Marvin J. Perry, Inc. v. Hartford Casualty Insurance Co. , 412 F. App'x 607 ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-1639
MARVIN J. PERRY, INC.,
Plaintiff - Appellant,
v.
HARTFORD CASUALTY INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Roger W. Titus, District Judge. (8:08-
cv-00138-RWT)
Argued: October 28, 2010 Decided: February 25, 2011
Before MOTZ, AGEE, and WYNN, Circuit Judges.
Affirmed by unpublished opinion. Judge Wynn wrote the opinion,
in which Judge Motz and Judge Agee joined.
ARGUED: Clifton Merritt Mount, JACKSON & CAMPBELL, PC,
Washington, D.C., for Appellant. Jody Manier Kris, WILMERHALE,
Washington, D.C., for Appellee. ON BRIEF: Gregory Lee
VanGeison, ANDERSON, COE & KING, LLP, Baltimore, Maryland;
Jeremy DuQuesnay Dresner, WILMER CUTLER PICKERING HALE AND DORR,
LLP, Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
WYNN, Circuit Judge:
Under Maryland law, “[i]t is generally true that an insurer
has no duty to defend a cause of action against an insured if
that cause of action asserts liability on the part of the
insured that comes within an exclusion in the insurance policy.” 1
Plaintiff Marvin J. Perry, Inc. (“MJP”) contends that its
business liability insurer, Defendant Hartford Casualty
Insurance Company (“Hartford Insurance”), breached its
contractual duty to provide a defense in an action brought
against MJP. Because the underlying action involved only claims
falling within an express contractual exclusion to Hartford
Insurance’s duty to defend, we affirm the district court’s grant
of summary judgment for Hartford Insurance.
I.
MJP filed this action in an attempt to recover fees and
costs incurred while defending a lawsuit brought against MJP by
Perry & Wilson, Inc. (“P&W”). 2 That suit ended in a settlement
agreement, and the matter before us concerns whether Hartford
Insurance, by allegedly breaching its duty to defend, is
1
Government Employees Ins. Co. v. Ropka, 74 Md. App. 249,
257, 536 A.2d 1214, 1218 (1987), cert. denied, 312 Md. 601, 541
A.2d 964 (1988).
2
The case was originally filed in Circuit Court for
Montgomery County, Maryland, but was removed to federal district
court on January 16, 2008.
2
responsible for the defense expenses incurred by MJP before
settlement with P&W. See Bankers & Shippers Ins. Co. of N.Y. v.
Electro Enters., Inc., 287 Md. 641, 649, 415 A.2d 278, 283
(1980) (“[W]henever an insured must conduct his own defense at
his own expense as a result of an insurer’s breach of a
contractual duty to defend its insured, the insured may recover
the expenses of that defense from the insurer.”). Hartford
Insurance asserted that an exclusion in MJP’s insurance policy
relieved it of any duty to defend MJP against the suit brought
by P&W.
Following the filing of cross-motions for summary judgment
by the parties, the district court issued an order granting
Hartford Insurance’s motion. The court reasoned in a memorandum
opinion that, based on the nature of the claims in the
underlying suit, the “Intellectual Property Rights Exclusion” in
the insurance policy relieved Hartford Insurance of the duty to
defend.
On appeal, MJP contends that the district court erred by
granting summary judgment because the underlying suit involved a
claim for unfair competition that was not subject to the
“Intellectual Property Rights Exclusion,” and thus, Hartford
Insurance had a duty to defend. We disagree.
3
II.
It is well established that our review of a grant of
summary judgment is de novo. French v. Assurance Co. of Am.,
448 F.3d 693, 700 (4th Cir. 2006). “Summary judgment is
appropriate when there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law.”
Id.; Fed. R. Civ. P. 56(c).
Additionally, we must apply Maryland law because the action
was removed to the District of Maryland based on diversity, and
Hartford Insurance issued its policy to MJP in Maryland. See
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97
(1941) (holding that a federal court exercising diversity
jurisdiction must apply the choice of law principles of the
state in which the federal court is located); Glaser v. Hartford
Cas. Ins. Co., 364 F. Supp. 2d 529, 531 n.2 (D. Md. 2005)
(indicating that in Maryland, the law used to construe an
insurance policy is that of the state where the policy was
delivered and premiums were paid).
