Hartford Casualty Insurance Company v. Dental USA, Inc. et al
Filing
48
MEMORANDUM Opinion Signed by the Honorable Samuel Der-Yeghiayan on 6/24/2014: Mailed notice (mw, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
HARTFORD CASUALTY INSURANCE )
COMPANY,
)
)
Plaintiff,
)
)
v.
)
)
DENTAL USA, INC. et al.,
)
)
Defendants.
)
No. 13 C 7637
MEMORANDUM OPINION
SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Plaintiff Hartford Casualty Insurance
Company’s (Hartford) partial motion for summary judgment, and on Defendant
Dental USA, Inc.’s (Dental) partial motion for summary judgment. For the reasons
stated below, Hartford’s motion is granted in part and denied in part without
prejudice, and Dental’s motion is granted in part and denied in part without
prejudice.
BACKGROUND
Hartford is an insurance company that since 2008 has issued separate liability
insurance policies (Policies) to Dental, effective annually and subject to ongoing
reviews. Dental is a supplier of dental instruments allegedly owning several U.S.
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Trademark Registrations and Patents. Dental commenced two lawsuits asserting
alleged patent, trademark, and copyright infringement of such intellectual property.
In one action, Dental sued Jayson McClellan (McClellan) and other defendants
(McClellan Action), and in the other action Dental sued Carl E. Misch (Misch) and
other defendants (Misch Action). In both the McClellan Action and Misch Action
(collectively referred to as “Underlying Actions”), counterclaims (Counterclaims)
were brought against Dental, which allegedly asserted infringement by Dental of
intellectual property rights. Dental requested that Hartford defend and indemnify
Dental in the Underlying Actions pursuant to the coverage in the Policies. Hartford
brought the instant action and includes in the amended complaint claims seeking a
declaration that Hartford owes no duty to defend or indemnify Dental under the
“bodily injury” or “property damage” coverage (Count I), claims seeking a
declaration that Hartford owes no duty to defend or indemnify Dental under the
“personal and advertising injury” coverage (Count II), claims seeking a declaration
that Hartford owes no duty to defend or indemnify Dental under the “damages”
coverage (Count III), claims seeking a declaration that Hartford owes no duty to
defend or indemnify Dental based on the intellectual property exclusion (Count IV),
claims seeking a declaration that Hartford owes no duty to defend or indemnify
Dental based on the expected or intended injury exclusion (Count V), claims seeking
a declaration that Hartford owes no duty to defend or indemnify Dental based on the
knowledge of falsity exclusion (Count VI), claims seeking a declaration that Hartford
owes no duty to defend or indemnify Dental based on the periods of coverage (Count
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VII), claims seeking a declaration that Hartford owes no duty to defend or indemnify
Dental based on the quality or performance of goods / failure to conform to
statements exclusion (Count VIII), claims seeking a declaration that Hartford owes
no duty to defend or indemnify Dental in the Misch Action based on the breach of
contract exclusion (Count IX).
On January 15, 2014, Hartford voluntarily dismissed all claims brought
against Jayson McClellan, Shabbir A. Gul, Randall Pardy, and Marketing Logistics,
LLC. On February 11, 2014, Hartford dismissed all claims brought against Misch
Instruments, LLC and Carl E. Misch. Dental is the sole remaining defendant in this
action. Hartford now moves for summary judgment on the claims brought against
Dental in Counts I, IV, VII, and IX. Dental moves for summary judgment on the
claims brought against Dental in Counts II-IX.
LEGAL STANDARD
Summary judgment is appropriate when the record, viewed in the light most
favorable to the non-moving party, reveals that there is no genuine issue as to any
material fact and the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(c); Smith v. Hope School, 560 F.3d 694, 699 (7th Cir. 2009). A “genuine
issue” in the context of a motion for summary judgment is not simply a
“metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, a genuine issue of material
fact exists when “the evidence is such that a reasonable jury could return a verdict for
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the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986);
Insolia v. Phillip Morris, Inc., 216 F.3d 596, 599 (7th Cir. 2000). In ruling on a
motion for summary judgment, the court must consider the record as a whole, in a
light most favorable to the non-moving party, and draw all reasonable inferences in
favor of the non-moving party. Anderson, 477 U.S. at 255; Bay v. Cassens
Transport Co., 212 F.3d 969, 972 (7th Cir. 2000). When there are cross motions for
summary judgment, the court should “construe the evidence and all reasonable
inferences in favor of the party against whom the motion under consideration is
made.” Premcor USA, Inc. v. American Home Assurance Co., 400 F.3d 523, 526-27
(7th Cir. 2005).
DISCUSSION
The parties agree that Illinois law governs the coverage dispute in this case.
