I. INTRODUCTION
This is an insurance coverage dispute filed by Secard Pools, Inc. and its key officers, Joe and Edmond Secard ("SECARD PARTIES") against Kinsale Insurance Company ("KINSALE") arising from KINSALE's denial of coverage for a suit by Solar Sun Rings ("SSR") alleging Claims For Relief for trademark and trade dress infringement, false designation of origin, false advertising and unfair competition under Federal and California law (the "SSR Action"). Plaintiffs' First Amended Complaint against KINSALE ("FAC") (Dkt. 1-4) asserts claims for breach of contract and breach of the implied covenant of good faith and fair dealing. KINSALE contends that the KINSALE Commercial General Liability Insurance Policy at issue contains a comprehensive Intellectual Property Exclusion (the "IP Exclusion") which clearly and unambiguously precludes coverage for the entire SSR ACTION.
The Court finds that based on the admissible evidence presented, there never was even the potential coverage for the SSR Action. The SSR Action alleges statutory and common law trademark and trade dress infringement and dilution of trademark, all of which are Intellectual Property torts. It also alleges statutory and common law false advertising and unfair competition under the Lanham Act and its California equivalent. KINSALE's IP Exclusion expressly applies to all of these claims, broadly eliminating from coverage (1) "infringement of ... trademark, service mark ... slogan, trade dress, trade secret or other intellectual property
II. FACTS
On November 21, 2014, SSR sued the SECARD PARTIES in Solar Sun Rings, Inc. v. Secard Pools et al. , USDC Central District of Cal. Case No. 5:14-cv-02417 ("SSR Action"), filed in this Court. KINSALE's Statement of Uncontroverted Facts ("SUF") No. 1. The Complaint in the SSR Action alleged the following Claims for Relief: (1) Federal Trademark Infringement (
KINSALE issued Commercial General Liability Insurance Policy No. 0100022495-0 to Secard Pools, effective August 28, 2014 to August 28, 2015 (the "KINSALE POLICY"). (SUF No. 20). It included coverage for "Bodily injury and Property damage Liability" (Coverage A) and "Personal and advertising injury Liability" (Coverage B) on a "Claims Made" basis. The SECARD PARTIES have not challenged KINSALE's conclusion that coverage for the Claims in the SSR Action would have existed, if at all, only under Coverage B. SUF No. 21. Under Coverage B, KINSALE promised to "pay those sums that the insured is legally obligated to pay as damages because of 'personal and advertising injury' to which this insurance applies." SUF No. 22. The Policy affords KINSALE the right and duty to defend, but no duty to defend a suit to which the Policy does not apply. SUF No. 23.
The KINSALE POLICY defines "Personal and advertising injury" as follows:
14. "Personal and advertising injury" means injury, including consequential "bodily injury", arising out of one or more of the following offenses:
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f. The use of another's advertising idea in your "advertisement"; or
g. Infringing upon another's copyright, trade dress or slogan in your "advertisement." (SUF No. 24).
While the basic Policy form had an exclusion (Exclusion i ) for infringement of copyright, patent, trademark or trade secrets, with an exception for some advertisements,
1. actual or alleged infringement of copyright, patent, trademark, service mark, right of publicity, slogan, trade dress, trade secret or other intellectual property rights;
2. actual or alleged false advertising, false designation of origin, product disparagement, trade libel, or other Claims for Relief arising out of unfair competition; or
3. products or goods manufactured, sold, handled or distributed or work completed by the insured or others operating under the direction or control of the insured in violation of any law, statute or ordinance of any federal, state or municipal government, or any agencies thereof, including violations of the Lanham Act or other unfair competition statutes." (SUF 27-28).
The SECARD PARTIES tendered their defense to KINSALE on December 1, 2014. SUF No. 29. On December 4, 2014, KINSALE wrote to the SECARD PARTIES and informed them that, based primarily on the IP Exclusion, there was no coverage for the SSR Action under the KINSALE POLICY. SUF No. 30-31.