III.
An insurer’s contractual duty to defend arises from the
terms of the insurance policy. Litz v. State Farm Fire & Cas.
Co., 346 Md. 217, 225, 695 A.2d 566, 569 (1997); see also
Brohawn v. Transamerica Ins. Co., 276 Md. 396, 409, 347 A.2d
4
842, 851 (1975) (“The promise to defend the insured, as well as
the promise to indemnify, is the consideration received by the
insured for payment of the policy premiums.”).
“The obligation of an insurer to defend its insured under a
contract provision . . . is determined by the allegations in the
tort actions. If the plaintiffs in the tort suits allege a
claim covered by the policy, the insurer has a duty to defend.”
Brohawn, 276 Md. at 407, 347 A.2d at 850. Indeed, “[e]ven if a
tort plaintiff does not allege facts which clearly bring the
claim within or without the policy coverage, the insurer still
must defend if there is a potentiality that the claim could be
covered by the policy.” Id. at 408, 347 A.2d at 850.
In determining whether a liability insurer has a duty
to provide its insured with a defense in a tort suit,
two types of questions ordinarily must be answered:
(1) what is the coverage and what are the defenses
under the terms and requirements of the insurance
policy? (2) do the allegations in the tort action
potentially bring the tort claim within the policy’s
coverage?
St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193,
438 A.2d 282, 285 (1981).
A. The Policy And The Applicable Exception
“In answering the first Pryseski inquiry, we focus on the
terms of the insurance policies themselves to determine the
scope and limitations of their coverage.” Aetna Cas. & Sur. Co.
5
v. Cochran, 337 Md. 98, 104, 651 A.2d 859, 862 (1995). We
construe the insurance policy according to contract principles.
See Litz, 346 Md. at 224-25, 695 A.2d at 569. Thus, we must
afford the contract terms their “customary, ordinary, and
accepted meaning.” See Lloyd E. Mitchell, Inc. v. Maryland Cas.
Co., 324 Md. 44, 56, 595 A.2d 469, 475 (1991). “Maryland does
not follow the rule that insurance policies should, as a matter
of course, be construed against the insurer.” Dutta v. State
Farm Ins. Co., 363 Md. 540, 556, 769 A.2d 948, 957 (2001). 3 “To
determine the intention of the parties to the insurance
contract, which is the point of the whole analysis, we construe
the instrument as a whole.” Pacific Indem. Co. v. Interstate
Fire & Cas. Co., 302 Md. 383, 388, 488 A.2d 486, 488 (1985)
(citations omitted).
Mindful of these principles of construction, we begin by
noting that MJP’s insurance policy provided that Hartford
Insurance:
will pay on behalf of the insured those sums that the
insured becomes legally obligated to pay as damages
3
Nonetheless, “[i]f the language is ambiguous, extrinsic
evidence may be consulted[,]” Collier v. MD-Individual Practice
Ass’n, Inc., 327 Md. 1, 6, 607 A.2d 537, 539 (1992), and “if
ambiguity is determined to remain after consideration of
extrinsic evidence, ‘it will ordinarily be resolved against the
party who drafted the contract,’ where no material evidentiary
factual dispute exists.” Clendenin Bros., Inc. v. U.S. Fire Ins.
Co., 390 Md. 449, 459-60, 889 A.2d 387, 394 (2006) (quoting
Collier, 327 Md. at 6, 607 A.2d at 539).
6
because of . . . “personal and advertising injury” to
which this insurance applies. [Hartford Insurance]
will have the right and duty to defend the insured
against any “suit” seeking those damages. However,
[Hartford Insurance] will have no duty to defend the
insured against any “suit” seeking damages for . . .
“personal and advertising injury” to which this
insurance does not apply.
The policy defined “personal and advertising injury” as
injury arising out of, inter alia, “[c]opying, in your
‘advertisement’ a person’s or organization’s ‘advertising idea’
or style of ‘advertisement.’” “Advertisement” is defined to
include “the widespread public dissemination of information or
images that has the purpose of inducing the sale of goods,
products or services through . . . [t]he Internet.”
