DocketNumber： 2000
Citation Numbers： 252 F.3d 608, 59 U.S.P.Q. 2d (BNA) 1161, 2001 U.S. App. LEXIS 12080
Judges： Jacobs, Calabresi, Sotomayor
Filed Date： 6/8/2001
Status： Precedential
Modified Date： 11/4/2024
This is an insurance coverage action arising out of defendant Federal Insurance Company’s (“Federal”) refusal to indemnify plaintiffs Hugo Boss Fashions, Inc. and Hugo Boss USA (collectively “HB USA” or “plaintiffs”) and to pay for defense costs with respect to a suit brought against HB USA, and its parent company, Hugo Boss Germany (“HB Germany”) by the Boss Manufacturing Company (“BMC”). (HB Germany is not a party to this suit. The term “Hugo Boss” will be used to refer to Hugo Boss USA, Hugo Boss Fashions, and HB Germany collectively.) BMC alleged that Hugo Boss’s use of the term “BOSS” on certain products constituted trademark infringement and breach of contract. Federal disclaimed coverage on the grounds (1) that the suit against Hugo Boss fell into an “intellectual property” exclusion in its insurance contract, and (2) that the suit against Hugo Boss arose out of a breach of contract and that it, therefore, fell into a “breach of contract” exclusion in the insurance policy.
The district court (Harold Baer Jr., /.) granted partial summary judgment to plaintiffs. It found that the term “BOSS” fit into an exception (covering “trademarked slogans”) carved out of the intellectual property exclusion, and that no other policy exclusion applied as a matter of law, though at least one- — a “prior acts” exclusion — might ultimately be shown to be valid on the facts. Finally, the court held that Federal had violated its duty to defend Hugo Boss in the suit brought against it by BMC (“the BMC Action” or “the infringement suit”).
A jury subsequently awarded HB USA $500,000 for the defense costs associated with the BMC Action, but denied any recovery for indemnification. The jury also concluded that Federal’s failure to defend in the infringement suit constituted a breach of Federal’s duty of good faith. Accordingly, the district court awarded HB USA approximately $644,000 in attorneys’ fees and costs incurred in pursuing this action against Federal (“the coverage action”).
On appeal, Federal challenges (1) the district court’s grant of summary judgment to plaintiffs on the duty to defend, (2) the jury’s conclusion that it acted in bad faith, and (3) the size of the award of attorneys’ fees related to the coverage ac
We hold that the term “BOSS” cannot be deemed a “trademarked slogan,” and, hence, that the “intellectual property” exclusion in the insurance contract applies. On this basis, we conclude that Federal had no duty to indemnify Hugo Boss. Because, however, at the time BMC’s complaint against Hugo Boss was filed, there was uncertainty as to whether the exclusion would apply, a duty to defend existed. Finally, we hold that there was insufficient evidence of bad faith on Federal’s part to support the jury’s verdict against it on that count. Accordingly, the award of attorneys’ fees and costs incurred by HB USA in pursuing the coverage action is vacated.
BACKGROUND
Plaintiff Hugo Boss USA is a group of U.S.-based, wholly-owned subsidiaries of Hugo Boss Germany, which is a designer and manufacturer of expensive men’s clothing and accessories. Hugo Boss USA holds the U.S. license for HB Germany’s trademarks that appear on Hugo Boss products.
1. The Concurrent Use Agreement
In 1988, BMC became concerned that Hugo Boss was infringing on certain BMC trademarks. This concern led the parties, in 1990, to enter into a Concurrent Use Agreement (“the Agreement” or “the 1990 Agreement”), pursuant to which HB Germany agreed not to “sell or license others to sell gloves, mittens or boots with a mark that incorporates the word ‘BOSS.’ ” The parties also agreed to “cross-license their marks for certain products at designated price points ... representing] separate consumer markets.” The purpose of this agreement was to establish guidelines that would prevent consumer confusion and would keep the parties from infringing each others’ trademark rights.
2. The BMC Action
In 1997, BMC became suspicious that Hugo Boss was violating the Agreement. After confirming its suspicions by obtaining Hugo Boss gloves and boots with the term “BOSS” on them, BMC filed suit, in the United States District Court for the Southern District of New York, against HB Germany, Hugo Boss Fashions, and Hugo Boss USA. BMC brought claims (a) under the federal Trademark Act (Lanham Act), 15 U.S.C. §§ 1051 et seq., and under the common law, for trademark infringement and unfair competition, (b) under the Federal Trademark Dilution Act of 1995, 15 U.S.C. § 1125(c), and under New York General Business Law §§ 360 et seq., for dilution, and (c) under the common law, for breach of contract.
