Summary
applying Reichold II to hold "'most significant interest' test mandates that, in the absence of extraordinary circumstances, the law of the state where the principal insured risk is located will apply"
Summary of this case from Colony Ins. Co. v. HalprinOpinion
No. 3:98-cv-2013 (EBB)
August 31, 2000
Ruling on Cross Motions for Summary Judgment
Plaintiff Lumbermens Mutual Casualty Company ("LMC"), an insurer, and defendant Dillon Company Inc. ("Dillon"), the insured, each move pursuant to Fed.R.Civ.P. 56 for summary judgment to decide whether a commercial general liability insurance policy for "infringement of title" covers patent infringement. Under the forum's choice of law rules, Connecticut substantive law applies. The court concludes that Dillon is not covered by the policy for patent infringement, and therefore LMC has no duty to defend or indemnify Dillon in the related patent action. Plaintiff's motion is granted; defendant's motion is denied.
I. Background
The following summary is based on the parties' Local Rule 9(c) statements, memoranda and documents incorporated therein.
A. Procedural History
This action arose out of a third party complaint filed by Dillon, impleading LMC into its patent infringement case, from which this indemnification action was severed. See Third-Party Complaint [Doc. No. 14] filed Nov. 3, 1998 in Jeneric/Pentron, Inc. v. Dillon, 3:98-cv-818 (EBB). On May 1, 1998, Jeneric/Pentron filed suit against Dillon, alleging patent infringement. Dillon advised LMC of the case and LMC denied that it had a duty to defend or indemnify under the terms of the policy.
Cross motions for summary judgment remain pending in that case.
On October 6, 1998, Dillon impleaded LMC into the patent case, seeking a declaratory judgment that it was covered under the policy. A week later, LMC filed a separate action, seeking declaratory relief that it was not obligated to defend or indemnify Dillon in the patent action. The second case was transferred and consolidated with the third-party action, which was severed from the patent case.
On April 13, 2000, the parties stipulated to the dismissal of counterclaims asserted by Dillon against LMC regarding coverage in two related cases. See Doc. No. 38 (dismissing counterclaims for indemnification in Invoclar North America v. Dillon Co., Inc., No. 98-130 L (D. R.I. March 13, 1998) andJeneric/Pentron, Inc. v. Dillon Co., No. 3:98-cv-1991 (EBB) CD. Conn. Oct. 7, 1998)). The only issue remaining is whether LMC's policy requires it to defend Dillon in the patent infringement case.
B. Factual Summary
The policy in question was a commercial general liability policy issued to Dillon as Policy No. 3MF 222 332-01, covering the relevant period from November 27, 1997, to November 27, 1998. The premium for the policy had been fully paid, and the liability arose within the coverage territory during the policy period. The pertinent portion of the policy carries a limit of $1 million. See Ex. 6 attached to Dillon Decl. [Doc. No. 17] (May 19, 1999) (the "Policy").
The Policy included coverage for advertising injury, which is defined, in part, as "[i]nfringement of copyright, title or slogan." Policy at § V (1)(d). Coverage for advertising injury applied only to liabilities "caused by an offense committed in the course of advertising [Dillon's] goods, products or services." Id. at § I (B)(1)(b)(2). Although the Policy contains several exclusions to coverage, none apply here. See id. at § 1(B)(2). The insuring agreement obligates LMC to "pay those sums that the insured becomes legally obligated to pay as damages because of . . . advertising injury to which this insurance applies." Id. at § I (B)(1)(a). The agreement expressly states that LMC "will have no duty to defend the insured against any suit . . . to which this insurance does not apply." Id. The inquiry is therefore limited to whether, under the terms of the Policy, the coverage for infringement of copyright, title or slogan includes patent infringement. The insurance Policy at issue does not contain a choice of law provision.