“‘Advertising idea’ means any idea for an ‘advertisement[.]’”
Thus, the policy obligates Hartford Insurance to defend
against some suits alleging advertising injury. But the policy
also states, in what the district court called the Intellectual
Property Rights Exclusion, that the “insurance does not apply to
. . . ‘personal and advertising injury’ . . . [a]rising out of
any violation of any intellectual property rights, such as
patent, trademark, trade name, trade secret, service mark or
other designation of origin or authenticity.” Under Maryland
law, “where the insurer properly and unambiguously uses language
in its exclusion, the clear and specific terms must be enforced
. . . .” Megonnell v. United Servs. Auto. Ass’n, 368 Md. 633,
7
656, 796 A.2d 758, 772 (2002) (quoting Eric Mills Holmes & Mark
S. Rhodes, Holmes’s Appleman on Insurance, 2d 276-81 (Eric Mills
Holmes ed., vol. 2 § 7.2, West 1996)).
In Superformance Int’l, Inc. v. Hartford Cas. Ins. Co.,
332 F.3d 215 (4th Cir. 2003), this Court interpreted an
exclusion almost identical to that at issue in this case as
relieving Hartford Insurance of the duty to defend claims of
unfair competition claims based on, inter alia, trademark
infringement. Id. at 222-24. 4 Other circuits have also
recognized similar exclusions as relieving an insurer of the
right to defend claims alleging trademark violations. See,
e.g., Native Am. Arts, Inc. v. Hartford Cas. Ins. Co., 435 F.3d
729, 732-35 (7th Cir. 2006) (holding that clause excluding
coverage for injury “[a]rising out of any violation of any
intellectual property rights” relieved Hartford Insurance of
duty to defend suit alleging mislabeling of products and
trademark violations); Parameter Driven Software, Inc. v. Mass.
4
In its reply brief, MJP attempts to distinguish
Superformance based on the nature of the underlying dispute.
However, the nature of the dispute is not why Superformance is
relevant to this case. Rather, Superformance provides useful
guidance insofar as the Court interpreted the “trademark
exclusion” (containing almost identical language to that
constituting the “Intellectual Property Rights Exclusion” at
issue here) to apply to all claims based on trademark violation.
In other words, Superformance provides support for Hartford
Insurance’s argument that if the unfair competition claim stems
from a trademark violation, it is excluded under the policy.
8
Bay Ins. Co., 25 F.3d 332, 337 (6th Cir. 1994) (holding that
because “[a]ll four counts of [the] complaint were based upon
[the insured’s] use of the trademark,” policy exclusion for
advertising offenses “arising out of . . . infringement of
trademark” applied to relieve insurer of duty to defend).
Accordingly, we answer the first Pryseski inquiry by
concluding that the language of the Intellectual Property Rights
Exclusion establishes that Hartford Insurance is relieved of its
duty to defend under the policy when a suit brought against the
insured contains only allegations arising out of trademark or
trade name violations.
B. The Allegations In The Underlying Tort Action
Next we address the second Pryseski inquiry, which we use
to determine whether the allegations in the underlying action
potentially fall within the scope of coverage for “advertising
injury,” as limited by the Intellectual Property Rights
Exclusion.
In the underlying suit, P&W alleged “unfair competition by
infringement of common-law rights” (Count One) as well as
dilution and diminishment of P&W’s “famous mark” in violation of
the Lanham Act (Count Two). MJP concedes that Count Two did not
trigger Hartford Insurance’s duty to defend but contends that
Count One did. Specifically, MJP argues that the complaint
9
alleged an unfair competition cause of action that (1) arose
from MJP’s internet marketing activities—thus qualifying as
“advertising injury,” and (2) did not arise from a violation of
P&W’s intellectual property rights—and therefore did not fall
under the Intellectual Property Rights Exclusion. To determine
the merit of MJP’s argument, it is useful to examine the nature
of unfair competition claims under Maryland law before
considering whether such a claim was raised in P&W’s complaint.
