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CENTURY 21, INC. v. DIAMOND STATE INSURANCE COMPANY

May 13, 2004.

CENTURY 21, INC., et al., d/b/a CENTURY 21 DEPARTMENT STORES, LLC, Plaintiff -v.- DIAMOND STATE INSURANCE COMPANY, Defendant


The opinion of the court was delivered by: GERARD E. LYNCH, District Judge

OPINION AND ORDER

Century 21, Inc. ("Century") moves for partial summary judgment against Diamond State Insurance Company ("Diamond") seeking a judgment declaring that Diamond must defend it in a trademark infringement action and awarding it the fees thus far incurred in defending that action. Diamond cross-moves, disavowing any duty to defend or indemnify Century. Because Century's claim does not, as a matter of New York law, fall within the terms of its policy with Diamond, Century's motion will be denied, Diamond's motion granted, and this action dismissed.

  BACKGROUND

  Century, a retail store in Manhattan that sells goods including "personal apparel such as wallets, handbags, suitcases and briefcases" (Sultan Aff. ¶ 2), entered into an insurance contract with Diamond. (P. Rule 56.1 Stmt. ¶ 2.) The contract covered the term April 1, 1999, to April 1, 2002 (id.; D. Rule 56.1 Stmt. ¶ 5), and insured Century for, among other things, "[a]dvertising injury' caused by an offense committed in the course of advertising [Century's] goods." (Sultan Aff., Ex. C, Form CG 00 01 01 96 at 4.) The insurance policy defined "advertising injury," in turn, as
injury arising out of one or more of the following offenses:
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 of privacy;
c. Misappropriation of advertising ideas or style of doing business; or
d. Infringement of copyright, title or slogan.
(Id. at 10.)

  In June 2002, Gucci America, Inc. ("Gucci") filed a complaint against Century and others for trademark infringement and unfair competition. (Sultan Aff. ¶ 4; Ex. D.) Gucci Am., Inc. v. Big M Corp., No. 02 Civ. 3191 (S.D.N.Y. June 19, 2002.) The complaint alleges that defendants distributed and sold "handbag and wallet items . . . bearing copies of one or more of the various Gucci Trademarks." (Sultan Aff., Ex. D ¶ 17.) While it does not allege specifically that Century wrongfully advertised goods bearing Gucci's trademarks (D. Rule 56.1 Stmt. ¶ 4), it does allege that defendants, presumably including Century, "affixed, applied, or used in connection with the sale of [their] goods, false descriptions and representations," and "marketed, distributed and sold goods in connection with a colorable imitation and simulation of Gucci Trademarks." (P. Resp. to D. Rule 56.1 Stmt. ¶ 2 Sultan Aff., Ex. D. ¶¶ 26, 28.)

  By letter dated May 3, 2002, within ten days of receiving Gucci's complaint, Century notified Diamond of the Gucci action, provided it copies of the summons and complaint, and requested confirmation that Diamond would defend Century. (Sultan Aff. ¶ 8; Ex. E.) By letter dated May 17, 2002, Diamond disavowed coverage on several grounds, including that Century's claim did not qualify as "advertising injury." (Sultan Aff. ¶ 9; Ex. F at 3.) Century then retained counsel to represent it in the Gucci action. (P. Rule 56.1 Stmt. ¶ 8.) In July 2003, Century filed this action against Diamond, seeking contractual damages and a judgment declaring that Diamond must defend and indemnify Century in connection with the Gucci action.

  DISCUSSION

 I. Standard for Summary Judgment

  Summary judgment must be granted where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The parties do not dispute any genuine issues of material fact, and the interpretation of unambiguous provisions in an insurance contract is a pure question of law. Mazzuoccolo v. Cinelli, 666 N.Y.S.2d 621, 622-23 (1st Dep't 1997).

 II. The Duty to Defend

  New York law imposes on insurers an "exceedingly broad" duty to defend. Cont'l Gas. Co. v. Rapid-Am. Corp., 80 N.Y.2d 640, 648 (1993); see also Hugo Boss Fashions. Inc. v. Fed. Ins. Co., 252 F.3d 608, 620 (2d Cir. 2001); First Investors Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 165 (2d Cir. 1998). That 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 Sur. Co. v. The Gillette Co., 64 N.Y.2d 304, 310 (1984): see also., 41 N.Y.2d 947, 949 (1977) ("So long as the claims [against the insured], even though predicated on debatable or even untenable theory, may rationally be said to fall within policy coverage, whatever may later prove to be the limits of the insurer's responsibility to pay, there is no doubt that it is obligated to defend.").

  But the duty to defend has its limits. First Investors, 152 F.3d at 165. Where, as a matter of fact or law, the allegations do not assert a claim that conceivably falls within the terms of the policy, no duty to defend arises, Hugo Boss Fashions, 252 F.3d at 620, and courts "should not attempt to impose the duty to defend on an insurer through a strained, implausible reading of the complaint that is linguistically conceivable but tortured and unreasonable." Northville Indus. Corp. v. Nat'l Union Fire Ins. Co., 89 N.Y.2d 621, 634-35 (1997) (internal quotation marks omitted). Rather, the Court must examine the policy language and the allegations in the complaint to determine whether "the underlying complaint alleges any facts or grounds which bring the action within the protection purchased," First Investors, 152 F.3d 165-66 (internal quotation marks omitted); A. Meyers & Sons Corp. v. Zurich Am. Ins. Group, 74 N.Y.2d 298, 302-03 (1989) (court must "compare the allegations of the complaint to the terms of the policy to determine whether a duty to defend exists"), always mindful that ambiguities must be resolved in favor of the insured. Handelsman v. Sea Ins. Co., 85 N.Y.2d 96, 101 (1994).

 III. Advertising Injury

  Diamond's policy insured Century for "advertising injury," as defined above, "caused by an offense committed in the course of advertising [Century's] goods." (Sultan Aff., Ex. C, Form CG 00 01 01 96 at 4.) Century cites four allegations in Gucci's complaint that, in its view, claim "advertising injury": that it (1) "affixed, applied or used [Gucci trademarks] in connection with the sale of [its] goods (Gucci Compl., ¶ 26); (2) "marketed, distributed and sold goods in connection with a colorable imitation and simulation of the Gucci trademarks" (id. ¶ 28); (3) "engaged in deceptive acts in the ...


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