Sentry Ins. v. R.J. Weber Co., Inc.

IN THE UNITED STATES OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 93-1222
Summary Calendar
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SENTRY INSURANCE, a Mutual Company,
Appellee,
versus
R.J. WEBER COMPANY, INC., ETAL.,
Defendants,
R.J. WEBER COMPANY, INC., and
R.J. WEBER, Individually,
Appellants.
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Appeal from the United States District Court for the
Northern District of Texas
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(August 20, 1993)
Before JOLLY, SMITH, and WIENER, Circuit Judges.
PER CURIAM:
Sentry Insurance ("Sentry") insured R.J. Weber and his
corporation, R.J. Weber Co., Inc., (collectively "Weber") against
claims based on personal and advertising injuries. Sentry brought
the declaratory judgment action before us seeking a declaratory
judgment that it had no duty to defend Weber against a claim of
copyright infringement. The district court granted summary
judgment in favor of Sentry because it found that the copyright
infringement suit was not related to Weber's advertising activity.
Finding no error, we affirm.
I
In January of 1992, Caterpillar, Inc. ("Caterpillar") brought
suit against Weber alleging copyright infringement. Caterpillar
has copyrighted two original works titled "Numerical Parts Record"
and "Parts Book Library." It claimed that Weber infringed its
copyrights by copying, publishing, distributing, and selling copies
of these works without first obtaining permission from Caterpillar.
Sentry insured Weber against personal and advertising
injuries. The policy provides Sentry "will pay those sums that the
insured becomes legally obligated to pay as damages because of
``personal injury' or ``advertising injury' to which this insurance
applies." In clause IV.B.1.c., the policy further provides that:
This insurance applies to "advertising injury" only if
caused by an offense committed:
(1) In the "coverage territory" during the policy
period; and
(2) In the course of advertising your goods,
products or services. [Emphasis supplied.]
Later on in section V, the policy defines an advertising injury as
follows:
"Advertising injury" means injury arising out of one or
more of the following offenses:
(1) Oral or written publication of material that
slanders or libels a person or organization or disparages
a person's or organization's goods, products or services;
(2) Oral or written publication of material that
violates a person's right or privacy;
(3) Misappropriation of advertising ideas or style
of doing business; or
(4) Infringement of copyright, title or slogan.
[Emphasis supplied.]
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Weber believed that the policy covered Caterpillar's suit and asked
Sentry to defend it against Caterpillar's claims. Sentry agreed to
defend Weber, but it reserved the right to bring suit to determine
whether the policy applied.
II
In June of 1992, Sentry filed this declaratory judgment action
seeking a declaration that it had no duty to defend or indemnify
Weber against Caterpillar's claims in the underlying lawsuit.
Weber counterclaimed that Sentry did have a duty to defend. Sentry
moved for summary judgment in October of 1992. After Weber
responded, the district court granted Sentry's motion. On
January 5, 1993, the district court entered judgment in favor of
Sentry. Weber moved the district court to reconsider, and Sentry
asked for reimbursement of the attorney's fees it incurred while
defending Weber. The district court denied Weber's motion, but it
granted Sentry its attorney's fees. Weber filed a timely notice of
appeal and brought this appeal.
III
Weber contends that the district court erred when it granted
Sentry summary judgment because there is a potentiality that,
liberally construed, Caterpillar's complaint states a claim that
was caused by or related to Weber's advertising. Because this is
a diversity case, we apply the substantive law of Texas. Stine v.
Marathon Oil Co., 976 F.2d 254, 259 (5th Cir. 1992) (citing Erie
Railroad Co. v. Tompkins, 304 U.S. 78, 58 S. Ct. 817, 822 (1938)).
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On appeal from the district court's grant of summary judgment, we
review the record de novo to ascertain whether any genuine issue
exists as to any material fact. Pullman-Standard v. Swint, 456
U.S. 273, 287, 102 S. Ct. 1781 (1982). The reach of an insurance
contract, moreover, is a matter of law that we review de novo.
