Sterngold Dental, LLC v. HDI Global Insurance Co.

United States Court of Appeals
For the First Circuit
No. 18-2084
STERNGOLD DENTAL, LLC,
Plaintiff, Appellant,
v.
HDI GLOBAL INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]
Before
Howard, Chief Judge,
Torruella and Selya, Circuit Judges.
Sean T. O'Leary, with whom O'Leary Murphy, LLC was on brief,
for appellant.
Joseph K. Scully, with whom Day Pitney LLP was on brief, for
appellee.
July 2, 2019
SELYA, Circuit Judge. This appeal gives us an
opportunity to sink our teeth into a sophisticated insurance
coverage question: we must construe the scope of the so-called
intellectual property exclusion (IP exclusion) to the personal and
advertising injury coverage under a standard commercial general
liability policy (the Policy) issued by defendant-appellee HDI
Global Insurance Company (HDI) to plaintiff-appellant Sterngold
Dental, LLC (Sterngold). Concluding, as we do, that Sterngold's
arguments lack bite, we affirm the district court's dismissal of
Sterngold's action for failure to state a claim upon which relief
can be granted.
I. BACKGROUND
The relevant facts are undisputed. Sterngold
manufactures and sells dental products. To safeguard its business
operations, Sterngold purchased the Policy (which covered
Sterngold's commercial activities during the calendar year 2016).
In pertinent part, the Policy obligated HDI to defend
and indemnify Sterngold against claims arising out of "personal
and advertising injury." Withal, coverage for such injuries was
subject to certain exclusions. A specific exclusion — the IP
exclusion — pretermitted coverage for personal and advertising
injury "arising out of the infringement of copyright, patent,
trademark, trade secret or other intellectual property rights."
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The case at hand turns on the applicability vel non of this
exclusion.
The circumstances that sparked this litigation can be
succinctly summarized. In May of 2016, Intra-Lock International,
Inc. (Intra-Lock), a competitor in the market for dental products,
sued Sterngold in the United States District Court for the Southern
District of Florida. Count 3 of its complaint alleged, inter alia,
that Sterngold infringed Intra-Lock's registered OSSEAN trademark
— a trademark denoting a component of its osseointegrative dental
implant coating product — by using nearly identical marks, OSSEO
and OSSEOs, for a nearly identical product.1 Sterngold asked HDI
to defend the suit and provide indemnification pursuant to the
Policy. HDI refused Sterngold's request, denying coverage under
the Policy. When Sterngold reiterated its demand for defense and
indemnification, HDI again demurred.
Sterngold proceeded to settle the Intra-Lock suit. At
that point, it made a third attempt to engage HDI. This time
around, Sterngold asserted that the Policy required that HDI
reimburse Sterngold for the settlement amount. Once again, HDI
turned a deaf ear to Sterngold's entreaties.
1 Intra-Lock's complaint contained several other counts, but
the controversy here is limited to count 3. Accordingly, we make
no further mention of the other counts set forth in Intra-Lock's
complaint.
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Invoking diversity jurisdiction, see 28 U.S.C.
§ 1332(a), Sterngold repaired to the United States District Court
for the District of Massachusetts. Pertinently, its complaint
against HDI alleged that the latter had breached its duty to defend
and indemnify Sterngold against Intra-Lock's claim. HDI responded
by moving to dismiss the complaint. See Fed. R. Civ. P. 12(b)(6).
Sterngold objected, but the district court granted HDI's motion,
holding that, under the Policy, HDI had no duty either to defend
or indemnify Sterngold in the Intra-Lock suit. See Sterngold
Dental, LLC v. HDI Global Ins. Co., No. 17-11735, 2018 WL 4696744,
at *4 (D. Mass. Sept. 29, 2018). This timely appeal followed.
II. ANALYSIS
We review a district court's dismissal for failure to
state a claim de novo. See Artuso v. Vertex Pharm., Inc., 637
F.3d 1, 5 (1st Cir. 2011). "In conducting that review, we accept
as true all well-pleaded facts set forth in the complaint and draw
all reasonable inferences therefrom in the pleader's favor." Id.
"When . . . a complaint's factual allegations are expressly linked
to — and admittedly dependent upon — a document (the authenticity
of which is not challenged), that document effectively merges into
the pleadings and the trial court can review it in deciding a
motion to dismiss under Rule 12(b)(6)." Beddall v. State St. Bank
& Tr. Co., 137 F.3d 12, 17 (1st Cir. 1998). Here, the Policy is
such a document.
