the defense, OSF cannot demonstrate that these facts “contribute[d] materially” to the injuries alleged by Addamax in its complaint.
R.C. Bigelow,
Y. Conclusion
Determining whether complaints state a claim for a given cause of action is a relatively straightforward matter; determining whether they adumbrate, or faintly sketch, a claim is a more difficult interpretive question. However, there is a discernible line between adumbration in a complaint and the mischaracterization of a complaint by an insured relying creatively on extrinsic facts. Although OSF may detect a sketch or suggestion of covered claims in Addamax’s complaints, and the extrinsic facts cited, we do not. We therefore conclude that USF&G was not obliged to defend the Addamax action.
Affirmed.
Notes
. Both OSF and Hewlett-Packard (HP), one of OSF’s sponsors, filed this action against USF&G. USF&G claims that HP should not be permitted to sue because it failed to tender the claim to USF&G in a timely fashion. In light of our determination that OSF's claims lack merit, HP's identical claims against OSF must necessarily fail as well. Therefore, we need not address the question of whether HP properly brought suit. For the sake of convenience, we refer to the plaintiffs as OSF.
. An unabridged account of the claims and their disposition may be found in the opinions
Addamax v. Open Software Found.,
. Under Massachusetts law, allegations contained in any version of the complaint may trigger an insurer’s duty to defend.
See Lumbermens Mut. Cas. Co. v. Belleville Indus., Inc.,
. We follow the district court in defining "to adumbrate” to mean " 'to give a sketchy representation of; outline broadly, omitting details (there was only time to
adumbrate
the plan)' or 'to suggest, indicate, or disclose partially and with a purposeful avoidance of precision (the meaning of the poem is
adumbrated
in its title).’ ”
OSF,
. When the parties refer to "extrinsic facts,” which they often do, we understand them to mean facts not referenced within the complaint.
. OSF argues that the "multiple reasonable meanings for the 'unfair competition' offense which have long been known to insurers evidence that the term is ... ambiguous,” and cites
New Castle County, Delaware v. Nat’l Union Fire Ins. Co.,
. The one exception,
Keating v. National Union Fire Insurance Co.,
. Loosely translated, noscitur a sociis means “it is known from its associates.” As a canon of construction, it means that "the meaning of a word is or may be known from the accompanying words.” Black's Law Dictionary 1060 (6th ed.1990).
. OSF argues that the Addamax litigation is covered by the policy because the eighth “claim for relief” in Addamax's complaints accuse OSF of "Unfair Methods of Competition in Violation of the Massachusetts Unfair Trade Practices Act.” As the district court pointed out, "Massachusetts courts construe the term 'unfair competition' in a liability insurance policy not only to signify that common law tort, but also to distinguish it from the statutory cause of action for unfair business practices under Chapter 93A.”
OSF,
. We do not read the phrase “whether the advertising did
in fact
contribute materially to the injury” as predicating an insurer’s duty to defend on the facts proven at tried. Indeed, we could not read the phrase that way. The Supreme Judicial Court has observed that "[t]he obligation of an insurer to defend is not, and cannot be, determined by reference to the facts proven at trial. Rather, the duty to defend is based on the facts alleged in the complaint ...”
Boston Symphony,
. We see no reason to construe the phrase “arising out of” differently in the advertising injury and personal injury provisions of the USF&G policies.
. The absence of a substantial consumer base with the capacity to alter its purchasing behavior in response to disparaging or defamatory material distinguishes this case from
Knoll Pharm. Co.,