Matter of World Hospitality Ltd., 983 F.2d 650 (5th Cir. 1993);
Stine, 976 F.2d at 260.
In Texas, if the allegations in the complaint will allow the
plaintiff to recover on a theory within the scope of the insurance
policy, there is potential liability against which the insurer is
obligated to defend. Terra Intern. v. Commonwealth Lloyd's, 829
S.W.2d 270, 271 (Tex.App. - Dallas 1992, writ denied). The burden
is generally on the insured to show that the claim against him is
potentially within his policy's coverage. See, e.g., Employers
Cas. Co. v. Block, 744 S.W.2d 940, 944 (Tex. 1988). The insurer,
however, bears the burden of establishing that one of the policy's
limitations or exclusions constitutes an avoidance or affirmative
defense to coverage. Tex. Ins. Code Art. 21.58(b).
Weber contends that the district court erred because it placed
the burden on Weber to prove the existence of an advertising
injury. According to Weber, clause IV.B.1.c. of the insurance
contract is a policy limitation. Weber, thus, concludes that the
Texas insurance code required Sentry to prove that the limitation
does not apply. Weber is incorrect. Clause IV.B.1.c. is not a
policy limitation. On the contrary, it defines policy coverage
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with respect to "advertising injuries." Specifically, the policy
covers advertising injuries that are caused in "the course of
advertising your goods, products or services." In sum, the clear
language provides that the policy covers a copyright infringement
suit only if Weber infringes someone's copyright in the course of
its advertising. If Weber infringes a copyright in another
context, there is no coverage under the terms of the policy.
A review of the insurance policy's other provisions makes
unmistakable our conclusion that clause IV.B.1.c is not a policy
limitation or exclusion. The policy contains explicit exclusions
and limitations in section IV.B.2. This section excludes, for
instance, advertising injuries that arise out of a "failure of the
goods, products or services to conform with the advertised quality
or performance." Similarly, the policy excludes advertising
injuries that arise out of the "wrong description of the price of
goods, products or services." In the light of section IV.B.2., we
think any argument that clause IV.B.1.c. is a policy exclusion or
limitation is precluded.
Thus, the question before us is whether Weber can sustain its
burden of establishing that Caterpillar's complaint potentially
states a claim that the policy covers. As noted above, Caterpillar
claimed that Weber infringed its copyrights by copying, publishing,
distributing and selling copies of its "Numerical Parts Record" and
"Parts Book Library" without first obtaining permission from
Caterpillar. Weber admits the complaint states nothing about
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advertising. Weber, however, resorts to arguing that the federal
system of notice pleading requires only a "short and plain
statement of the claims." Fed.R.Civ.P. 8. Weber argues that,
under the federal system, Caterpillar does not have to state every
instance Weber infringed its copyright. Weber contends that
Caterpillar's complaint would allow it to show in a federal trial
that Weber infringed its copyright in the course of Weber's
advertising.
Weber's argument does not bear scrutiny. Under such general
reasoning, the complaint would not serve as an indication of
whether there was coverage. Other courts that have examined this
issue have required the insured to demonstrate that there is some
connection between its advertising activity and the plaintiff's
claim. See, e.g., Nat. Union Fire Ins. Co. v. Siliconix, Inc., 729
F. Supp. 77 (N.D. Cal. 1989); Lazzara Oil Co. Columbia Cas. Co., 683
F. Supp. 777, 780 (M.D. Fla. 1988), aff'd mem., 868 F.2d 1274 (11th
Cir. 1989; Bank of the West v. Superior Court of Contra Costa
County, 833 P.2d 545, 10 Cal. Rptr. 2d 538, 553 (Cal. 1992). In the
case before us, Weber does not identify any connection between
Caterpillar's claims and Weber's advertising activity. We,
therefore, conclude that the policy does not cover Caterpillar's
claims and that Sentry has no duty to defend Weber in the
underlying suit.
IV
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For all the foregoing reasons, the decision of the district
court is
A F F I R M E D.
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