Dillon points to a subsequent amendment to the policy, which redefined "advertising injury" as "infringement of copyrighted advertising materials," deleting the prior reference to infringement of copyright, title or slogan." See Ex. 8 attached to Dillon Decl. (the "Renewal") at § V(1)(b). The Renewal also added several exclusions to "advertising injury," most notably, those "arising out of, or alleged to arise out of, infringement of patent . . . ." Id. at § I (B)(2)(h). Although the Renewal was not in effect at the time of the alleged injury, Dillon contends that this change betokens coverage for patent infringement prior to the Renewal, or in the alternative, that the amendment at least creates ambiguity, necessitating consideration of extrinsic evidence of the parties' intent. See Def's. Mot. for Partial Summ. J. [Doc. No. 15] at 19-21 (May 18, 1999). Finding no such ambiguity, the court reads the Renewal as merely clarifying the definition of "advertising injury" and enumerating the exclusions to coverage. Consequently, in accordance with the parole evidence rule, no consideration is given to the Renewal's effect on prior coverage of the policy. See, e.q., Western World Ins. Co. v. Peters, 989 F. Supp. 188, 193 (D. Conn. 1997) ("although parole evidence can be used to resolve an ambiguity in a contract, it clearly cannot be used to create one").
II. Discussion
Summary judgment must be granted where "there is no genuine issue as to any material fact and that the moving party is. entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c);accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 2513, 91 L.Ed.2d 292 (1986). The facts are not in dispute here and the parties agree that the terms of the Policy govern the dispute as a matter of law.
A. Choice of Law
A federal court sitting in diversity applies the conflict of law rules of the forum state to determine which states' substantive law governs the dispute. See Klaxon Co. v. Stentor Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed.2d 1477 (1941). Connecticut's choice of law approach to resolving issues of contractual interpretation is governed by the Restatement (Second) of Conflicts of Law ("Restatement") § 188, which, in the absence of an effective choice of law by the parties, applies the law of the state that has the most significant relationship to the transaction and the parties. See Reichold Chems., Inc. v. Hartford Accident and Indem. Co., 252 Conn. 774, 781, 750 A.2d 1051, 1055 (2000) ("Reichold II") ("Where there is no choice of law provision in the contract, the general rule to be applied is that of § 188."). Section 188 enumerates five relevant contacts to be taken into account in applying the seven choice-of-law principles incorporated by reference from § 6. See Restatement §§ 6, 188.
"(a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil[e], residence, nationality, place of incorporation and place of business of the parties." Restatement § 188.
"(a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied." Id. § 6.
In addition to the considerations mandated by these two sections, a third section of the Restatement creates a rebuttable presumption favoring application of the law of the state "which the parties understood was to be the principal location of the insured risk." Id. § 193; see also Reichold II, 252 Conn. at 782, 750 A.2d at 1056 ("With respect to liability insurance contracts, the starting point is § 193 of the Restatement (Second), which creates a rebuttable presumption in favor of the state where the insured risk is located.").
In Reichold II, the Connecticut Supreme Court clarified its earlier ruling on the effect of the § 193 presumption. The first time the Court reviewed the case, it "adopt[ed] the § 193 special presumption for liability insurance contracts, which provides that unless another state has an overriding policy-based interest in the application of its law, the law of the state in which the insured risk is located should be applied." See Reichold Chems., Inc. v. Hartford Accident and Indem. Co., 243 Conn. 401, 414, 703 A.2d 1132, 1138 (1997) ("Reichold I"). On remand, the superior court applied the law of the non-site state, finding it had an overriding interest in having its laws applied to the remaining issues. See Reichold II, 252 Conn. 774, 780, 750 A.2d 1051, 1054-55 (2000). On appeal, the Supreme Court again reversed, concluding that the § 193 presumption required the court to apply the law of the state wherein the insured risk was situated:
the "most significant interest' test mandates that, in the absence of extraordinary circumstances, the law of the state where the principal insured risk is located will apply. We will depart from this rule only in those exceptional circumstances where the interests of another state substantially outweigh the interests of the site state.