BMC’s Complaint alleged that Hugo Boss knew of the “goodwill represented and symbolized by the ‘BOSS’ mark,” and that, Hugo Boss was “aware that the purchasing public recognizes and relies on this mark as identifying [BMC’s] products, and distinguishing [BMC’s] products from those of others.” BMC contended that, in violation of the Agreement, Hugo Boss had “sold or licensed others to sell in the Unit
3. HB USA Seeks Coverage — The Insurance Contract
About three months after the Complaint in the BMC Action was filed, HB USA notified Federal — its insurer — of the suit, requested that Federal defend it in the BMC Action, and stated that it “will look to Federal for reimbursement of any indemnity payments it may be required to make” as a result of the suit. Federal had, previously, issued to HB USA an insurance policy providing general liability insurance, including insurance for “advertising injury” liability. The policy states:
Subject to the applicable Limits Of Insurance, we will pay damages the insured becomes legally obligated to pay by reason of liability imposed by law or assumed under an insured contract for ... advertising injury ... caused by an offense committed during the policy period.
The policy defines “advertising injury” as injury “arising solely out of ... infringement of copyrighted advertising materials or infringement of trademarked or service marked titles or slogans,” and makes clear that Federal “will have the right and duty to defend any insured against a suit seeking damages for ... advertising injury.”
Of critical importance to this suit are a number of exclusions contained in the policy. First, an “intellectual property” exclusion states that:
This insurance does not apply to ... advertising injury ... arising out of [conduct] ... which is claimed as an infringement, violation or defense of any of the following rights or laws: copyright, other than infringement of copyrighted advertising materials; patent; trade dress; trade secrets; or trademark or service mark or certification mark or collective mark or trade name, other than trademarked or service marked titles or slogans.
(emphasis added). Second, a “breach of contract” exclusion provides that: “This insurance does not apply to advertising injury arising out of breach of contract.” Finally, a “prior acts” exclusion states: “This insurance does not apply to advertising injury ... arising out of oral or written publication of material whose first publication took place before the beginning of the policy period.”
A Federal Denies Coverage
Within Federal, the matter was referred to Mary Tycon, a regional supervisor who worked on advertising injury claims. Tycon concluded that Federal was not required to defend or indemnify Hugo Boss with respect to the BMC Action. She testified at trial that she reached this conclusion on a variety of different grounds. First, she determined that because the suit was for trademark infringement and because, in her view, “BOSS” did not constitute a “slogan” within the meaning of the policy, it fell within the intellectual property exclusion. “[0]ur understanding of slogan,” Tycon explained, “was that it was a phrase with
Before the letter was sent, however, Philip Hecht, an attorney representing HB USA, met with Federal to discuss his client’s claim. Hecht explained to Federal that it was his opinion that “BOSS” constituted a “slogan” within the meaning of the policy. After this meeting, Federal decided to consult with outside counsel— the law firm of Nelson, Thompson, Pegue & Thornton (whom Federal regarded as experts in intellectual property and trademark matters) — to obtain a coverage opinion. Around this time, Hecht sent to Federal a letter referring to a case called A Touch of Class Imports, Ltd. v. Aetna Casualty & Surety Co., 901 F.Supp. 175 (S.D.N.Y.1995), in which the United States District Court for the Southern District of New York held that the trademarked phrase “Touch of Class” constituted a slogan, and that, pursuant to an insurance policy much like the one in this case, the defendant insurance company was obligated to provide coverage in an infringement suit.
In due course, Federal received an opinion from its outside counsel to the effect that Federal was not required to provide coverage in the BMC Action. As a result, and notwithstanding Hecht’s letter and the decision in A Touch of Class, Federal wrote to HB USA informing the insured that Federal was disclaiming coverage for defense and indemnity on the grounds that (1) “BOSS” is not a slogan and so the “intellectual property” exclusion applies,
HB USA subsequently brought this action against Federal in New York State Supreme Court, asserting claims for breach of contract, breach of the implied duty of good faith and fair dealing, and breach of fiduciary duty. Subsequently, the case was removed to the United States District Court for the Southern District of New York, on the basis of diversity jurisdiction.
5. The BMC Settlement
On August 12, 1999, while the coverage action against Federal was still pending in the Southern District, the BMC Action was settled. Under the terms of the settlement agreement, HB Germany paid BMC $2 million, and HB Germany and BMC entered into a new Concurrent Use Agreement concerning use of the term “BOSS”.
6. The Proceedings Beloiv
Meanwhile, in the coverage action, Federal moved for summary judgment on a
On November 1, 1999, the district court issued a Memorandum and Order denying Federal’s motion for summary judgment and granting plaintiffs’ motion for partial summary judgment. See Hugo Boss Fashions, Inc. v. Fed. Ins. Co., No. 98 Civ. 6454(HB) 1999 WL 993689 (S.D.N.Y. Nov.1, 1999). First, the court held that the “breach of contract” exclusion did not apply. The court explained that, under New York law, for advertising injury to “arise out of’ breach of contract, it must be the case that the claims of advertising injury would not exist but for the breach. Id. at *3. In this respect, the district court found that “[i]t is clear ... that BMC’s claims against Hugo Boss do exist independent of the contract.... BMC’s trademark rights arose long before it entered into the 1990 agreement with [HB Germany] and would exist even if BMC had never entered into that agreement....” Id.