Unfair competition is generally defined in Maryland as
“damaging or jeopardizing another’s business by fraud, deceit,
trickery or unfair methods.” Baltimore Bedding Corp. v. Moses,
182 Md. 229, 237, 34 A.2d 338, 342 (1943). It consists of
attempting to pass the goods or business of one person off as
those of another, either by an express or implied public
representation to that effect. Edmondson Vill. Theatre v.
Einbinder, 208 Md. 38, 44, 116 A.2d 377, 380 (1955). 5 To
5
The Einbinder court explained:
Like most doctrines of the common law, the law of
unfair competition is an outgrowth of human
experience. The rules relating to liability for harm
caused by unfair trade practices developed from the
established principles in the law of torts. These
rules developed largely from the rule which imposes
liability upon one who diverts custom from another to
himself by fraudulent misrepresentation that the goods
he is offering are the goods produced by the other.
208 Md. at 43, 116 A.2d at 379.
10
constitute unfair competition, “the acts complained of must be
of such a nature as to mislead and deceive the public, so that
the defendant is in effect taking advantage of the good will and
business reputation which the complainant has built up through
service or advertising or in any manner regarded as lawful and
proper.” Id.As recognized by Maryland courts, the doctrine of unfair
competition is not limited to actions based on a violation of
trademark. Moses, 182 Md. at 236, 34 A.2d at 342; see also
Einbinder, 208 Md. at 45, 116 A.2d at 380 (“While the law of
trade-marks is a part of the doctrine of unfair competition,
there is a difference between them.”). 6 However, the mere
6
The doctrine was expanded beyond trademark violation at
least in part on the theory that, even when there has not been a
technical trademark violation, the law must protect Business A
from Business B’s improper appropriation of the goodwill
associated with a word, mark, or symbol of Business A. The
Einbinder court stated:
The infringement of a trade-mark is a violation by one
person of an exclusive right of another person to the
use of a word, mark or symbol. On the other hand, where
two rivals in business have an equal right to use the
same words on similar articles sold by them, but such
words were used by one of them before the other and by
association have come to indicate to the public that the
goods to which they applied were produced by the former,
the latter will not be permitted to use them in such a
manner as to deceive or be capable of deceiving the
public as to the origin, manufacture or ownership of the
goods to which they are applied.
208 Md. at 45, 116 A.2d at 380 (citation omitted).
11
possibility that an unfair competition claim can exist
independent of an allegation of trademark violation does not
mean that an independent claim was raised in P&W’s complaint.
Turning now to an examination of the underlying tort
action, we focus initially on MJP’s contention that the
complaint and excerpts from deposition testimony 7 combine to
evidence a claim for unfair competition based on the
misappropriation of the “style of advertising of P&W” rather
than a violation of P&W’s intellectual property rights.
P&W’s complaint alleged that in December 1993, MJP formally
transferred its furniture dealing business to P&W. Before the
transfer to P&W, MJP operated as both a furniture manufacturer’s
representative and a furniture dealer. As explained in P&W’s
complaint, “[a] furniture manufacturer’s representative is
merely an agent (generally paid on commission) for a furniture
7
Maryland law permits the consideration of extrinsic
evidence proffered by the insured when necessary to determine if
there is a potentiality of coverage under an insurance policy.
Aetna, 337 Md. at 111-12, 651 A.2d at 866; Walk v. Hartford Cas.
Ins. Co., 382 Md. 1, 12, 852 A.2d 98, 104 (2004) (“[I]n
Maryland, an insurer’s duty to defend is not determined solely
by the eight corner rule (reviewing the complaint and policy)
but rather includes consideration of extrinsic evidence.”); see
also Montgomery Cnty. Bd. of Educ. v. Horace Mann Ins. Co., 383
Md. 527, 538, 860 A.2d 909, 915 (2004) (stating that “at least
where the underlying complaint in the tort action neither
conclusively establishes nor conclusively negates a potentiality
of coverage, an insurer must examine any relevant extrinsic
evidence brought to its attention that might establish a
potentiality of coverage”).
12
manufacturer which contracts in its own name. A furniture
dealer contracts and sells furniture in its own name.” The 1993
transfer was of the “furniture dealer” portion of MJP’s
portfolio; MJP retained certain “manufacturer’s representative”
contracts.