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Since this case arises in diversity jurisdiction,2 state
law supplies the substantive rules of decision. See Erie R.R. Co.
v. Tompkins, 304 U.S. 64, 78 (1938). This includes "rules relating
to interpretation of [an] insurance policy." Eaton v. Penn-Am.
Ins. Co., 626 F.3d 113, 114 (1st Cir. 2010). It is undisputed
that, in the circumstances of this case, Massachusetts law
controls.
In Massachusetts, an insurer's duty to defend arises
when the facts — in the complaint and known to the insurer —
generally demonstrate a possibility that the liability claim falls
within the scope of the insurance policy. See B&T Masonry Constr.
Co. v. Pub. Serv. Mut. Ins. Co., 382 F.3d 36, 39 (1st Cir. 2004).
It follows that an inquiring court, tasked with assessing whether
an insurer is duty-bound to its insured, should compare the
allegations of the triggering complaint against the insured to the
provisions of the insurance policy. See Deutsche Bank Nat'l Ass'n
v. First Am. Title Ins. Co., 991 N.E.2d 638, 641 (Mass. 2013);
Billings v. Commerce Ins. Co., 936 N.E.2d 408, 414 (Mass. 2010).
2
HDI originally challenged the propriety of diversity
jurisdiction, asserting that Sterngold had not identified the
citizenship of its members. See, e.g., ConnectU, LLC v.
Zuckerberg, 522 F.3d 82, 87 (1st Cir. 2008) (recognizing that, for
purposes of diversity jurisdiction, "citizenship of a limited
liability company is to be determined by the citizenship of its
members" (citing Pramco, LLC ex rel. CFSC Consort., LLC v. San
Juan Bay Marina, Inc., 435 F.3d 51, 54-55 (1st Cir. 2006))).
Sterngold augmented the record in a later filing, though, and no
jurisdictional question remains.
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The bar is not high, and the insured must be given the benefit of
any reasonable doubt. See Sanders v. Phoenix Ins. Co., 843 F.3d
37, 43 (1st Cir. 2016) (explaining that, under Massachusetts law,
"[i]f th[e] analysis yields two reasonable (but conflicting)
interpretations . . . the insured must be given the benefit of the
[more favorable] interpretation").
An insurer's duty to indemnify the insured is narrower
than its duty to defend. See id. at 46. The scope of the duty to
indemnify hinges on whether the judgment — or in this case, the
settlement — is for a covered claim. See Massamont Ins. Agency,
Inc. v. Utica Mut. Ins. Co., 489 F.3d 71, 73 (1st Cir. 2007). It
follows, then, that if there is "no duty to defend . . . the
insurer does not have a duty to indemnify." Sanders, 843 F.3d at
46 (quoting Bagley v. Monticello Ins. Co., 720 N.E.2d 813, 817
(Mass. 1999)).
As a general matter, it is the insured's burden to show
that the insuring agreements — that is, the overall coverage
provisions of a policy — apply in a given situation. See Vt. Mut.
Ins. Co. v. Zamsky, 732 F.3d 37, 41 (1st Cir. 2013) (construing
Massachusetts law). Once such a showing is made, the burden then
shifts to the insurer, which has the opportunity to show that some
exclusion places the claim outside the scope of coverage. See id.
Should questions surface as to the meaning of the terms in the
policy, we apply conventional rules of contract interpretation to
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elucidate the meaning of the questioned terms. See Sanders, 843
F.3d at 42.
Against this backdrop, the case at hand presents a
straightforward question about the meaning and effect of the IP
exclusion. Sterngold's claim is that Intra-Lock's complaint
asserted an advertising injury within the scope of the coverage
afforded by the Policy. As such, Sterngold insists that HDI was
obligated to defend it in the Intra-Lock suit and furnish
indemnification for any resulting damages (including the eventual
settlement). HDI rejoins that, even if the injury alleged falls
within the general language of the insuring agreements, the injury
was squarely within the crosshairs of the IP exclusion and, thus,
was excluded from coverage.
We set the stage. In pertinent part, the Policy affords
coverage for "sums that the insured becomes legally obligated to
pay as damages because of 'personal and advertising injury.'" The
Policy defines "personal and advertising injury" to include the
use of "another's advertising idea" or "[i]nfringing upon
another's copyright, trade dress or slogan in [an]
'advertisement.'" The Policy further provides that publication on
the internet may constitute an advertisement. Sterngold argues
that the Intra-Lock complaint alleged a covered advertising injury
— principally, the use of Intra-Lock's advertising idea through
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the inclusion of the OSSEO and OSSEOs trademarks in Sterngold's
online advertising.