As to the carve-out from the “intellectual property” exclusion for “trademarked slogans,” the court below found that “ 'BOSS’ in this context may qualify as a slogan.” Id. at *4. The court noted that the dictionary defines a slogan as “an attention-getting device,” and that “[t]he word ‘BOSS’ appears to do just that.... Indeed, unlike other tradenames such as Nike, McDonald’s, or Ford, the word ‘BOSS’ itself conveys a meaning that the emblazoned products are of first-rate quality and that the wearer is ‘above the rest’ or ‘in control.’ ” Id. Having previously noted that, under New York law, “ ‘[i]f any of the claims against the insured arguably arise from covered events, the insurer is required to defend,’ ” id. at *2 (quoting Frontier Insulation Contractors, Inc. v. Merchants Mut. Ins. Co., 91 N.Y.2d 169, 667 N.Y.S.2d 982, 690 N.E.2d 866, 869 (1997)), the district court concluded that the possibility that “BOSS” might qualify as a slogan was sufficient to give rise to a duty to defend.
During the subsequent trial, Federal filed a motion for judgment as a matter of law. It argued that, because HB Germany paid the legal fees associated with the BMC Action as well as the $2 million settlement, plaintiffs Hugo Boss Fashions and Hugo Boss USA had not sustained any loss that would entitle them to recovery. Federal also claimed that there was inadequate evidence of “bad faith” to support a jury verdict on that count. Before
HB USA subsequently moved for a new trial contesting (a) the amount of the jury’s award with respect to Federal’s duty to defend (HB USA claimed that upwards of $1.5 million, and not just $500,000 in damages, were in order), and (b) the jury’s denial of indemnification. Also, in light of the jury’s finding that Federal had breached its duty of good faith, HB USA sought attorneys’ fees and costs incurred in prosecuting the coverage action.
In an Order dated June 5, 2000, the district court (1) denied HB USA’s motion for a new trial, (2) awarded HB USA approximately $644,000 in attorneys’ fees and costs associated with the coverage action, and (3) denied Federal’s motion, made during trial, for judgment as a matter of law. This appeal and cross-appeal followed.
DISCUSSION
There are three principal questions presented by this case, and very different presumptions attach to each one. First, we must determine whether Federal was required to indemnify HB USA for the $2 million settlement with BMC (or some fraction thereof).
I.
The Duty to Indemnify
Federal has consistently asserted that HB USA’s indemnity claim is defeated by the “intellectual property” exclusion in its insurance contract. In this respect, Federal points out that (1) the intellectual property exclusion disclaims coverage for, inter alia, “advertising injury ... arising out of [conduct] ... which is claimed as an infringement [of] ... trademark ...,” and (2) BMC’s Complaint alleges “willful trademark infringement.”
Plaintiffs, in contrast, emphasize that the policy carves out an exception to the intellectual property exclusion for injury “arising solely out of ... infringement of ... trademarked or service marked titles or slogans,” and they insist that “BOSS” qualifies as a slogan within the meaning of the insurance contract. Plaintiffs argue that a “trademarked slogan” is a trademark that “conveys messages regarding characteristics of [a] product to the consumer,” and that the term “BOSS” does exactly that. Appellees’ Brief at 12. And, indeed, the district court agreed. In concluding that “BOSS” qualifies as a “trademarked slogan” within the meaning of the insurance policy, the court reasoned:
English dictionaries generally define “slogan” as a word or combination of words that acts as an attention-getting device. The word “Boss” appears to do just that.... My finding on this score is bolstered by the fact that, contrary to Federal’s position, “Boss” does suggest something about the nature or quality of BMC’s products. Indeed, unlike other tradenames such as Nike, McDonald’s, or Ford, the word ‘Boss’ itself conveys a meaning that the emblazoned products are of first-rate quality and that the wearer is “above the rest” or “in control.” Thus, although BMC uses the word ‘Boss’ to identify its products in the marketplace, it also attempts to distinguish these products by conveying ... a sense of power, style and quality.
Hugo Boss, 1999 WL 993689, at *4. According to the district court and plaintiffs, then, because “BOSS” communicates to consumers a “secondary meaning,” ie., something other than the identity of the product’s source, it can be construed as a slogan.
Plaintiffs insist, moreover, that even if this court rejects the definition of “slogan” offered by the district court, and even if we ultimately conclude that “BOSS” does not constitute a “trademarked slogan,” Federal should, nonetheless, be found liable. This is so, they claim, because the term “trademarked slogan” is, in the very least, ambiguous, and therefore, under New York’s contra proferentem rule, Federal was obligated to provide full coverage.
But, of course, the contra proferentem does not come into play unless this court first determines that the contract is, in fact, ambiguous. See Wallace v. 600 Partners Co., 86 N.Y.2d 543, 634 N.Y.S.2d 669, 658 N.E.2d 715, 717 (1995) (“The rules governing the construction of ambiguous contracts are not triggered unless the court first finds an ambiguity.”) And this court has explained that, under New York law, ambiguity does not exist “simply because the parties urge different interpretations.” Seiden Assocs. Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir.1992). Rather, “[t]he question of whether an insurance policy is ambiguous is a matter of law to be determined by the court.” Bd. of Mgrs. of Yardarm Condominium II v.
