Basic Research, LLC v. Admiral Insurance Co. , 727 Utah Adv. Rep. 5 ( 2013 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2013 UT 6IN THE
SUPREME COURT OF THE STATE OF UTAH
BASIC RESEARCH, LLC, DYNAKOR PHARMACAL, LLC,
THE CARTER-REED COMPANY, LLC, ZOLLER LABORATORIES, LLC,
DENNIS GAY, DANIEL B. MOWREY, and MITCHELL K. FRIEDLANDER,
Plaintiffs and Appellants,
v.
ADMIRAL INSURANCE COMPANY, a Delaware Corporation,
Defendant and Appellee.
No. 20110556
Filed February 8, 2013
Third District, Salt Lake
Honorable L. A. Dever
No. 110901154
Attorneys:
Alan C. Bradshaw, Aaron C. Garret, David A. Gauntlett,
Andrew M. Sussman, Salt Lake City, for appellants
Phillip S. Ferguson, Rebecca L. Hill, David J. Garthe,
Salt Lake City, for appellee
JUSTICE DURHAM authored the opinion of the Court, in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE NEHRING,
JUSTICE PARRISH, and JUSTICE LEE joined.
JUSTICE DURHAM, opinion of the Court:
INTRODUCTION
¶1 Basic Research, LLC, along with related corporations and
officers thereof (Basic Research), appeals the district court’s grant of
summary judgment in favor of Admiral Insurance (Admiral). Basic
Research argues that in finding that Admiral had no duty to defend
it against the underlying claims, the district court interpreted
provisions of Basic Research’s insurance policy too narrowly. We
affirm.
BACKGROUND
¶2 Basic Research is a limited liability company organized and
existing under the laws of Utah. Its principal place of business is
located in Salt Lake City, Utah. Basic Research markets the weight-
loss product Akävar, using the slogans “Eat All You Want And Still
Lose Weight” and “And we couldn’t say it in print if it wasn’t true!”
BASIC RESEARCH v. ADMIRAL INSURANCE COMPANY
Opinion of the Court
(the slogans).1 Customers who purchased Akävar filed lawsuits in
multiple federal and state jurisdictions, all claiming false advertising,
defective product, and/or failure to perform as promised (the
underlying claims).
¶3 Basic Research was insured by Admiral under two
consecutive Commercial General Liability insurance policies (the
Policy). A portion of the Policy provided coverage for “Personal and
Advertising Injury,” defined relevant terms, and contained a list of
types of claims specifically excluded from coverage. After the
underlying claims were filed, Basic Research invoked its coverage
and asked Admiral to defend it. Admiral refused to defend on the
premise that the underlying claims were not covered by the terms of
the Policy.
¶4 Basic Research sued Admiral for declaratory relief. Both
parties filed motions for summary judgment. The district court
denied Basic Research’s motion for summary judgment and granted
Admiral’s, finding that the underlying claims were not covered by
the terms of the Policy and were in fact specifically excluded. Basic
Research timely appealed. We have jurisdiction under Utah Code
section 78A-3-102(3)(j).
STANDARD OF REVIEW
¶5 Summary judgment is appropriate only where there are no
genuine issues of material fact and the moving party is entitled to
judgment as a matter of law. UTAH R. CIV. P. 56(c). “We review a
district court’s grant of summary judgment for correctness and
afford no deference to the court’s legal conclusions.” Salt Lake City
Corp. v. Big Ditch Irrigation Co., 2011 UT 33, ¶ 18, 258 P.3d 539.
“When the existence of a contract and the identity of the parties are
not in issue and when the contract provisions are clear and complete,
the meaning of the contract can appropriately be resolved by the
court on summary judgment.” Morris v. Mountain States Tel. & Tel.
Co., 658 P.2d 1199, 1201 (Utah 1983). Furthermore, the interpretation
of a contract is a question of law that is reviewed for correctness,
giving no deference to the district court. Saleh v. Farmers Ins. Exch.,
2006 UT 20, ¶ 14, 133 P.3d 428.
1
At some point during the pendency of the underlying lawsuits,
these slogans were trademarked by a company named Western
Holdings. Basic Research appears to have licensed the use of these
slogans from Western Holdings. See infra ¶ 14.
2
Cite as: 2013 UT 6Opinion of the Court
ANALYSIS
¶6 Basic Research argues that the district court interpreted the
Policy terms too narrowly in concluding that the underlying offenses
were not indemnified. For the following reasons, we agree with the
district court that the underlying claims are not covered by the
Policy. In fact, claims of this type are specifically excluded.