(PSJ 3 n.3); (D SJ 1-2). In an insurance coverage declaratory judgment action
brought in federal court in Illinois based on diversity, Illinois contract law applies.
Clarendon Nat. Ins. Co. v. Medina, 645 F.3d 928, 933 (7th Cir. 2011)(stating that
“[i]n Illinois, insurance policies are contracts; the general rules governing the
interpretation and construction of contracts govern the interpretation and construction
of insurance policies”)(citing Hobbs v. Hartford Ins. Co. of the Midwest, 823 N.E.2d
561, 564 (Ill. 2005)). In interpreting an insurance policy under Illinois law the court
should “aim to ascertain and give effect to the intention of the parties, as expressed in
the policy language, so long as doing so does not contravene public policy.” Id.
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(stating that “[i]n doing so, they read the policy as a whole and consider the type of
insurance purchased, the risks involved, and the overall purpose of the contract”). If
the pertinent language in the insurance policy is “unambiguous, courts apply it as
written.” Id. Terms in an insurance policy that limit coverage “are liberally
construed in favor of coverage, but only when they are ambiguous, or susceptible to
more than one reasonable interpretation.” Id.
An insurer has a duty to defend the insured under Illinois law “if the
underlying complaint alleges facts that fall within, or potentially within, the policy’s
coverage.” Menard, Inc. v. Country Preferred Ins. Co., 992 N.E.2d 643, 648-49 (Ill.
App. Ct. 2013)(explaining that “[t]he duty to defend is much broader than the duty to
indemnify, because the duty to defend is triggered if the complaint potentially falls
within the policy’s coverage; the duty to indemnify, on the other hand, applies only
when the resulting loss or damages actually come within the policy’s
coverage”)(emphasis in original). In order to ascertain whether a “loss is potentially
covered under an insurance policy, a court must compare the allegations in the
underlying complaint to the policy language” and “[b]oth the underlying complaint
and the insurance policy should be liberally construed in favor of the insured.” Id.
It is undisputed that the Policies contained the following provision:
We will pay those sums that the insured becomes legally obligated to pay as
damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and
advertising injury’ to which this insurance applies. We will have the right and
duty to defend the insured against any ‘suit’ seeking those damages.
However, we will have no duty to defend the insured against any ‘suit’
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seeking damages for ‘bodily injury,’ ‘property damage’ or ‘personal and
advertising injury’ to which this insurance does not apply.
(R PSF Par. 35).
I. Bodily Injury or Property Damage (Count I)
Hartford moves for summary judgment on the claim in Count I, in which
Hartford seeks a declaration that Hartford owes no duty to defend or indemnify
Dental under the “bodily injury” and “property damage” coverage. It is undisputed
that the phrase “bodily injury” is defined in the Policies as a “physical . . . [i]njury;
. . . [s]ickness; or . . . [d]isease.” (R PSF Par. 35). It is also undisputed that the
Policies define “property damage” as the following:
Physical injury to tangible property, including all resulting loss of use of that
property. All such loss of use shall be deemed to occur at the time of the
physical injury that caused it; or . . . Loss of use of tangible property that is not
physically injured. All such loss of use shall be deemed to occur at the time of
‘occurrence’ that caused it.
(R PSF Par. 35). Dental fails, in response to Hartford’s motion for summary
judgment on Count I, to even attempt to rebut Hartford’s motion, instead choosing to
base its arguments relating to coverage solely on the existence of the language in the
Policies referencing a “personal and advertising injury,” and referencing “damages.”
(Ans. PSJ 2-6); (DSJ 3-7). It is undisputed that the Counterclaims involve claims
such as breach of contract claims, claims relating to patent rights, unfair competition,
copyright infringement claims, claims relating to trademark rights, and false
designation of origin and false advertising claims. (R PSF Par. 10-30). Even when
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liberally construing the claims in the Counterclaims, there are no facts involved in
the Counterclaims that would relate to a physical injury, sickness or disease. Nor are
there facts in the Counterclaims that relate to physical injury to or loss of the use of
tangible property as defined in the Policies. Dental has failed to point to evidence
that shows the Counterclaims seek damages for a “bodily injury” or “property
damage” as defined by the Policies. Therefore, Hartford’s motion for summary
judgment on the claim brought against Dental in Count I is granted.
II. Intellectual Property Exclusion (Count IV)
Hartford argues that even if the Counterclaims are covered as involving
“damages” or a “personal and advertising injury,” such coverage would be excluded
by the intellectual property exclusion. It is undisputed that the Policies issued from
2008 to 2011 contained the following exclusion: “This insurance does not apply to:
. . . ‘Personal and advertising injury’. . . [a]rising out of any violation of any
intellectual property rights, such as copyright, patent, trademark, trade name, trade
secret, service mark or other designation of origin or authenticity. . . .” (R PSF Par.