In this respect, we have held that “[a]n ‘ambiguous’ word or phrase is one capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.” Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp., 818 F.2d 260, 263 (2d Cir.1987). Conversely, we have explained that “[cjontract language is not ambiguous if it has a definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion.” Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir.1989) (quoting Breed v. Ins. Co. of North America, 46 N.Y.2d 351, 413 N.Y.S.2d 352, 385 N.E.2d 1280, 1282 (1978) (internal quotation marks omitted) (second alteration in original)).
As always, we begin with the terms of the contract itself to see if the intent of the parties can be gleaned without resort to extrinsic evidence. See, e.g., W.W.W. Assocs., Inc. v. Giancowtieri, 77 N.Y.2d 157, 565 N.Y.S.2d 440, 566 N.E.2d 639, 642 (1990) (“A familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.”). In this case, however, the policy offers no explicit guidance; for nowhere in the lengthy insurance contract between Federal and HB USA — including the seven pages dedicated specifically to “Definitions” — is the term “trademarked slogan” explained. The policy fails to distinguish slogans from non-slogans, and, therefore, it is of no aid to us in deciding whether “BOSS” qualifies as a “trademarked slogan” within the meaning of the contract.
Nevertheless, the fact that the language of the contract itself does not specify the meaning of a disputed term does not entail that an ambiguity sufficient to trigger the contra proferentem exists. For it is quite possible that even where a contract does not define a particular — and potentially ambiguous — term, a body of state law or an established custom fills in the gaps left by the drafters. For example, when called upon to interpret the term “non-exclusive” in construing a contract, one court explained:
[T]he word ‘non-exclusive’ when used— as was the case here — in an integrated license agreement drafted by legal counsel, has an established legal meaning that is usually accepted in the absence of a qualifying context, custom, usage or similar surrounding circumstance. The term has repeatedly been defined as meaning that the licensee is granted a bare right to use the trademark or patent being licensed without any right to exclude others, including other licensees taking from the grantor, from utilizing the mark or invention involved.
Eskimo Pie Corp. v. Whitelawn Dairies, Inc., 284 F.Supp. 987, 994 (S.D.N.Y.1968) (emphases added). The same applies when, instead of established state law, ■widespread custom or usage serves to determine the meaning of a potentially vague term. See, e.g., Robinson v. United States, 80 U.S. (13 Wall.) 363, 366, 20 L.Ed. 653 (1871) (“Parties who contract on a subject-matter concerning which known usages prevail, by implication incorporate them into their agreements, if nothing is said to the contrary.”). When interpreting a state law contract, therefore, an established definition provided by state law or industry usage will serve as a default rule, and that definition will control unless the parties
In this case, however, state law does not provide significant insight into the meaning of the term “trademarked slogan.” For while there are New York cases that discuss slogan infringement, see e.g., Hertz Corp. v. Avis, Inc., 106 A.D.2d 246, 485 N.Y.S.2d 51, 53 (1st Dep’t 1985); New York Trust Co. v. Believe It or Not, Inc., 12 Misc.2d 736, 178 N.Y.S.2d 12, 14 (Sup. Ct.N.Y.Cty.1958), they do not offer anything like a rigorous distinction between slogans and non-slogans. Indeed, the existence of any such distinction seems to have been totally irrelevant to these cases. Furthermore, neither these cases, nor the parties’ submissions, demonstrates that there is an established industry usage of the term in question that might resolve the potential ambiguity.
Still, even under these conditions— where neither the contract nor state law defines a disputed term — a court may, nevertheless, find the term, as used in a state-law contract, to be unambiguous. For contracting parties operate against the backdrop not only of state law, but of federal law as well. And when federal law concepts, such as those relevant to trademark — paradigmatieally a federal field— are employed, the parties may be read as having incorporated established meanings and definitions forged in the relevant federal cases. See Dolman v. United States Trust Co. of N.Y., 2 N.Y.2d 110, 157 N.Y.S.2d 537, 138 N.E.2d 784, 787 (1956) (“[U]nless a contract provides otherwise, the law in force at the time the agreement is entered into becomes as much a part of the agreement as though it were expressed or referred to therein.... ”). To be sure, because questions of contract interpretation are, generally, matters of state law, the States (like the parties) are empowered to define particular “federal” terms in ways that diverge from the definitions that control in the federal courts. But, where contracting parties use terms and concepts that are firmly rooted in federal law, and where there are no explicit signals to the contrary, we can presume that the prevailing federal definition controls. Moreover — and significantly, for purposes of this case and the contra proferentem rule — if the pertinent case law is ultimately read as defining the term with sufficient clarity, then the parties’ use of that term in an agreement will not be deemed to create an ambiguity.
Such is the situation here. For while it is true that the contracting parties did not, and the New York cases do not, specify the meaning of the term “trademarked slogan,” the federal case law does. And, the relevant federal cases indicate that “trademarked slogans” are phrases used to promote or advertise a house mark or product mark, in contradistinction to the house or product mark itself.