The phrase "advertising idea," as used in the Policy, is
somewhat nebulous — but it is not without limits. The Supreme
Judicial Court of Massachusetts recently offered some helpful
clarification: "[i]f the insured took an idea for soliciting
business or an idea about advertising, then the claim" constitutes
an advertising injury for the use of another's advertising idea.
Holyoke Mut. Ins. Co. v. Vibram USA, Inc., 106 N.E.3d 573, 579
(Mass. 2018) (alteration in original) (quoting Auto Sox USA Inc.
v. Zurich N. Am., 88 P.3d 1008, 1011 (Wash. Ct. App. 2004)). But
if the underlying complaint merely alleges "that the insured
wrongfully took a . . . product and tried to sell that product,"
such an action would not constitute an injury stemming from
another's advertising idea. Id. (alteration in original) (quoting
Auto Sox USA, 88 P.3d at 1011).
In its suit against Sterngold, Intra-Lock alleged that
it "acquired value, name and brand recognition, and goodwill in
the OSSEAN mark as a result of continual and substantial
advertising." Thus, Sterngold's use of "confusingly similar marks
OSSEO and OSSEOs with osseointegrative dental implant coatings in
internet advertising . . . [was] likely to cause confusion,
mistake, and deceive third parties" with respect to an imagined
affiliation between Intra-Lock and Sterngold. Given these
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allegations, Sterngold contends that the sums it paid in settlement
were for its appropriation of Intra-Lock's advertising idea and,
therefore, fell within the coverage of the Policy.
It is not clear to us that Intra-Lock's allegations
concerning the OSSEO and OSSEOs marks can be said to embody an
"advertising idea." On the one hand, Intra-Lock's OSSEAN mark
could be considered an "idea for soliciting business." Vibram,
106 N.E.3d at 579 (quoting Auto Sox USA, 88 P.3d at 1011). On the
other hand, the mark could be thought to convey no idea but,
rather, to serve as a reference to the product itself.
Here, however, we need not decide the question of whether
Intra-Lock's OSSEAN mark, as described in its complaint,
constituted an "advertising idea." Rather than drill down into
this muddy terrain, we simply assume, favorably to Sterngold, that
Intra-Lock's complaint advanced a claim for an advertising injury.
Even with this favorable assumption in place, Sterngold
does not find safe passage. The most formidable obstacle that
blocks its way is the IP exclusion, which provides that:
This insurance does not apply to: . . .
"Personal and advertising injury" arising out
of the infringement of copyright, patent,
trademark, trade secret or other intellectual
property rights. Under this exclusion, such
other intellectual property rights do not
include the use of another's advertising idea
in your "advertisement".
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However, this exclusion does not apply to
infringement, in your "advertisement", of
copyright, trade dress or slogan.
The question for us to resolve, therefore, reduces to whether the
advertising injury alleged in Intra-Lock's complaint arose out of
the claimed infringement of Intra-Lock's trademark.
Under Massachusetts law, "arising out of" indicates a
wide range of causation. See Brazas Sporting Arms, Inc. v. Am.
Empire Surplus Lines Ins. Co., 220 F.3d 1, 7 (1st Cir. 2000);
Rischitelli v. Safety Ins. Co., 671 N.E.2d 1243, 1245 (Mass. 1996).
The phrase "is generally understood to mean 'originating from,'
'growing out of,' 'flowing from,' 'incident to,' or 'having
connection with.'" Brazas Sporting Arms, 220 F.3d at 7 (collecting
cases). Seen through this prism, the IP exclusion is squarely on
point. As we explain below, the claim that Sterngold says is based
on an advertising idea is alleged to have arisen out of the
infringement of Intra-Lock's trademark.
To begin, Intra-Lock's complaint labeled its claim as
one for the "Infringement of [its] OSSEAN Trademark." The
complaint then asserted that, by means of its described conduct,
Sterngold "willfully infringed upon and diluted [Intra-Lock's]
trademark OSSEAN." Although part of the concern expressed by
Intra-Lock involved the content of Sterngold's online advertising,
the online advertising was of concern because of how that activity
impacted the uniqueness and strength of Intra-Lock's OSSEAN mark.