III. JUDICIAL STANDARD
Summary judgment is proper if the court determines that there is no genuine issue as to any material fact, and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(a). A moving party may prove the lack of a genuine dispute by (a) citing to the record, pleadings, depositions, documents, electronically stored information, answers to interrogatories, and admissions, together with the declarations and stipulations submitted by the parties, or other materials, or (b) showing that the materials cited in a motion for summary judgment do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact. Fed.R.Civ.P. 56(c).
The moving party has the burden of demonstrating the absence of a genuine factual dispute. Celotex Corp. v. Catrett ,
IV. DISCUSSION
A. The IP Exclusion Precludes Coverage for the SSR Action.
In interpreting an insurance policy, the Court first looks to the language of the policy itself. The "clear and explicit meaning" of the provisions "interpreted in their ordinary and popular sense ... controls judicial interpretation unless [the disputed terms are] used by the parties in a technical sense, or unless a special meaning is given to them by usage." See Montrose Chem. Corp. v. Admiral Ins. Co. ,
The only aspects of the Insuring Agreement under Coverage B even potentially implicated by the Secard Action are found in definitions 14.f and 14.g. The only Claim for Relief in the SSR Action that directly falls within these definitions is the Second Claim for Relief for Federal Trade Dress Infringement. There is no separate, express coverage grant for "False Advertising." SSR's other claims fall within the Insuring Agreement only to the extent that they can be described as "the use of another's advertising idea in your 'advertisement.' " However, the IP Exclusion expressly removes each of these risks from coverage under the KINSALE POLICY.
In the KINSALE Policy, the standard IP Exclusion (Exclusion i ) was replaced by an endorsement with a more expansive exclusion, titled "Exclusion-Intellectual Property" (the "IP Exclusion"). Prong 1. of the IP Exclusion therefore expands Exclusion i and eliminates the exceptions for most advertising injuries, removing definition 14.g. under "Personal and advertising injury" from coverage entirely. Prong 2. of the IP Exclusion goes on to expressly remove from coverage claims arising out of "false advertising, false designation of origin, product disparagement, trade libel or other [Claims for Relief] arising out of unfair competition," eliminating any vestige of "Personal and advertising injury" to the extent it might otherwise be covered under definition 14.f ("The use of another's advertising idea in your 'advertisement' "). Prong 3. precludes coverage for products which violate the Lanham Act or "other unfair competition statutes."
Citing this endorsement, KINSALE correctly concluded in its December 4, 2014 letter that the KINSALE Policy excluded all of the Claims for Relief in the SSR Action because all of the allegations arose out of alleged trademark violations, false advertising, violation of the Lanham Act, and unfair business practices. Each of the first five Claims for Relief in the SSR Action falls under the IP Exclusion, which reaches infringement of trademark, trade dress, service mark, "other intellectual property rights," false designation of origin, product disparagement, trade libel, false advertising or other Claims for Relief arising out of unfair competition and violations of the Lanham Act. The Sixth Claim for Relief, for unfair business practices under Bus. & Profs. Code § 17200 et seq. simply incorporates the preceding claims, and therefore is excluded as well. Further, this claim is pled as a violation of Bus. & Profs. Code § 17200 et seq. , which, in the context of the SSR Action, includes Bus. & Profs. Code § 17500, which expressly proscribes "false or misleading advertising" in California, just like the Lanham Act. It also "arises out of" the other claims pled by SSR which are clearly excluded by the IP Exclusion. See Infinity Micro Computer, Inc. v. Continental Cas. Co. ,
1. The KINSALE Policy is Not Ambiguous.
The SECARD PARTIES posit that because the Complaint in the SSR Action contains a few allegations about "misleading" advertisements as well as "false" advertisements, the lack of reference to "misleading" advertisements in the IP Exclusion must means that there is an exception to the exclusion for "misleading," as opposed to "false," advertising. But there is no express coverage grant for the tort of "False Advertising," whether pled under the Lanham Act or common law. Rather, the only coverage that even arguably applies to "False Advertising" is found at definition 14.f, for "the use of another's advertising idea in your 'advertisement.' " The very essence of the second prong of the IP Exclusion is to eliminate coverage for various business torts falling within the rubric of "false advertising," both under Federal (e.g. the Lanham Act) and State (e.g. Bus. & Profs. Code § 17200 et seq. ) law.