As part of the transfer, P&W became the owner of the assets
of the furniture dealing business, including the trade name
“Marvin J. Perry & Associates.” The complaint noted that since
the transfer, P&W has continued to do business with the federal
government using the trade name “Marvin J. Perry & Associates.”
P&W has also registered its logo, including the trade name
“Marvin J. Perry & Associates” as a trademark in Maryland.
Further, according to the complaint “[s]ince 1993, [P&W] has
spent considerable sums of money and devoted great effort to
advertise and publicize the trade name ‘Marvin J. Perry &
Associates’ to its primary customer, the federal government.”
The complaint also alleged that in 1999 P&W registered the
internet domain name “marvinjperry.com” and used it to operate a
website for Marvin J. Perry & Associates. Because the federal
government required internet publication of the price lists of
the manufacturers represented by MJP, and because MJP did not
yet have a website, P&W allowed MJP to post the price lists for
the manufacturers MJP represented on marvinjperry.com.
However, in 2002, an MJP employee “updated the website in a way
13
that gave the appearance that there was one entity, Marvin J.
Perry & Associates, which was engaged in both furniture dealer
and manufacturer’s representative business.” Despite P&W’s
objections, no changes were made to differentiate the
businesses. Later, in 2005, an employee of MJP allegedly
“accessed the marvinjperry.com website without authorization and
unlawfully removed all contact information for [P&W’s] business,
operating as Marvin J. Perry & Associates, and substituted
contact information for [affiliates of MJP], as if they were the
business trading as ‘Marvin J. Perry & Associates’ and owner of
the website.”
The complaint, in Count One, stated that “[t]he mark
‘Marvin J. Perry & Associates’ has come to indicate to
purchasers that they are purchasing goods and services from the
company that has used the name and been an authorized government
contractor in that name since the mid-1970s, and in fact that
they are purchasing the goods and services from [P&W] doing
business as Marvin J. Perry & Associates.” P&W further alleged
that “as indicated by defendants’ alterations to the website . .
. defendants are attempting to deceive purchasers by their use
of the name ‘Marvin J. Perry & Associates.’”
Notwithstanding that the common theme of the complaint is
P&W’s frustration at MJP’s attempts to use the Marvin J. Perry &
Associates trade name and registered trademark, MJP contends
14
that Count One asserted an unfair competition action that was
based on MJP’s misleading use of “P&W’s style of advertising” on
the internet. Hartford Insurance concedes that an injury
arising from MJP’s web advertising would qualify as an
“advertising injury” under the policy. Thus, the dispositive
question for this Court is whether P&W asserted an unfair
competition claim that did not arise out of a violation of P&W’s
trademark or trade name.
Notably, Count One is captioned “Unfair Competition by
Infringement of Common-Law Rights” and includes six separate
paragraphs discussing the “Marvin J. Perry & Associates” mark.
Nonetheless, MJP points out that under Count One, P&W alleged
that the “acts of [MJP] constitute unfair competition and an
infringement of plaintiff’s common-law rights in the mark
‘Marvin J. Perry & Associates.’” MJP asserts that the use of
the conjunction “and” indicated that P&W was raising unfair
competition claims independent of its trademark infringement
claim.
MJP argues that P&W was concerned, at least in part, with
how the “style” of advertising, rather than the use of the
trademark “Marvin J. Perry & Associates,” deceived consumers
into thinking the two businesses were one entity. Specifically,
MJP contends that P&W’s complaint asserted a claim for unfair
competition arising out of MJP’s use of a website to advertise
15
“in the same style as [P&W’s], ‘project categories,’ ‘contract
categories,’ separate contact information, and companies
represented by each litigant.” This contention is belied by the
clear language of the complaint indicating that P&W was
concerned with how, by making “alterations to the website, . . .
defendants [were] attempting to deceive purchasers by their use
of the name ‘Marvin J. Perry & Associates.’”
Indeed, the complaint itself makes no reference to project
categories, contract categories, or the specific companies
represented by each litigant. Furthermore, there is no
indication as to how the style of P&W’s website had developed a
meaning such that utilizing a similar style would constitute
unfair competition. Instead, the complaint makes clear that the
reason that the web presentation was potentially confusing to
customers was because the trade name “Marvin J. Perry &
Associates” and trademarked logo containing the same were
utilized throughout the website.