In many other cases, the same unspoken, but nevertheless clear, assumption— that a “trademarked slogan” is a word or phrase used to promote house or product names, but is not the house or product name itself standing alone — is readily demonstrable. Thus, in Nike, Inc. v. “Just Did It” Enterprises, 6 F.3d 1225, 1229 (7th Cir.1993), the Seventh Circuit noted that “Nike asserts JUST DO IT is its slogan, not the name of the business to which customers make checks payable in order to receive Nike products.” And, in American Express Co. v. CFK, Inc., 947 F.Supp. 310, 312 (E.D.Mich.1996), a district court said that “American Express developed an advertising campaign which featured the slogan, ‘DON’T LEAVE HOME WITHOUT US.’ According to the Company, this slogan was intended to encourage the public to use their [products] while traveling on business and pleasure.” See also Cont’l Scale Corp. v. Weight Watchers Int’l, Inc., 517 F.2d 1378, 1379-80 (C.C.P.A.1975) (noting that “[i]n connection with its ‘HEALTH-O-METER’ bath scales, petitioner ... has continuously used the slogan ‘America’s Weight Watcher Since 1919’”). Indeed, one federal court has explicitly acknowledged that “a slogan can only function as a separate trademark if it creates a separate impression from the house mark.” Genovese Drug Stores, Inc. v. TGC Stores, Inc., 939 F.Supp. 340, 346 (D.N.J.1996); see also In re Nat’l Training Ctr. of Lie Detection, 226 U.S.P.Q. 798,
In light of this federal authority confirming this definition of “trademarked slogan,” and given the presumption that, unless they expressly indicate otherwise, contracting parties will be deemed to have incorporated into their agreements usages of key terms that are well-established in the case law or industry, we find no ambiguity sufficient to give rise to contra prof-erentem in this contract. By disclaiming coverage for advertising injury caused by trademark infringement, the policy in this case must be read to exclude from coverage any injury caused by an infringing use of the term “BOSS” alone.
II.
The Duty to Defend
A.
As we have already noted, under New York law, “the insurer’s duty to furnish a defense is broader than its obligation to indemnify.” E.g., Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 486 N.Y.S.2d 873, 476 N.E.2d 272, 275 (1984). Indeed, the New York cases establish that “[s]o long as the claims [asserted against the insured] may rationally be said to fall within policy coverage, whatever may later prove to be the■ limits of the insurer’s responsibility to pay, there is no doubt that it is obligated to defend.” Id, (alterations in original) (internal quotation marks omitted) (emphasis added). In other words, a separate, contractual duty to defend exists, and perdures until it is determined with certainty that the policy does not provide coverage.
There are at least three kinds of uncertainty that can give rise to such a duty to defend. The first is factual: did the injury occur in a time, place, or way that is covered by the policy? The second is legal: will the cases governing the insurance policy be read to impose coverage in a given situation? The third arises from the existence of contra proferentem: will the terms of the contract of insurance be deemed to give rise to an ambiguity that must be read against the insurer or will they be held to be clear enough to avoid the presumption? Each of these uncertainties will ultimately be resolved by courts or juries — and often in favor of the insurer, thereby precluding coverage and the duty to indemnify. But until they are, the insurer cannot avoid its duty to defend.
There are, of course, cases in which the policy is so clear that there is no uncertainty in fact or law, and hence no duty to defend.
Under some circumstances, the allegations contained in the complaint against the insured will by themselves eliminate all potential doubt and relieve the insurer of any duty to defend. Where, for example, a complaint alleges an intentional tort, and the insurance contract provides coverage only for harms caused by negligence, there would be no uncertainty as to the applicability of the policy exclusion, and hence, no duty to defend the particular suit brought.
In other cases, the duty to defend cannot be eliminated simply by examining the face of the complaint, but the insurer’s responsibility to defend can, nonetheless, be determined before the underlying claim is resolved. Where, for instance, a complaint alleges harm caused by an insured’s negligence in maintaining a building, and the insurance contract covers damages resulting from negligent mainte
Finally, there are situations in which a legal uncertainty as to insurance coverage gives rise to (an at least temporary) duty to defend. For example, where an insurance contract disclaims coverage for harms caused before sunset, and the term “sunset” is not defined in the insurance policy, even if a complaint against the insured states the exact time of day at which an injury was caused, it may be impossible to determine whether coverage exists. Once again, until the meaning of the term “sunset” is established, a duty to defend exists. But, here too, the insurance company can readily protect itself, from having to defend for too long. Instead of a bill of particulars, it can seek a declaratory judgment with respect to the relevant policy exclusion, ie., as to the legal meaning of the word “sunset.” And such suits are commonplace. See, e.g., Progressive Cas. Ins. Co. v. Yodice, 276 A.D.2d 540, 714 N.Y.S.2d 715, 716 (2d Dep’t 2000) (“[A]n action, inter alia, for a judgment declaring that the plaintiff is not required to defend and indemnify the defendants”); United Nat’l Ins. Co. v. Waterfront New York Realty Corp., 994 F.2d 105, 107 (2d Cir.1993) (“[The insurer] agreed to defend [the insureds] ... but did so under a reservation of rights. [The insurer] then began the present actions against the insureds ... seeking a declaration that it owed no duty of defense or indemnification.”). In this respect, the insurer’s declaratory suit is an analogue to the “bill of particulars” the insurer seeks where the uncertainty is factual.