Therefore, Admiral did not have a duty to defend Basic Research.
¶7 In Utah, an insurer has a duty to defend “when the insurer
ascertains facts giving rise to potential liability under the insurance
policy.” Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 133
(Utah 1997). Where the allegations, if proved, show “there is no
potential liability [under the policy], there is no duty to defend.”
Deseret Fed. Sav. & Loan Ass’n v. U.S. Fid. & Guar. Co., 714 P.2d 1143,
1147 (Utah 1986). The question of whether there is potential liability
under the policy “is determined by comparing the language of the
insurance policy with the allegations of the complaint.” Benjamin v.
Amica Mut. Ins. Co., 2006 UT 37, ¶ 16, 140 P.3d 1210 (internal
quotation marks omitted). “The question is whether the allegations,
if proved, could result in liability under the policy.” Deseret, 714 P.2d
at 1147. “If the language found within the collective ‘eight corners’
of these documents clearly and unambiguously indicates that a duty
to defend does or does not exist, the analysis is complete.” Equine
Assisted Growth & Learning Ass’n v. Carolina Cas. Ins. Co., 2011 UT 49,
¶ 18, 266 P.3d 733. When interpreting a contract, a court looks
“within the four corners of the contract to determine the parties’
intentions, which are controlling.” Innerlight, Inc. v. Matrix Group,
LLC, 2009 UT 31, ¶ 14, 214 P.3d 854 (internal quotation marks
omitted).
¶8 The relevant portions of the Policy provide:
Coverage B—Personal and Advertising Injury Liability
Insuring Agreement
We will pay those sums that the insured becomes
legally obligated to pay as damages because of
“personal and advertising injury” to which this
insurance applies. We will have the right and duty to
defend the insured against any “suit” seeking those
damages. However, we 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. We may, at our discretion, investigate
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BASIC RESEARCH v. ADMIRAL INSURANCE COMPANY
Opinion of the Court
any offense and settle any claim or “suit” that may
result . . . .
Section VI—definitions: “Personal and advertising
injury” means injury, including consequential “bodily
injury,” arising out of one or more of the following
offenses: . . .
f. The use of another’s advertising idea in your
“advertisement.”
(Emphasis added.)
¶9 Admiral argues that the phrase “those sums that the
insured becomes legally obligated to pay as damages because of
‘personal and advertising injury’” must be understood to limit its
duty to defend to liability incurred as a result of “personal and
advertising injury.” We agree.
¶10 Basic Research argues that the causes of action pled in the
underlying claims fall within the Policy’s definition of “personal and
advertising injury,” and specifically that the claims stem from “the
use of another’s advertising idea.” Accordingly, Basic Research asks
the court to require indemnification against claims of “personal and
advertising injury” where the claim has some factual connection
with Basic Research’s “use of another’s advertising idea” in its
advertisement. In so doing, Basic Research ignores the definition of
“personal and advertising injury” within the context of the coverage
provision, creating ambiguity where there is none. “[A] contract
term is not ambiguous simply because one party ascribes a different
meaning to it to suit his or her own interests.” Equitable Life & Cas.
Ins. Co. v. Ross, 849 P.2d 1187, 1192 (Utah Ct. App. 1993).
¶11 It is true that “personal and advertising injury” may
factually arise out of the “use of another’s advertising idea.” But in
order to trigger Admiral’s duty to defend, the underlying claims
must allege “personal and advertising injury” that occurred as a
result of the “use of another’s advertising idea.” That connection is
lacking in the present case. Although the underlying claims asserted
that Basic Research used the slogans “Eat All You Want And Still
Lose Weight” and “And we couldn’t say it in print if it wasn’t true!,”
the underlying causes of actions were in no way dependent on the
source or ownership of those slogans. In fact, if the underlying
claims were to go to trial, the plaintiffs would never be required to
prove the original source of the slogans. They would need to prove
only that Basic Research used the slogans to market a defective
product.
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¶12 None of the plaintiffs alleges injury “as a result of” Basic
Research’s having misappropriated or otherwise wrongfully used
the advertising slogan of “another[].” Indeed, allowing Basic
Research to invoke the Policy based on underlying claims of this sort
would require indemnification where there is any but-for causal link
between the “use of another’s advertising idea” and an underlying
plaintiff’s damages, no matter how legally irrelevant the link. “In
interpreting a contract, the intentions of the parties are controlling.”
Cent. Fla. Invs., Inc. v. Parkwest Assocs., 2002 UT 3, ¶ 12, 40 P.3d 599.