Id. at 788-89, 750 A.2d at 1059 (emphases added). The Reichold II Court thus bolstered the strength of the § 193 presumption, holding as a matter of law that the state wherein the risk is sited has the most significant relationship unless another state's interest is sufficiently compelling to outweigh the interest of the site state. See id. at 782, 750 A.2d at 1056 ("It must be remembered that even if another state has a substantial interest under § 6(2), that interest will not defeat the § 193 presumption unless it is sufficiently compelling;").
Here, the risk insured by LMC was for "advertising injury," including the "infringement of title." Unlike real property or a tangible asset, the alleged patent infringement for which Dillon seeks coverage was not sited in any particular location. The terms of the Policy covered that risk in "[a]ll parts of the world," so long as the injury arose from goods made or sold in the United States, Puerto Rico or Canada. Policy § V (4)(a) (c)(1)(a). The parties do not dispute that the alleged infringement occurred within the coverage territory.
In essence, the insured risk contemplated by the Policy was for damages resulting from a lawsuit. See id. at § I (B)(1)(a) ("We will pay those sums that the insured becomes legally obligated to pay as damages . . . . We will have the right and duty to defend any "suit' seeking those damages. ") Because the underlying suit for damages was brought against Dillon in Connecticut, that is the state wherein the insured risk is located. Having dismissed by stipulation of the parties Dillon's counterclaim seeking indemnification for the Invoclar action brought in Rhode Island, Connecticut remains the only state in which the insured risk is located, and consequently, the jurisdiction whose law is presumed to apply. See Reichold II, 252 Conn. at 782, 750 A.2d at 1056.
Notwithstanding the dismissal of the claim based onInvoclar, Dillon presses Rhode Island as the state with the most significant relationship to the transaction or the parties because Dillon is incorporated, has its principal place of business, and purchased the Policy, in Rhode Island. See Def's. Mot. at 9-10. Dillon's argument harkens back to the lex loci contractus approach to choice-of-law, which the Connecticut Supreme Court specifically disavowed in favor of the most significant relationship test. See Reichold I, 243 Conn. at 412, 703 A.2d 1137-38 ("we expressly abandoned `categorical allegiance' to [lex loci contractus] in favor of the Restatement (Second) approach."). Bound by the Reichold decisions adopting the Restatement approach to choice-of-law, this court finds that, under Restatement § 193, Connecticut law is presumed to apply here.
In analyzing the five contacts of Restatement § 188 in the context of the seven choice-of-law principles of Restatement § 6, the court finds none of Rhode Island's possible interests "sufficiently compelling" to trump the presumption favoring Connecticut law. Reichold II, 252 Conn. at 782, 750 A.2d at 1056 ("Section 6(2) of the Restatement provides the criteria by which that overriding interest should be evaluated."). Therefore, Connecticut law governs this insurance coverage dispute.
Rhode Island law, even if applicable, does not conflict with Connecticut law on the disputed issue — whether coverage for infringement of title includes patent infringement — because the courts of that state have not yet addressed that question. Cf. OSP, Inc. v. Aetna Cas. Sur. Co., No. 326873, 1998 WL 892997, at *3 (Conn.Super.Ct. Dec. 8, 1998) ("It is only after a determination is made that there is indeed an actual conflict between the laws of the particular jurisdictions that the interests of the respective jurisdictions are analyzed.") (citation omitted). Dillon cites Nortek, Inc. v. Liberty Mut. Inc. Co., 858 F. Supp. 1231, 1235 (D. R.I. 1994), arguing that, if confronted with the issue, the Rhode Island Supreme Court would answer the coverage question in its favor. Even if Rhode Island's interests were sufficiently compelling to override the § 193 presumption, this court would not be inclined to read a states' silence on an issue to be in conflict with a state that has affirmatively addressed that question.