The IP Exclusion's use of the term "false advertising" rather than "false or misleading advertising" does not lend itself to an ambiguity. The term "false advertising" under both the Lanham Act and California's statutory prohibition on "false advertising" (see Bus. & Profs. Code § 17500) includes both false and misleading advertising. The Court finds that the IP Exclusion's broad reference to "false advertising" unambiguously refers to both "false" and "misleading" advertising as those terms are used under Federal and California statutory and common law.
The Court notes that the IP Exclusion precludes coverage not only for "false advertising" but also claims arising out of "false advertising." Under both California state and Federal law, use of the words "arising out of" in an exclusion are meant to broaden it. Davis v. Farmers Ins. Group,
2. The IP Exclusion Does Not Render Coverage "Illusory."
In order for Plaintiffs to overcome the IP Exclusion on the basis that it renders the Policy "illusory," the exclusion must result in a complete lack of any policy coverage. Young v. Illinois Union Ins. Co. ,
3. Prong 3 Broadly Eliminates All Lanham Act Claims.
Paragraph 3 of the IP Exclusion states:
This insurance does not apply to any claim or "suit" arising out of any:
3. Products or goods manufactured, sold, handled or distributed or work completed by the insured or others operating under the direction or control of the insured in violation of any law, statute or ordinance of any federal, state or municipal government, or any agencies thereof, including violations of the Lanham Act or other unfair competition statutes. (SUF 28).
The exclusion thus broadly applies to any manufacture sale, handling or distribution of products or goods where the insured is in violation of the Lanham Act, and to any "work completed" where there is such a violation. Again, it uses the "arising out of" language which courts routinely hold is meant to broaden , and not limit, the exclusion.
Prong 3 directly applies to the SSR Action. SSR's "False Advertising" claims (see SSR Complaint ¶¶ 148-174) all arise out of the SECARD PARTIES' manufacture and promotion of products bearing confusingly similar trademarks and trade dress. The SECARD PARTIES' "advertisement" merely relates to the use of the offending marks, color scheme and trade dress on the products themselves and as displayed on various websites. It is the infringing products themselves, and not the "advertisement," that SSR complains of. The acts complained of are markings that appear on the product/packaging that fall directly within the purview of the IP Exclusion. Infinity Micro Computer, Inc. v. Continental Cas. Co. ,
Here, the Court has at its disposal an even broader IP Exclusion which expressly precludes all violations of the Lanham Act "arising from" "products or goods manufactured, sold, handled or distributed or work completed by the insured." There are no allegations of "false advertising" which could exist independent of the use of SSR's mark and trade dress on SECARD's Solar Sun Squares product itself. The IP Exclusion
C. Lack of Coverage Entitles KINSALE to Summary Judgment.
Where, as here, an unambiguous exclusion conclusively applies to eliminate even the possibility of coverage, an insurer does not breach its contract by refusing to defend. See National Auto. & Cas. Ins. Co. v. Stewart ,
III. CONCLUSION
This case presents the generic application of a straightforward IP Exclusion to a trademark case. The exclusion unambiguously applies to all intellectual property exposures and all "unfair competition" claims arising therefrom. Based upon the uncontroverted facts presented in KINSALE's motion, all of which are established (SUF Nos 1-32). KINSALE has met its burden to show that the IP Exclusion is clear, conspicuous and plain, and that the plain meaning of the IP Exclusion precludes insurance coverage for the underlying SSR Action. The SECARD PARTIES have not met their burden to show that the IP Exclusion is capable of more than one meaning, or that the meaning they ascribe to it comports with the objectively reasonable expectations of an insured under the KINSALE Policy. Accordingly, the Court finds that there are no genuine issues of material fact to be adjudicated at trial and therefore GRANTS KINSALE's Motion for Summary Judgment. The Court denies the SECARD PARTIES Motion for Summary Judgment as moot.
Notes
The original Exclusion i excluded " 'Personal and advertising injury' arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. However, this exclusion does not apply to infringement, in your 'advertisement,' of copyright trade dress or slogan." SUF No. 26.