The ease before us involves this kind of legal uncertainty (what does “trademarked slogan” mean?), as well as the additional legal question of whether the term was clear enough to avoid contra proferentem. It was, therefore, incumbent upon Federal to undertake a defense of Hugo Boss until the uncertainty surrounding the term was resolved. Had Federal
B.
We likewise affirm the jury’s award of $500,000 in attorneys’ fees and costs incurred in HB USA’s defense against HB USA’s cross-appeal that the award was manifestly inadequate, and that, as a result, its motion for a new trial with respect to damages was wrongly dismissed.
We review the district court’s denial of a new trial for abuse of discretion. See, e.g., Nat’l Communications Assoc. v. AT & T Corp., 238 F.3d 124, 127 (2d Cir.2001). “A motion for a new trial ordinarily should not be granted unless the trial court is convinced that the jury has reached a seriously erroneous result or that the verdict is a miscarriage of jus
HB USA argues that “[t]here was no legally sufficient evidence,—indeed no evidence whatsoever—on which the jury could reasonably reduce the amount of Hugo Boss’s fees in the BMC litigation to anywhere near $500,000.”
III.
The Duty of Good Faith and Fair Dealing
Federal also challenges the district court’s denial of its motion for judgment as a matter of law with respect to HB USA’s claim that Federal breached its duty of good faith and fair dealing when it failed to defend Hugo Boss in the BMC Action. Federal insists that, under New York law, which establishes a very strong presumption against bad faith liability in cases such as this, the jury’s conclusion that it acted in bad faith lacked sufficient evidentiary support. We agree.
Because we uphold the jury’s determination that HB USA was not entitled to indemnification from Federal, the refusal to indemnify cannot be a source of bad faith liability. Federal did, however, breach its duty to defend. And an insurance company could perfectly reasonably disclaim indemnity coverage and yet be in bad faith in refusing to defend until the scope of coverage was determined.
Notwithstanding Federal’s breach of its duty to defend, there remains a strong presumption in New York against a finding of bad faith liability by an insurer. See Sukup, 281 N.Y.S.2d 28, 227 N.E.2d at 844 (“It is ... well settled that an insured cannot recover his legal expenses in a controversy with a carrier over coverage, even though the carrier loses the controversy
We hold that the policyholder here has not adduced sufficient evidence, as a matter of law, to overcome the presumption. The insurer conducted a review of the coverage question, consulted with counsel, committed no overreaching, and did nothing more blameworthy than err. As in Sukwp, “[t]he record shows merely an arguable case in which the carrier was held wrong. That is not enough to impose a liability beyond the terms of the contract.” Id. Accordingly, the district court’s denial of Federal’s motion for judgment as a matter of law is reversed, and the judgment in HB USA’s favor for $638,849.80 in fees and expenses, and $6,105.22 in costs, is vacated.
CONCLUSION
Federal trademark law makes unambiguously clear that a “trademarked slogan” is a word or phrase used to promote or advertise a house name or a product name. And the term “BOSS” is not such a word or phrase. Accordingly, we conclude that, in light of the intellectual property exclusion in HB USA’s insurance policy, Hugo Boss’s infringing use of that term did not give rise to a duty to indemnify on the part of Federal. Nevertheless, because it was not certain, at the time plaintiffs sought coverage from their insurer, that the contractual term “trademarked slogan” would be deemed by this court to be unambiguous, Federal was obligated to defend Hugo Boss in the underlying litigation until that uncertainty was resolved. Nevertheless, because the scope of the duty to defend in a case of legal-as against factual-uncertainty was not clear at the time Federal declined to defend Hugo Boss, we hold that Federal did not breach its implied duty of good faith in failing to defend Hugo Boss.
The district court’s grant of partial summary judgment to HB USA on the duty to defend is, therefore, AFFIRMED, as is the jury’s award of $500,000 in damages with respect to the breach of that duty. The denial of any damages for indemnification is also AFFIRMED. However, the district court’s denial of judgment as a matter of law with respect to plaintiffs’ claim of bad faith is REVERSED and the award of fees and costs incurred in the coverage action is VACATED. Each party will bear its own costs.
Judge SOTOMAYOR, dissents in part in a separate opinion.
. Plaintiff Hugo Boss Fashions, Inc. holds the exclusive U.S. sublicense from Hugo Boss USA for HB Germany's trademarks in the United States and is the primary importer and distributor of Hugo Boss products.
. In addition to seeking damages, BMC moved for a Temporary Restraining Order and a preliminary injunction prohibiting Hugo Boss from violating the Agreement and infringing its trademarks by selling boots, gloves, or mittens bearing the term "BOSS.” The parties entered into a "Temporary Stipulated Order” that granted preliminary relief to BMC.
