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Feldman Law Group P.C. v. Liberty Mutual Insurance Co.

June 30, 2011





Feldman Law Group ("FLG") brings suit against Liberty Mutual Insurance Company ("Liberty") as a result of Liberty's refusal to provide a defense to The Hyman Companies ("Hyman") in an earlier action before this Court.*fn1 Liberty now moves to dismiss for failure to state a claim. For the reasons discussed below, Liberty's motion is granted.


On January 24, 2007, Van Cleef and Arpels Logistics SA ("Van Cleef") brought suit for copyright and trade dress infringement*fn2 against Hyman, an Allentown, Pennsylvania, corporation with jewelry stores nationwide,*fn3 including Landau Jewelry in New York.*fn4 Van Cleef alleged that Hyman produced jewelry featuring a series of elements representing the Alhambra Trade Dress, which is copyrighted Van Cleef property.*fn5 Alleging that Hyman's jewelry was "confusingly similar" to its own, Van Cleef complained that Hyman was responsible for trade dress infringement as a violation of Section 43(a) of the Lanham Act,*fn6 common law trade dress infringement and unfair competition, and copyright infringement.*fn7

While Van Cleef asked the court for injunctive relief to halt Hyman from continuing to advertise the offending jewelry and requested that all advertising material, such as catalogs and circulars, be destroyed,*fn8 it was the underlying production, and subsequent sale and distribution, of the jewelry that subjected

Hyman to Van Cleef's action.*fn9

Hyman hired FLG as defense counsel and apprised Liberty, its insurance provider, of the pending litigation.*fn10 Hyman requested that Liberty provide a defense pursuant to the insurance policy Hyman had purchased.*fn11 The policy states that the insurance company has "the right and duty to defend" in any suit seeking damages for "personal and advertising injury."*fn12 FLG avers that Liberty was duty-bound to defend Hyman "against claims of Trade Dress and Copyright Infringement resulting from insured's alleged advertisement of infringing goods and products."*fn13 The policy, which is attached to and incorporated by reference into the Complaint, only covers injury arising out of "the use of another's advertising idea" or "infringing upon another's copyright, trade dress or slogan in your advertisement."*fn14

The policy contains fifteen exclusions of acts which are not covered.

Exclusion "i" pertains to "'[p]ersonal and advertising injury' arising out of infringement of copyright, patent, trademark, trade secret or other intellectual property rights or out of securities fraud."*fn15 The policy makes clear that the exclusion does not apply to trade dress or copyright infringement in an advertisement, but otherwise exempts intellectual property-related offenses from coverage.*fn16

In a letter dated September 27, 2010, a Liberty representative outlined Liberty's refusal to provide a defense.*fn17 Liberty explained that while Van Cleef requested that Hyman be enjoined from continuing to advertise the offending jewelry, the trade dress and copyright infringement claims did not stem from Hyman's advertising.*fn18 Liberty further explained that although Van Cleef did allege that Hyman distributed its jewelry by "other means," such an allegation was "not sufficiently specific as to constitute an allegation of advertising."*fn19 Liberty's letter also contended that because a Pennsylvania sales office sold the insurance policy to Hyman in Pennsylvania, that state's law applied.*fn20 As a result, Liberty maintained that any allegations extrinsic to the Complaint could not be considered in determining whether the policy covers a claim.*fn21

Van Cleef's action against Hyman was settled at Hyman's expense, prompting it to file for bankruptcy.*fn22 As the assignee of Hyman's rights and interests in the insurance policy at issue, FLG now brings suit against Liberty.*fn23

FLG claims breach of contract, unfair insurance practices, and common law deceit and fraud.*fn24 Regarding the claim of unfair insurance practices, FLG asserts that Liberty "intentionally misrepresented its policy's true nature."*fn25 As for the deceit and fraud charges, FLG claims that "Liberty deceived the insured when it advertised, promoted, and sold its insurance policy to Hyman."*fn26 Liberty now moves to dismiss all three counts for failure to state a claim.


A. New York Choice-of-Law

In diversity actions, federal courts follow the choice-of-law rules of the forum state to determine the controlling substantive law.*fn27 Under New York choice-of-law rules, courts first determine whether there is a substantive conflict between the laws of the relevant choices.*fn28 "In the absence of substantive difference . . . a New York court will dispense with choice of law analysis; and if New York law is among the relevant choices, New York courts are free to apply it."*fn29 If there is a conflict, in a contract case, "[i]t is well settled that New York has long recognized 'the use of a center of gravity or grouping of contacts analytical approach to choice of law questions.'"*fn30 Among the factors to consider are "the place of contracting, the places of negotiation and performance, the location of the subject matter, and the domicile or place of business of the contracting parties."*fn31 In the insurance context, courts typically apply the law of the state "which the parties understood was to be the principal location of the insured risk,"*fn32 unless the policy in question "cover[s] risks that are spread throughout multiple states."*fn33 In such cases, the goals of "'certainty, predictability and uniformity of result' and 'ease in the determination and application of the law to be applied'" augur in favor of applying the laws of the insured's principle domicile.*fn34

To resolve conflicts in tort cases, New York applies an "interest analysis" to identify the jurisdiction that has the greatest interest in the litigation based on the occurrences within each jurisdiction, or contacts of the parties with each jurisdiction, that "'relate to the purpose of the particular law in conflict.'"*fn35

When the law is one which regulates conduct, "the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders."*fn36 A tort occurs in "the place where the injury was inflicted," which is generally where the plaintiff is located.*fn37

B. Application

FLG contends that New York law applies, while Liberty maintains that the Court should apply Pennsylvania law. Comparing New York and Pennsylvania law governing a contractual duty-to-defend, there is at least one important difference. In Pennsylvania, "'[t]he obligation of an insurer to defend an action against the insured is fixed solely by the allegations in the underlying complaint.'"*fn38 In contrast, in New York, "[t]he duty of an insurer to defend arises whenever the allegations within the four corners of the underlying complaint potentially give rise to a covered claim, or where the insurer 'has actual knowledge of facts establishing a reasonable possibility of coverage.'"*fn39 The difference is subtle, but important. Whereas Pennsylvania employs a strict four-corners rule, New York will impose a duty to defend based on knowledge extrinsic to the contract. This difference has the potential to fundamentally alter a court's analysis, and as such represents a conflict sufficient to require a formal choice-of-law analysis.

In undertaking such an inquiry, I conclude that Pennsylvania law applies and that plaintiff's contention that New York law should apply (because the underlying lawsuit and settlement occurred in New York) is unavailing. The policy itself, which functions as the contract, was sold by Liberty's Allentown, Pennsylvania, sales office and listed the insured as an Allentown, Pennsylvania, corporation. Though it is certainly true that the insured risk was spread among multiple states - including New York, where Landau Jewelry, the ...

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