To so interpret the Policy would expand the scope of the contractual
terms beyond their plain meaning and the parties’ original
intentions. Where the alleged damages do not legally “aris[e] out of”
the policyholder’s “use of another’s advertising idea,” the
underlying claims do not obligate the insurer to indemnify.
¶13 Basic Research presents voluminous authority suggesting
that courts must broadly interpret the word “use” within the phrase
“use of another’s advertising idea.” Specifically, Basic Research
asserts that the phrase “use of another’s advertising idea in your
advertisement” should not be limited to claims of misappropriation
or wrongful taking of another’s advertising idea, but should rather
include any form of “misuse,” including deceitful advertising. Such
an interpretation may be appropriate where the underlying injury is
directly caused by the deceitful advertising, regardless of the
product’s failure to perform.2 However, in the instant case the “use”
of the slogans is not the wrongdoing from which the underlying
plaintiffs are claiming injury. Rather, they claim damages due to the
allegedly false nature of those slogans and the resulting inducement
to buy a defective product.
¶14 Moreover, in the present case Basic Research appears to
have had a license to use these slogans. See supra ¶ 2 n.1. If we were
to interpret the coverage terms as Basic Research requests, parties
insured under this type of language would be able to indemnify
2
If applied to the Policy in this case, however, this interpretation
might conflict with exclusion G. See infra ¶ 16. Further, the
authorities provided by Basic Research treat claims of direct injury
arising from a party’s lack of entitlement to use an advertising idea.
See, e.g., Atlapac Trading Co., Inc. v. Am. Motorists Ins. Co., 1997 WL
1941512, at *1 (C.D. Cal. Sept. 19, 1997) (olive oil distributor asserting
insurance company’s duty to defend where underlying suit brought
by rival distributor claiming direct injuries resulting from unfair
competition was premised on improper use of slogan “pure olive
oil”).
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BASIC RESEARCH v. ADMIRAL INSURANCE COMPANY
Opinion of the Court
themselves from all defective product liability by simply limiting
their advertising, however false or deceptive, to the use of slogans
and materials owned by other entities. Here, the slogans’ registered
owner, Western Holdings, has not suggested any sort of abuse. The
terms of the Policy might well obligate Admiral to indemnify Basic
Research against a claim by Western Holdings related to Basic
Research’s use of the slogans, but that is not the case before us.
¶15 Basic Research has attempted to re-characterize the
underlying claims, asserting that they do “not allege injury from the
class members’ failure to lose weight, but from their purchase of the
product caused by the advertising.” To support its characterization,
Basic Research references an order in one of the underlying claims
approving a class notification program directed at “[p]ersons who
purchased Akävar after seeing or hearing the marketing slogan ‘Eat
all you want and still lose weight’ during the relevant damages
period,” without specifying whether the members of the proposed
class had ever actually used the product. Miller v. Basic Research, LLC,
2011 WL 818150, at *2 (D. Utah Mar. 2, 2011). However, this
characterization fails. A claim of injury resulting from reliance on the
slogans ultimately depends on whether those slogans were true or
not. Indeed, at oral argument Basic Research conceded “what is
alleged [in the class certification] is simply that the product is
advertised in a way that it cannot possibly perform.” Again, the
underlying claims do not depend on whether Basic Research owned
or was otherwise entitled to use the slogans, but on whether the
slogans constitute false advertising. The underlying claims do not
“aris[e] out of” Basic Research’s “use of another’s advertising idea”
in the sense required for coverage under the Policy.
¶16 Finally, even if the Policy’s terms could conceivably be
construed to encompass the underlying claims, each of the
underlying claims is premised on Akävar’s failure to perform as
advertised. Such claims are explicitly subject to exclusion G of the
Policy, which provides:
Exclusions
This insurance does not apply to: . . .
g. Quality or performance of goods—failure to
c nomt sae e t:“ es n la da v rii gi j r ”aii go to t ef iueo g o spo ut o
o f r o t t m ns P ro a n d etsn nuy rsn u f h al r f o d, r d cs r
services to conform with any statement of quality or performance
made in your “advertisement.”
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The underlying claims assert injury and damages resulting from
Akävar’s failure to live up to the promises of quality and
performance expressed by the slogans.
CONCLUSION
¶17 After comparing the language of the Policy with the
allegations in the underlying claims, we conclude that the claims
asserted are not covered by the Policy, and are in fact squarely
excluded by its terms. Admiral therefore has no duty to defend Basic
Research. The district court is affirmed.
7