35). It is undisputed that the policy issued for the period from 2013 to 2014 (201314 Policy) and the policy issued for the period from 2012 to 2013 (2012-13 Policy)
contained the following endorsement (Endorsement) replacing the above-referenced
exclusion with a new exclusion (IP Exclusion) for “[a]ny injury or damage alleged in
any claim or ‘suit’ that also alleges an infringement or violation of any intellectual
property right, whether such allegation of infringement or violation is made by you
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or by any other party involved in the claim or ‘suit,’ regardless of whether this
insurance would otherwise apply.” (R PSF Par. 36).
A. Relevant Policy
Hartford contends that the relevant policy for the Counterclaims would be the
2013-14 Policy. The Policies provide that a “personal and advertising injury”
consists of an “injury . . . arising out of” a list of potential offenses. (R SF Par. 35).
Dental contends that the pertinent alternative that provides coverage is the following
offense: “Copying, in your ‘advertisement,’ a person’s or organization’s ‘advertising
idea’ or style of ‘advertisement.’” (PSJ 5-6); (Ans. DSJ 3); (R PSF Par. 35).
The potential personal and advertising injury implicated in the Counterclaims
are premised on alleged statements by Dental to the customers of McClellan and
Misch sometime after April 30, 2013, when the 2013-14 Policy became effective.
(PSF Par. 9, 15-16, 21, 26-27, 35). It is undisputed that Dental did not discover the
alleged wrongful conduct that led to the filing of the Underlying Actions until late
2012, and that the alleged wrongful conduct by Dental that led to the filing of the
Counterclaims occurred after such discovery by Dental. (R PSF Par. 9-21, 26-27).
Dental acknowledges that the Counterclaims allege facts that would fall within the
periods of the 2012-13 Policy and the 2013-14 Policy, but argues that there is
evidence of statements allegedly made by Dental relating to the designation of origin
that extended back as late as 2011 in a catalog. Specifically, Dental contends that
the Counterclaims allege that Dental, in a catalog dated in 2011 (Catalog), falsely
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asserted: “All manufacturing processes are performed in our Chicagoland area
facility in the USA.” (D SJ 14); (Misch CC Par. 235 and Ex. C); (Mc CC Par. 233).
However, as Hartford correctly points out, whether or not Dental stated a false origin
regarding its products would not implicate the type of advertising injury envisioned
in the Policies. Such conduct would not involve the copying of an advertisement or
of an advertisement idea or style. Dental argues that it could be implied from the
allegation that Dental misrepresented that the products were made in the United
States and that Dental is using “US Steel” as a source for products to unfairly
enhance its reputation. (D Reply 1). Although the duty to defend is triggered when
there is a potential for coverage, such coverage, however, cannot be triggered upon
pure speculation and strained inferences. Thus, the Catalog did not trigger coverage
under the Policies.
The court also notes that Dental references in its motion for summary
judgment the alternative, in the Policies, which indicates that defamation would
constitute a “personal and advertising injury.” (PSJ 3). However, the false origin
allegation relating to 2011 does not in any way relate to the disparagement of
another’s reputation and would not fall within the scope of that defamation
alternative either. Finally, although Dental references allegations in the
Counterclaims relating to alleged non-disclosure by Dental to the Patent Office, that
conduct does not in any way fall within the definition of a “personal and advertising
injury.” Thus, the only conduct that could have conceivably triggered coverage
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under the Policies occurred at the earliest after April 30, 2012, when the 2012-13
Policy became effective.
B. IP Exclusion
The Endorsement, which is part of the 2012-13 Policy and the 2013-14 Policy,
clearly excludes “[a]ny injury or damage alleged in any claim or ‘suit’ that also
alleges an infringement or violation of any intellectual property right. . . .” The
undisputed facts show that the Counterclaims fall squarely within that definition. For
example, the Counterclaims include allegations of infringement of patent and
trademark rights. Even when viewing the terms of the 2012-13 Policy and 2013-14
Policy in a light most favorable to Dental, the clear and unequivocal terms of the IP
Exclusion are such that the loss at issue in the Counterclaims is not even potentially
covered under such policies. Thus, the IP Exclusion bars coverage for a “damages”
claim or a “personal and advertising injury” claim. In addition, the court notes that
even if the IP Exclusion was not found to be applicable, the prior exclusion relating
to intellectual property rights would act as a bar to coverage for Dental since the
Counterclaims are all premised on intellectual property rights and are all arising out
of a violation of intellectual property rights.
C. Public Policy
Dental, apparently recognizing that the IP Exclusion clearly covers the
Counterclaims, argues in the alternative that the IP Exclusion violates public policy.
