be given their ordinary meaning, and in the absence of an ambiguity, a court should not engage in a strained construction to support the imposition of liability.")
ML&B asserts that a comparison of the causes of action alleged against Cosmetic Gallery shows that those claims have various interrelated and intertwined issues of fact and law. ML&B contends that it is not possible to distinguish between ML&B's general trial preparation and any preparation specific to a non-covered claim or to relief seeking punitive damages or an injunction. ML&B further contends that all the depositions of the various parties to this action constitute general trial preparation and, thus, cannot be identified as an expense for a specific claim. (Plaintiff's Brief at 24) . ML&B also argues that "unfair competition" is broadly defined as "the umbrella for all statutory and non-statutory causes of action arising out of business conduct which is contrary to honest practice in industrial or commercial matters." American Heritage Life Ins. Co. v. Heritage Life Ins. Co., 494 F.2d 3, 14 (5th Cir. 1974). In addition, unfair competition under section 43(a) of the Lanham Act is defined as "any commercial activity that is likely to cause confusion or mistake, or to deceive as to affiliation, connection, or association of the one person with another, or as to the origin, sponsorship, or approval of one's goods or service". ML&B asserts similarly that, to recover for trademark infringement, a plaintiff generally needs to show that its trademarks are being used in commerce without its consent in a manner that is likely to cause confusion or mistake, or to deceive. See Burger King Corp. v. Mason, 710 F.2d 1480, 1491 (11th Cir. 1983), cert. denied, 465 U.S. 1102, 80 L. Ed. 2d 130, 104 S. Ct. 1599 (1984). ML&B further asserts that no apportionment of defense costs can be made between unfair competition and the tortious interference claims because both require a showing of improper conduct on the part of the defendant. Therefore, ML&B argues that due to the similarities in the causes of action, it is impossible to rationally determine which costs were incurred in defending the unfair competition claims as opposed to the costs incurred in defending the tortious interference claims.
ML&B also claims that Matrix's trademark infringement claims are better characterized as claims of unfair competition or infringement of title which are covered as advertising offenses under the relevant insurance policies. See Curtis-Universal, Inc. v. Sheboygan Emergency Medical Services, Inc., 43 F.3d 1119, 1122 (7th Cir. 1994) ("What is important is not the legal label that the plaintiff attaches to the defendant's (that is, the insured's) conduct, but whether that conduct as alleged in the complaint is at least arguably within one or more of the categories of wrongdoing that the policy covers.") (Plaintiff's Brief at 20). As for Matrix's claim of violation of the New Jersey Consumer Fraud Act, ML&B alleges that this claim is also intertwined with the other claims because it requires a showing of an "unconscionable commercial practice." Specifically, the New Jersey Consumer Fraud Act states that "the act, use or employment by any person of any unconscionable commercial practice . . . in connection with the sale or advertisement of any merchandise or real estate . . . is declared to be unlawful practice." N.J.S.A. § 56:8-2. ML&B contends also that Hanover conceded coverage for this claim by letter of November 17, 1993. Conversely, Hanover contends that under no circumstances, could the statute ever be construed as supporting a claim of unfair competition, it also argues that "the New Jersey Consumer Fraud Act exists solely for the protection of consumers, not for the protection of competitors." (Defendant's Reply Brief at 30).
By the time the Matrix litigation was tried before Judge Irenas on October 17, 1994, all claims for monetary damages had been dismissed. The sole issue tried before Judge Irenas during the seven day trial related to injunctive relief. The fees incurred for the trial totalled approximately $ 35,000. Consequently, the court agrees with Hanover that since the trial involved solely injunctive relief, none of these charges could be assessed to Hanover. Yet, Hanover's agreement to pay the fifty percent of ML&B' bills includes the cost of the trial. Therefore, Hanover had actually paid for fifty percent of the cost of the trial relating to injunctive relief, a cost that is not expressly covered by the policies.
The court also finds persuasive the position of the defendant in asserting that count Four (malicious interference with contractual relations), Five (malicious interference with prospective economic advantage), Six (violation of the New Jersey Consumer Fraud Act) and Eight (with respect to the conspiracy to commit acts of tortious conduct) are not covered by the insurance policies. Although we agree with ML&B that the existence of covered and non-covered claims presents a potential conflict between the insured and the insurer vis-a-vis defense strategy, we believe that the "fifty percent solution" suggested by Hanover is an equitable and fair one under the facts of this case.
