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CENTURY 21, INC. v. DIAMOND STATE INSURANCE COMPANY

United States District Court, S.D. New York


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 conduct of business, trade or commerce" (id. ¶ 30); and (4) sold and "offer[ed] for sale . . . counterfeit items to the purchasing public" (id. ¶ 33). (P. Br. 7.)

  None of these allegations can be construed as "advertising injury" within the meaning of sub-paragraphs (a), (c) or (d) of the policy definition, which cover, respectively, injuries arising from slander or libel, a violation of the right to privacy, or an infringement of a copyright, slogan or title (Sultan Aff, Ex. C, Form CG 00 01 01 96 at 10), and Century does not argue otherwise. It instead contends that Gucci's allegations fall within sub-paragraph (c), which covers injuries arising from "[m]isappropriation of advertising ideas or style of doing business." (Id.) Indeed, according to Century, Gucci's allegation of trademark infringement, by nature, is an allegation of such misappropriation (P. Br. 6), and at a minimum, makes ambiguous whether Gucci's claims allege advertising injury, as defined by the policy, triggering the duty to defend. (id. 10-11.)

  This argument fails for two related reasons. First, the policy covers certain enumerated advertising injuries, including "misappropriation of advertising ideas or style of doing business," only when "committed [by Century] in the course of advertising."(Emphasis added.) Gucci's complaint alleges that Century committed a number of offenses, but not by misappropriating its "advertising ideas or style of doing business"; it rather alleges that Century unlawfully sold and offered to sell counterfeit Gucci merchandise. In A. Meyers & Sons Corp., the New York Court of Appeals construed an "advertising injury" clause virtually identical to the one implicated here. The plaintiff insured, which had been named in an action brought by the International Trade Commission, sought a declaratory judgment requiring the defendant insurer to defend it in that action. 74 N.Y.2d at 301. The Commission alleged that the plaintiff unlawfully manufactured, imported, and sold certain patented plastic goods, and the plaintiff sought to characterize these allegations as claims of "advertising injury" within the meaning of its insurance policy, which provided in relevant part:

"Advertising Injury" means injury arising out of an offense committed during the policy period occurring in the course of 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.
Id. (emphasis in A. Mevers & Sons). The Court of Appeals rejected this characterization, noting that "to trigger [the insurer]'s duty to defend, the claimed injury must both arise out of an offense occurring in the course of the insured's `advertising activities' and constitute one of the enumerated offenses." Id. at 303. The Commission's complaint, however, alleged injury arising out of the plaintiff insured's importation and sale, which, the court held, could not be equated with "advertising activities." Id. at 303-04.*fn1 By contrast, where New York courts have sustained a duty to defend predicated on advertising injury, the underlying complaint has explicitly alleged, or at a minimum adverted to, advertising activities.*fn2 Century cites no New York case in which a duty to defend has been found under an "advertising injury" clause based solely on underlying allegations related to the insured's manufacture, distribution or sale of allegedly infringing goods or services.

  Second, as a matter of law, merely selling an item does not constitute advertising within the meaning of an advertising injury clause in an insurance policy. In a certain sense, of course, every item is an advertisement for itself. A counterfeit Gucci wallet, by this logic, advertises a real Gucci wallet and thereby misappropriates Gucci's advertising ideas. But as the First Circuit aptly explained in a case involving an advertising injury clause virtually identical to the one at issue here, while the production, distribution, and sale of an item can be deemed advertising "in the banal sense that every product displayed or depicted is an advertisement for itself and its obvious features," to define advertising "to mean any form of `calling public attention'" would be to "stretch the term . . . in a way that has no natural stopping point short of absurd results." EKCO Group, Inc. v. Travelers Indem. Co., 273 F.3d 409, 413-14 (1st Cir. 2001). Furthermore, the more familiar definition of advertising as "an activity or item distinct from the product being advertised," such as media exposure of some kind,

coheres with other language in the same two provisions [of the "advertising injury" clause] — the coverage and definitional paragraphs. To speak of "the course of advertising your goods" suggests some distinction between producing and selling the goods on the one hand and "advertising" them on the other; and all of the definitions of covered offenses apart from "misappropriation" make clear (in two cases) or imply (in the last) that the drafter had in mind something akin to conventional advertising ("oral or written publication of material" causing libel or invasion of privacy; infringement of copyright, title, or slogan).
Id. at 413-414: see also Short Supply Group. Inc. v. Columbia Gas. Co., 335 F.3d 453, 463 (5th Cir. 2003).*fn3

  None of the cases cited by Century, many of which emanate from jurisdictions outside of New York and therefore would not control in any event, support its view that the mere allegation in Gucci's complaint that Century marketed and sold counterfeit Gucci items qualifies as one of the Diamond policy's enumerated advertising injuries "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.) Most are distinguishable because the underlying complaints specifically alleged wrongful advertising activities. See note 1, above. Allou Health & Beauty Care, Inc. v. Aetna Casualty and Surety Co., 703 N.Y.S.2d 253 (2d Dep't 2000), upon which Century places principal reliance (P. Opp. Br. 5), likewise involved a complaint that expressly alleged, inter alia, "false advertising," id. at 254, and the Second Department said only that "trademark infringement claims are covered as advertising injury where they relate to the misappropriation of advertising ideas and style of doing business." Id. at 255 (emphasis added).

  Here, the Gucci complaint does not allege that Century engaged in false advertising, or indeed, any advertising at all. The predicate for each of Gucci's causes of action is that Century or one of the other defendants distributed and sold counterfeit Gucci merchandise. Even assuming arguendo that the abstract allegation that Century "affixed, applied, or used in connection with the sale of goods, false descriptions and representations" (Gucci Compl. ¶ 26) sufficed to allege one of the policy's enumerated advertising injuries ("misappropriation of advertising ideas or style of doing business"), the complaint expressly alleges that Century committed these unlawful acts "in connection with the sale of goods" (emphasis added), not in the course of advertising activity. True, the duty to defend can be triggered not only by allegations contained within "the four corners of the complaint," but also where "the insurer has actual knowledge of facts establishing . . . a reasonable possibility of coverage." Continental Cas., 80 N.Y.2d at 648. But Century has made no showing that facts developed in the underlying Gucci action disclose the existence of a claim for advertising injury, still less that Diamond has actual knowledge of such a claim. Indeed, Century does not even represent that it did engage in any advertising in connection with the allegedly counterfeit Gucci products.

  In short, Century cannot establish either that Gucci's allegations "arise out of an offense occurring in the course of [its] `advertising activities'" or that the acts for which it seeks to hold Diamond to the duty to defend "constitute one of the enumerated offenses" in the advertising injury clause of its insurance policy. See A. Meyers & Sons, 74 N.Y.2d at 303; GRE Ins. Group, 691 N.Y.S.2d at 246. To find that Gucci has alleged "advertising injury" within the meaning of the policy would require "a strained, implausible reading of the complaint that is linguistically conceivable but tortured and unreasonable." First Investors, 152 F.3d at 166 (internal quotation marks omitted). Under New York law, Century's claim does not fall within the unambiguous terms of its policy; it does not seek recovery for "advertising injury," as defined by that policy. Accordingly, Diamond is under no duty to defend or indemnify Century in connection with the Gucci action.*fn4

  CONCLUSION

  For the reasons stated, Century's motion is denied, Diamond's motion granted, and this action dismissed.

  SO ORDERED.


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