B. Connecticut Insurance Law
In Connecticut, as elsewhere, insurance policies are interpreted in accordance with principles of contract law. SeeHeyman Assocs. No. 1 v. Insurance Co. of Pennsylvania, 231 Conn. 756, 769-70, 653 A.2d 122, 130 (1995) ("Under our law, the terms of an insurance policy are to be construed according to the general rules of contract construction."). Under Connecticut law, an insurer's duty to defend "is determined by reference to the allegations contained in the [injured party's] complaint," and arises "if the complaint states a cause of action which appears on its face to be within the terms of the policy coverage." Imperial Cas. and Indem. Co. v. State, 246 Conn. 313, 323-24, 714 A.2d 1230, 1236 (1998) (citation and internal quotation marks omitted). An insurer's duty to defend is broader than its duty to indemnify and does not depend on whether the injured party will prevail against the insured. See id. ("Even if an allegation of the complaint falls even possibly within the coverage, then the' insurance company must defend the insured."). On the other hand, "if the complaint alleges a liability which the policy does not cover, the insurer is not required to defend." Springdale Donuts, Inc. v. Aetna Cas. Sur. Co. of Illinois, 247 Conn. 801, 806, 724 A.2d 1117, 1120 (1999)
Here, LMC has no duty to defend because, as the Connecticut courts have already decided, Dillon's allegation of patent infringement is not a liability covered by a commercial general liability policy. In Julian v. Liberty Mut. Ins. Co., 43 Conn. App. 281, 682 A.2d 611 (1996), the Connecticut Appellate Court addressed the same coverage question facing this court in a policy with nearly identical language. Like the Policy at issue here, the Julian policy covered "advertising injury," which was defined to include "infringement of title." Id. at 283, 682 A.2d at 613. In a careful, well-reasoned analysis, the court considered and rejected many of the same pro-coverage arguments raised by Dillon, including the claim that the absence of a specific exclusion for patent infringement denotes an ambiguity that must be strictly construed against the insurer. See id. at 288, 682 A.2d at 615 (agreeing with those courts that "have applied the principle of noscitur a sociis [it is known by the company it keeps] and have found no ambiguity in the phrase infringement of title"). Concluding that a commercial general liability insurer like LMC is not obligated to defend an insured for patent infringement claims, the Julian court announced its holding with crystalline clarity:
We are not inclined to chart new pathways in the law with respect to an interpretation of a single word in an insurance policy that excludes coverage for one special category of claims, when that interpretation has been approved by every court that has considered the issue as far as we are aware. It is preferable that such matters should be regarded as settled. We conclude that, in the context of the policy before us, the inclusion of the phrase infringement of title in the definition of advertising injury does not create a reasonable expectation on the part of an insured for liability coverage of patent infringement claims even under the broad standard of potential liability followed in cases involving the duty to defend.Id. at 288-89, 682 A.2d at 615.
Given the cogent and definitive ruling in which the Connecticut Appellate Court dealt with the same insurance coverage question, this court regards Julian as dispositive of that issue in this case. Because virtually every court to confront the precise issue has squarely held that claims of patent infringement are not encompassed within "infringement of title" as defined in commercial general liability policies, there is no reason to suspect that Connecticut's highest court would deviate from the well-trod path recognized in Julian. See, e.q., U.S. Test, Inc. v. NDE Envtl. Corp., 196 F.3d 1376, 1381 n. 2 (Fed. Cir. 1999) ("We agree with the legion of federal and state courts, construing identical or closely similar policy language, that have uniformly held that omission of the offense of patent infringement reflects the parties' clear intent that allegations of that offense are not covered by the policy.") (collecting cases). Accordingly and as a matter of law, LMC has no duty to defend or indemnify Dillon for patent infringement under the terms of its Policy.
III. Conclusion
For the foregoing reasons, Plaintiff's Motion for Summary Judgment [Doc. No. 20] is GRANTED; Defendant's Motion for Partial Summary Judgment [Doc. No. 15] is DENIED. Plaintiff's Motion to Strike Exhibit DX-8 [Doc. No. 23] and Motion to Extend Time to Answer Counterclaims [Doc. No. 31] are dismissed as moot.
So ordered.