. Federal also concluded, later on, that it could disclaim coverage on the basis of the policy’s "prior acts” exclusion.
. The letter stated that "[a] slogan is a catch phrase used to advertise a product. No slogans are alleged.”
. The court also rejected Federal's contention that any injury to BMC was not caused by plaintiffs' "advertising activities.” It stated that "the federal courts have held that the use of a trademark on goods implies or constitutes ‘advertising’ in ‘the ordinary meaning of the term’.... This use qualifies as advertising under the definition [of the policy.]” Hugo Boss, 1999 WL 993689, at *4 (alteration in original).
The court further determined that issues of fact existed as to whether Federal had acted in bad faith and had breached its fiduciary duties. These questions were, therefore, to be left to the jury. Id. at *5.
. The author of this opinion would have certified to the New York Court of Appeals the question of whether Federal was obligated to indemnify HB USA. A majority of this panel, however, concluded that this question, though technically a matter of state law, is so closely bound up with important matters of federal trademark law as to make certification inappropriate. Accordingly, it is up to this court to determine, as best it can, the law of the State of New York in this regard. See Siler v. Louisville and Nashville R.R. Co., 213 U.S. 175, 193, 29 S.Ct. 451, 53 L.Ed. 753 (1909).
. The term "house mark” refers to a company name or line of products, while the term "product mark” refers to the name of a particular product. Thus, "Ford” is a house mark and "Mustang” is a product mark. Similarly, "Kellogg's” is a house mark and "Pop Tarts” is a product mark. See McCarthy on Trademarks and Unfair Competition § 7:5 (4th ed.).
. We note, in passing, that the fact that the same district courL judge, in the opinion below and in A Touch of Class, advanced a competing interpretation of the term "trademarked slogan” is not, in and of itself, sufficient to create an ambiguity, and hence to trigger application of the contra proferentem and a concomitant duty to indemnify. Instead, New York law is clear that the mere existence of a split in judicial authority is not sufficient to create contract ambiguity. Thus, in Hartigan v. Casualty Co. of America, 227 N.Y. 175, 124 N.E. 789, 790 (1919), the New York Court of Appeals explained:
The fact that the courts below have read the policy otherwise and found it susceptible of another meaning is urged as establishing the fact that reasonable and intelligent men may honestly differ as to its meaning, and that it must therefore be construed against the insurer. It is, however, for this court to say, as matter of law, whether reasonable men may reasonably differ as to such meaning, or whether the indulgence of the lower courts has not written a new contract for the parlies and extended the defendant’s liability beyond the plain and unambiguous language of the policy.
See also Breed, 413 N.Y.S.2d 352, 385 N.E.2d at 1282. It is precisely in a case such as this, where a single district judge offers an interpretation that runs against the overwhelming current of judicial opinion, that New York's rejection of a per se rule — under which ambiguity would exist whenever there is a split in judicial authority — is most apt.
.Of course, if HB USA used the term "BOSS” as part of a phrase that constituted a slogan, such as BMC’s "The Selection is Broad, the Quality is BOSS,” then the insurance policy’s carve-out for slogan infringement might well apply. Here, however, where it is alleged that the word "BOSS” alone was used in an infringing way, the carve-out does not come into play because the term does not "create[ ] a separate impression from the house mark.” Genovese Drug Stores, 939 F.Supp. at 346.
. Because we find that, as a matter of law, Federal was not obligated to indemnify HB USA for any of the $2 million settlement in the BMC Action, we need not take up plaintiffs’ claim that the district court erroneously instructed the jury with respect to the "prior acts” exclusion in the insurance policy. Any such error was necessarily harmless.
. The case before us, however, cannot be such a case. The existence of the prior district court decision in A Touch of Class makes
. Except perhaps when there is some reason to believe that the suit can be converted into one based on the insured’s negligence. See Fitzpatrick v. Am. Honda Motor Co., 78 N.Y.2d 61, 571 N.Y.S.2d 672, 575 N.E.2d 90, 92 (1991) (concluding that the insurer has the responsibility of providing a defense when it has “actual knowledge that the lawsuit involves a covered event” even when this event is not alleged in the complaint).
. In the case before us, however, the complaint in the underlying infringement action does not resolve the uncertainty as to coverage. Thus, though the BMC Complaint itself makes no reference to the term "BOSS” as a slogan, this does not mean that the complaint could not be read as alleging slogan infringement. Indeed, there is no reason at all to expect that BMC would specify as much in its complaint, because the question of whether Hugo Boss’s acts constituted infringement of a trademarked house or product name, on the one hand, or a trademarked slogan, on the other, was irrelevant to BMC's theory of recovery. See Pahl v. Grenier, 277 A.D.2d 681, 715 N.Y.S.2d 124, 126 (3d Dep’t 2000) (finding a duty to defend notwithstanding the fact that the complaint in the underlying action did not help clarify whether the claim fell within the insurance policy because “that issue ha[d] no relevance to any of the causes of action pleaded in the complaint”). Moreover, nothing in BMC's Complaint negates the possibility that the allegations of trademark infringement come within the exception to the intellectual property exclusion for "trademarked slogans.” See Avondale Indus., Inc. v. Travelers Indem. Co., 887 F.2d 1200, 1205-06 (2d Cir.1989) (finding duty to defend even though underlying complaint did not expressly allege that the harm was “sudden and accidental” as required by the exception to the relevant policy exclusion).