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However, the IP Exclusion is clearly written and is unambiguous. Dental has not
shown itself to be an unsophisticated party. Dental signed the Endorsement with the
2012-13 Policy and signed it for a second time with the 2013-14 Policy and thus
should have been well aware of the scope of the Endorsement. Dental offered
consideration for the bargained for exchange when entering into the 2012-13 Policy
and the 2013-14 Policy. The consideration offered by Dental was given in exchange
for a coverage of a specified scope of risk. Public policy is promoted by requiring a
party to honor the terms of an agreement which are plainly and unequivocally
written. Public policy would not be promoted by allowing Dental to unilaterally
expand the scope of the Policies after the parties entered into the agreement. A party
entering into an agreement has a right to expect that the clear and unambiguous terms
agreed upon will not, in retrospect, be altered to benefit the other party to the
agreement. Dental has not shown that the IP Exclusion is contrary to Illinois public
policy. Dental also argues that it paid no consideration because the Endorsement
resulted in less coverage and yet it paid more than it had previously when entering
into the 2012-13 Policy and 2013-14 Policy. However, the mere fact that the costs
were increased with the Policy did not mean that Dental offered no consideration for
the contract. Dental had a choice and it chose to enter into the Policies. Dental also
had a choice to refuse to sign the Endorsement and if that was a deal breaker to seek
insurance coverage elsewhere. Dental’s claims that it was somehow unfairly treated
by Hartford rings hollow.
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Dental also argues that to enforce the terms IP Exclusion “renders the entire
insurance policy illusory. . . .” (Ans. PSJ 6). However, no such showing has been
made by Dental. The Policies covered injuries relating to a “personal and advertising
injury,” which potentially covers a broad range of claims. Such claims would have
remained covered under the Policies, including the 2012-13 Policy and the 2013-14
Policy absent of entanglement with intellectual property rights. It is Dental’s view of
the terms of the Policies that would in essence give no effect to the Endorsement that
was twice signed by Dental. Dental argues that the broad reading of the IP Exclusion
leads to unreasonable results. Dental argues, for example, that even if there were
claims filed by the plaintiffs in the Underlying Actions against each other, the broad
reading of the IP Exclusion would act as a bar to coverage. However, in such an
instance, Dental would face no legal claims. There would be no need for Dental to
pay legal costs or be indemnified and so there would be no need for Dental to seek
coverage. Dental chose to pursue litigation in the Underlying Actions to enforce its
intellectual property rights. Nothing in the Policies barred Dental from doing so.
However, Dental should have been aware based on the clear and unequivocal
language in the 2012-13 Policy and the 2013-14 Policy and the Endorsement that
was twice signed by Dental that Dental would likely need to pay to defend
counterclaims in such litigation. Based on the above, Hartford’s motion for summary
judgment in Count IV is granted and Dental’s motion for summary judgment on the
claim in Count IV is denied.
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III. Remaining Claims
In light of the above, Dental has failed to point to evidence that shows that
coverage under the Policies is triggered due to the “bodily injury” and “property
damage” language in the Policies or due to the use of the term “damages” in the
Policies. To the extent that Dental could show that the Counterclaims involve a
“personal and advertising injury,” the undisputed facts show that such claims are
excluded by the IP Exclusion. Based on such findings as a matter of law in regard to
the claim in Counts I and IV, Hartford is not obligated to indemnify or defend Dental
in the Underlying Action. The same relief that is sought by Hartford in Counts I and
IV is also sought by Hartford in Counts II, III, V, VI, VII, VIII, and IX. However,
Hartford moved for summary judgment on Counts I, IV, VII and IX. Having
resolved the relief sought by Hartford in Counts I and IV, there no longer remains a
controversy to be decided by this court as to any other Counts, including Counts VII
and IX on which Hartford moved for summary judgment. Judicial resources would
not best be served to rule on alternative claims seeking to resolve the same issue.
Since his court has concluded that Hartford owes no duty to defend or indemnify
Dental, Dental’s motion for summary judgment on Count IV is denied, and Dental’s
motion for summary judgment on II, III, V, VI, VII, VIII, and IX is denied without
prejudice as all relate to the duty to defend and indemnify. Therefore all remaining
claims, which seek the same ultimate relief that has been accorded based upon the
claims of Hartford in Counts I and IV, are dismissed without prejudice.
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CONCLUSION
Based on the above, Hartford’s motion for summary judgment is granted on
Counts I and IV and denied without prejudice on Counts VII and IX. Dental’s
motion for summary judgment on Count IV is denied, and Dental’s motion for
summary judgment on Counts II, III, and V-IX is denied without prejudice. All
remaining claims are dismissed without prejudice.
___________________________________
Samuel Der-Yeghiayan
United States District Court Judge
Dated: June 24, 2014
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