Furthermore, when Hanover agreed to pay fifty percent of the defense costs in the Matrix litigation, it was totally unaware that ML&B had defended not only Cosmetic Gallery and the Eisenbergs in their capacities as officers and stockholders of that company but also had defended C & L Beauty Supply, Inc. and the Eisenbergs as officers and stockholders of that corporation. C & L Beauty Supply was not insured under any Hanover insurance policies and therefore, no obligation was owed to it to pay for its defense or that of the Eisenbergs in their capacities as officers and stockholders of that company. (Defendant's Brief at 26). This is clearly a windfall to those parties who would have been required to pay for their own defense in this matter.
The court agrees with Hanover in stressing that C & L Beauty Supply, Inc. and the Eisenbergs in their affiliation with this company received a "free ride", not having to retain independent counsel. The counterclaim filed by Cosmetic Gallery is not covered by Hanover insurance. The insurance policies do not cover affirmative claims asserted by the insured or independent corporations related to the insured, such as C & L Beauty Salon, Inc. Similarly, punitive damages are not covered by Hanover policies. In fact, the Appellate Division in City of Newark v. Hartford Acc. and Indem. Co., 134 N.J. Super. 537, 342 A.2d 513, (1975), expressly held that "public policy" would plainly not permit a defense or indemnification by the carrier for any claim for punitive damages." Id. at 547, 342 A.2d at 518. See also Variety Farms, Inc. v. New Jersey Mfrs. Ins. Co., 172 N.J. Super. 10, 25, 410 A.2d 696, 703 (1980) ("In New Jersey, public policy does not permit a tortfeasor to shift the burden of punitive damages to his insurer."). Again, there was no obligation under the Hanover policies for the carrier to afford a defense to Cosmetic Gallery, Inc. or the Eisenbergs for a claim for punitive damages. We are not persuaded that the equities of the case compel imposition of all defense costs against Hanover. Therefore, the reimbursement of $ 165,263.16 to date by Hanover to ML&B represents equitable compensation to ML&B for the covered claims.
Having analyzed the proceedings and the nature of the pleadings, the court finds by a preponderance of the evidence that:
1) the duty to defend extends only to claims within the coverage of the policy. The power to bind an insurer must be found in the written contract of insurance, and the parties will be bound by the plain language of the contract. This court cannot rewrite the contract for the parties, nor it is empowered to alter the terms of the same. Accordingly under the plain terms of Hanover's insurance contract, the policy covers only counts: One (violation of the Federal Trademark 1947), Two (trademark infringement and unfair competition under the Lanham Act), Three (trademark infringement and violation of statutory and common law unfair competition under New Jersey laws), Seven (violation of the New Jersey Unfair Competition Act), and that part of the Eighth count concerning conspiracy to commit acts of trademark infringement and unfair competition. Hanover's insurance policies do not cover counts: Four (malicious interference with contractual relations), Five (malicious interference with prospective economic advantage), Six (New Jersey Consumer Fraud Act) and that part of the Eighth count relating to conspiracy to commit acts of tortious conduct.
2) Furthermore, the counterclaim asserted against Matrix by Cosmetic Gallery, C & L Beauty Supply and the Eisenbergs together with the punitive damages claim against Cosmetic Gallery in the Matrix litigation, do not fall within the scope of coverage of Hanover's policies.
3) C & L Beauty Supply and Charles and Larry Eisenberg in their capacities as officers and stockholders of C & L Beauty Supply are not named insureds under Hanover's policies and therefore there is neither a duty to defend these entities nor a duty to indemnify ML&B for the expenses incurred in defending them.
4) Finally, this court agrees with Hanover in asserting that the costs incurred by ML&B in the defense of the trial before Judge Irenas do not fall within the scope of coverage of the insurance policy since it concerned exclusively recovery for injunctive relief.
The court finds by a preponderance of the evidence that the reimbursement by Hanover to ML&B to date is fair and reasonable.
Therefore, for the reasons noted above, the motion of plaintiff for summary judgment shall be denied and the motion of defendant shall be granted.
JOEL B. ROSEN
United States Magistrate Judge
cc: Honorable Joseph E. Irenas
For the reasons set forth in the court's opinion of this date;
IT IS this 6th day of May, 1996 hereby
ORDERED that the motion for summary judgment of Plaintiff Morgan, Lewis & Bockius is DENIED; and
IT IS FURTHER ORDERED that the cross-motion for summary judgment of Defendant Hanover Insurance Company is GRANTED.
JOEL B. ROSEN
United States Magistrate Judge