. The defense coverage of a liability policy is owed in the interval required to sort out whether the underlying facts trigger liability coverage under the wording of the policy. Judge Sotomayor believes that the duty to defend lasts until the relevant underlying facts are settled, but that the duty does not even arise if the underlying facts are undisputed and the unsettled issue is the fit between those facts and wording in the policy later ascertained to be unambiguous. Thus Judge Sotomayor's dissent is based on the idea that policy wording is either ambiguous or not, and that this classification can be made without regard to a factual setting. This is a fallacy, because ambiguity is an insurance question that only arises in a factual setting. Judge Sotomayor's analysis would leave policyholders undefended while a good faith dispute ensues as to whether settled facts never seen before give rise to ambiguity as to coverage under a policy never before construed in the factual setting.
. Federal advances other arguments, relying on other provisions of the insurance contract, in support of its contention that it was not obligated to defend HB USA in the BMC Action. None of these arguments is persuasive.
First, Federal contends that the "breach of contract" exclusion, which disclaims coverage for "advertising injury arising out of breach of contract," defeats plaintiffs' claim. But, as the district court properly found, this argument is foreclosed by the decision of the New York Court of Appeals in Mount Vernon Fire Ins. Co. v. Creative Housing Ltd., 88 N.Y.2d 347, 645 N.Y.S.2d 433, 668 N.E.2d 404 (1996). In that case, the Court of Appeals held that a "but for” test governs exclusion clauses such as the breach of contract exclusion at issue here. Thus, only if the advertising injury suffered by BMC would not exist but for the breach of contract, would the injury "arise out of” a breach of contract. And, only then would Federal not be obligated to indemnify HB USA. As the district court explained, however, "BMC's claims against Hugo Boss ... exist independent of the contract. ... BMC’s trademark rights arose long before it entered into the 1990 agreement with Hugo Boss [Germany] and would exist even if BMC had never entered into that agreement and/or if that agreement had not been breached.” Hugo Boss, 1999 WL 993689, at *3.
The "breach of contract” exclusion is, perhaps, susceptible to readings other than the one outlined above. Nevertheless, because this reading is, at the very least, a possible one, sufficient uncertainty as to the applicability of the breach of contract exclusion existed so that it could not serve to eliminate Federal's duty to defend.
Federal also insists that because HB Germany, and not HB USA, paid the defense costs incurred by Hugo Boss as a result of the BMC Action and paid the $2 million settlement, HB USA did not incur any costs or damages as a result of that lawsuit. Accordingly, Federal argues, HB Germany is the "real party in interest” with respect to any costs relating to the BMC Action, and HB USA is not entitled to any recovery. Under New York's collateral source rule, however, "as a general rule, a plaintiff may recover damages that include amounts for which the plaintiff has already been compensated through sources wholly independent of and collateral to the wrongdoer.” Ideal Mut. Ins. Co. v. Korean Reins. Corp., 657 F.Supp. 1174, 1175 (S.D.N.Y.1987) (citing Silinsky v. Statewide Ins. Co., 30 A.D.2d 1, 289 N.Y.S.2d 541, 546 (2d Dep't 1968)). Thus, the fact that the parent company, rather than the subsidiary, paid the costs arising out of HB USA’s infringing acts is of no moment, and HB USA’s coverage action lies.
. HB USA acknowledges in its brief that the jury might have reduced the fee award by $12,000 for funds expended specifically in defense of HB Germany and by $200,000 for funds expended in hammering out the settlement with BMC. These were, according to HB USA, the only aspects of its request for $1,723,819.64 in fees with respect to which Federal took issue and submitted evidence. But even if the jury agreed with Federal on these points, the fee award could, HB USA claims, be reduced only to approximately $1.5 million and not below.
. Because we affirm the district court’s denial of a new trial, there is no reason for us to consider HB USA’s claim that it was entitled to additur. Additur is an appropriate remedy only in lieu of a new trial. And without a threshold determination that a plaintiff is entitled to a new trial, the alternative remedy of additur is unavailable. See, e.g., Liriano v. Hobart Corp., 170 F.3d 264, 272 (2d Cir.1999) (“Additur is a practice by which a judge offers a defendant the choice between facing a retrial and accepting a damage award higher than that determined by the jury.”) (emphasis added).
. Given our holding with respect to the duty of good faith and fair dealing, it is, of course, unnecessary for us to take up Federal's claim, that, if attorneys’ fees are to be awarded, plaintiffs are entitled to only a fraction of the money awarded, due to its limited success in the coverage action.