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Given the gravamen of Intra-Lock's claim, the IP exclusion fits
like a glove. Consequently, the conclusion is irresistible that
HDI owed no duty either to defend or indemnify Sterngold with
respect to Intra-Lock's claim.
To be sure, the concept of an advertising injury
sometimes may overlap with the concept of trademark infringement.
Cf. State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co. of
Am., 343 F.3d 249, 258 (4th Cir. 2003) (noting that "a trademark
plays an important role in advertising a company's products").
But the very fact that the Policy contains an IP exclusion
encompassing trademark infringement claims signals an awareness of
this relationship. And where, as here, the alleged advertising
injury arises from a trademark infringement claim, that injury is
manifestly excluded from coverage.
Sterngold fights tooth and nail to undermine this
conclusion. Even so, Sterngold does not point to any ambiguity in
the policy language pertaining to trademark infringement claims.
Cf. Certain Interested Underwriters at Lloyd's, London v.
Stolberg, 680 F.3d 61, 66 (1st Cir. 2012) ("An ambiguity must be
real. A policy provision will not be deemed ambiguous simply
because the parties quibble over its meaning."). Instead, its
argument rests on the premise that the facts alleged by Intra-Lock
amount to a covered claim. To this end, it places great weight on
the second sentence of the IP exclusion, which instructs that "such
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other intellectual property rights do not include the use of
another's advertising idea in your 'advertisement.'" Given that
the advertising injury stems from Sterngold's use of Intra-Lock's
advertising idea, Sterngold's thesis runs, the claim asserted
nestles within the scope of coverage under the Policy.
But reality has sharp teeth, and a straightforward
reading of the language punctures Sterngold's proposed
construction. The first sentence of the IP exclusion lists a
series of IP-related claims, including trademark infringement.
Each specifically articulated claim is separated from the next by
a comma. The list concludes with the catchall phrase "or other
intellectual property rights." This syntax, combined with the use
of the disjunctive "or," clearly differentiates the listed IP-
related claims from the catchall phrase "other intellectual
property rights." Here, moreover, the catchall phrase is repeated
in the second sentence of the exclusion. It is only in connection
with this phrase — not in connection with the listed IP-related
claims — that the "use of another's advertising idea" is excepted
from the reach of the exclusion. Just as "[e]very word in an
insurance contract must be presumed to have been employed with a
purpose," Bos. Gas Co. v. Century Indem. Co., 910 N.E.2d 290, 304-
05 (Mass. 2009) (quoting Allmerica Fin. Corp. v. Certain
Underwriters at Lloyds, London, 871 N.E.2d 418, 425 (Mass. 2007)),
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so too every item of punctuation in the contract likewise must be
presumed to have been employed with a purpose.
The short of it is that even if a trademark infringement
claim involves an injury stemming from the use of an advertising
idea, the catchall phrase "other intellectual property rights"
will not encompass the claim. Any other reading would render
nugatory the plain language contained in the first sentence of the
IP exclusion. That path is not open to us. See Alicea v. Machete
Music, 744 F.3d 773, 785 (1st Cir. 2014) (explaining that a
contract must be read in its entirety and must be construed "to
give reasonable effect to each of its provisions" (quoting J.A.
Sullivan Corp. v. Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986)));
Lexington Ins. Co. v. Gen. Accid. Ins. Co. of Am., 338 F.3d 42, 48
(1st Cir. 2003) ("In construing insurance contracts, courts have
no warrant either to convolute the straightforward meaning of
policy language or to endow the words with a gloss that is belied
by the language itself."); see also Allstate Ins. Co. v. Airport
Mini Mall, LLC, 265 F. Supp. 3d 1356, 1372 (N.D. Ga. 2017)
(construing IP exclusion and holding that "to give effect to each
provision . . . coverage for 'advertising injury' does not apply"
to trademark infringement claims); High 5 Sportwear, Inc. v. H5G,
LLC, 237 F. Supp. 3d 674, 685 (S.D. Ohio 2017) (similar).3
3 Contrary to Sterngold's importunings, our reading of the IP
exclusion is not in tension with Vibram. See 106 N.E.3d at 580-
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Sterngold has a fallback position. It argues that its
deployment of the OSSEO and OSSEOs marks in internet advertising
was covered under the Policy because the marks were actually
slogans and, thus, came within the built-in exception to the IP
exclusion (captured in the last sentence of that exclusion).