MJP’s citation of the deposition testimony of Malcolm
Wilson, P&W’s designee, does little to advance its argument to
the contrary. When asked why he was dissatisfied with the
marvinjperry.com website after it was altered by an MJP
employee, Wilson replied “[b]ecause it created a vision that we
were all one company.” Wilson reiterated that even after some
changes in 2004, the website “still didn’t adequately separate
16
the two companies.” This testimony merely reinforces the notion
that the claims arose out of a concern about confusion in the
market. Nothing in Wilson’s testimony indicated whether the
feared confusion arose from the general “style” of the website
or instead from the use of the Marvin J. Perry & Associates name
throughout the website.
MJP also referenced the deposition testimony of Howard
Yeager, its own managing director, as support for the contention
that similarity in website style created the market confusion
giving rise to P&W’s unfair competition claim. Brief of
Appellant at 8. Yeager testified as to how a consumer visiting
P&W’s website could access information regarding various project
categories and contract categories in which P&W or MJP were
involved. But nothing in Yeager’s testimony indicates that the
market confusion complained of by P&W arose out of anything
other than a violation of P&W’s intellectual property rights.
Likewise, MJP’s reference to the settlement agreement
between the parties in the underlying suit provides scant
support for its argument. MJP attempts to distinguish the
supposed “website style” claims from the trademark claims by
noting that, in the settlement agreement, there were separate
paragraphs detailing the transition of the domain name to MJP’s
website. Yet the fact that the settlement contemplated
reassignment of the domain name “MarvinJPerry.com” only
17
underscores that the underlying suit was not about “website
style” but rather an infringement on right to use the trade name
“Marvin J. Perry & Associates.” 8
Indeed, the bulk of the settlement agreement concerned the
allocation of rights to names related to “Marvin J. Perry.” For
instance, one provision indicated that MJP would be the new
owner of “a family of ‘Marvin J. Perry’ marks and trade names,
including but not limited to Marvin J. Perry, Marvin J. Perry,
Inc., and Marvin J. Perry & Associates” while another discussed
a royalty-free license for P&W to use the trade name “Marvin J.
Perry & Associates” for a period of 10 years. Also, there was
little mention in the settlement agreement about restrictions on
the style or presentation of advertisement on the internet other
than a restriction on the use of certain trade names/trademarks
and domain names. Further, the settlement agreement called the
underlying suit “a trademark infringement action.”
Ultimately, as the district court stated, “the independent
unlawful conduct that caused P&W’s business injury, which is the
gravamen of P&W’s underlying complaint and an element of the
tort [of unfair competition] is based upon MJP’s use of its
8
This Court, in a case arising out of Maryland, has held
that the unauthorized use of a trademark in an internet domain
name can constitute trademark infringement when the domain name
is intended to confuse internet users. See People for the
Ethical Treatment of Animals v. Doughney, 263 F.3d 359 (4th Cir.
2001).
18
trade name, trademark, logo, and website . . . in violation of
P&W’s registration and ownership of that name and mark[.]” As
such, any allegation of unfair competition would necessarily be
excluded from coverage as a claim “arising out of any violation
of any intellectual property rights, such as . . . trademark,
trade name . . . or other designation of origin or
authenticity.”
IV.
In sum, to determine whether Hartford Insurance, the
liability insurer, had a duty to provide its insured, MJP, with
a defense in the underlying tort suit brought by P&W, we answer
the two Pryseski inquiries as follows: (1) Under the terms of
the insurance policy, although coverage is provided for some
advertising injury, the Intellectual Property Rights Exclusion
relieves Hartford Insurance of its duty to defend when a suit
brought against MJP contains only allegations arising out of
trademark or trade name violations; and (2) The allegations in
the underlying action by P&W, which focused exclusively on
improper use of P&W’s trademark and trade name, did not
potentially fall within the scope of the coverage provided.
Accordingly, we hold that Hartford Insurance had no duty to
defend against the underlying suit, and the district court did
19
not err by granting Hartford Insurance’s motion for summary
judgment.
AFFIRMED
20