Building on this porous foundation, Sterngold suggests that even
if the advertising injury arose from a trademark infringement
claim, the carve-out for slogan infringement validated its quest
for coverage. We think not.
Of course, the exclusion to the exclusion has the
potential to salvage some claims. Cf. High Point Design, LLC v.
LM Ins. Co., 911 F.3d 89, 94 (2d Cir. 2018) (observing that the
"secondary exclusion from the primary exclusion . . . make[s] clear
that the primary exclusion does not exclude coverage for trade
dress infringement in an advertisement"). But a "slogan is
certainly not by definition a trademark." MicroStrategy, Inc. v.
Motorola, Inc., 245 F.3d 335, 342 (4th Cir. 2001). And here, the
slogan infringement carve-out does not apply because Intra-Lock
never pressed anything resembling a slogan infringement claim.
Indeed, its complaint did not so much as mention the word "slogan."
81. There, the court examined whether an advertising idea could
flow from a concept not protected by a trademark. See id. at 581.
That is not the issue here.
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Nor would any language in the complaint support the
characterization of OSSEAN as something other than a trademark.
We add, moreover, that in reading the secondary
exclusion — as in reading insurance policies generally — undefined
words should be given their ordinary meaning. See Easthampton
Congregational Church v. Church Mut. Ins. Co., 916 F.3d 86, 92
(1st Cir. 2019); Fed. Ins. Co. v. Raytheon Co., 426 F.3d 491, 498-
99 (1st Cir. 2005); see also Mass. Insurers Insolv. Fund v. Premier
Ins. Co. of Mass., 787 N.E.2d 550, 553 (Mass. 2003) (observing
that "unambiguous language of an insurance exclusionary clause
must be given its usual and ordinary meaning"). A slogan is
typically defined as "a phrase expressing the aims or nature of an
enterprise . . . [and/or] a catch phrase used in advertising or
promotion." CMM Cable Rep, Inc. v. Ocean Coast Props., Inc., 97
F.3d 1504, 1520 (1st Cir. 1996) (alteration in original) (quoting
Webster's II New Riverside Univ. Dictionary (1988)); see
Cincinnati Ins. Co. v. Zen Design Grp., Ltd., 329 F.3d 546, 556
(6th Cir. 2003) (defining slogan as "distinctive cry, phrase, or
motto" (quoting Random House Unabridged Dictionary 1800 (2d ed.
1993))). Sterngold has pointed to nothing that would bring the
OSSEAN mark within the four corners of these definitions.
To cinch the matter, nothing in the record suggests that
Intra-Lock ever used OSSEAN as a slogan. Instead, Intra-Lock
claimed that the mark was "distinctive and famous within the
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meaning of [the trademark statute]." At bottom, Intra-Lock's claim
was that OSSEAN is a "source-identifier," Bos. Duck Tours, LP v.
Super Duck Tours, LLC, 531 F.3d 1, 12 (1st Cir. 2008), of its
proprietary product, not a slogan.4 Because Intra-Lock's complaint
did not allege, nor even "roughly sketch[] a claim," Billings, 936
N.E.2d at 414, for slogan infringement, the secondary exclusion
upon which Sterngold relies is inapposite.
"It is said that all good things come to an end," State
Police Ass'n of Mass. v. Comm'r of Internal Revenue, 125 F.3d 1,
3 (1st Cir. 1997), and at the finish line, we reach the same result
as the court below. To the extent that Intra-Lock's complaint can
be said to have alleged an advertising injury, that injury
unquestionably arose out of Intra-Lock's trademark infringement
claim. The Policy makes it luminously clear that such an injury
is excluded from the scope of coverage. Nor can Sterngold seek
refuge in the slogan infringement carve-out because Intra-Lock
plainly did not assert a slogan infringement claim. Accordingly,
HDI had no duty to defend or indemnify Sterngold with respect to
Intra-Lock's claim.
4We do not gainsay that, in some circumstances, a trademark
may do double duty as a slogan. See, e.g., L.L. Bean, Inc. v.
Drake Publishers, Inc., 811 F.2d 26, 28 (1st Cir. 1987). In other
circumstances, though, a trademark is simply a trademark and cannot
by any stretch of even the most fertile imagination be viewed as
a slogan. See, e.g., MicroStrategy, 245 F.3d at 342. This case
is of the latter stripe.
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III. CONCLUSION
We need go no further. For the reasons elucidated above,
the judgment of the district court is
Affirmed.
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