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Information Spectrum, Inc. v. Hartford

SUPREME COURT OF NEW JERSEY


November 22, 2004

INFORMATION SPECTRUM, INC., PLAINTIFF-APPELLANT,
v.
THE HARTFORD, DEFENDANT-RESPONDENT.

On certification to the Superior Court, Appellate Division, whose opinion is reported at 364 N.J. Super. 54 (2003).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

In this matter, the Court determines whether claims of Lanham Act violations and copyright infringement were covered by the insured's commercial general liability policy, thereby triggering the insurer's obligation to defend.

Information Spectrum (the insured) filed a federal action seeking a declaratory judgment to dispel assertions by Facstore, Inc. (Facstore), that it had misappropriated Facstore's product -- a computerized police reporting system. Facstore contended that the insured sold"knock-offs" of the product to prospects to whom Facstore had attempted to market the system. In response to the insured's declaratory judgment action, Facstore filed a counterclaim alleging, among other claims, copyright infringement, Lanham Act violations, pursuant to 15 U.S.C.A. § 1125 (a), and misappropriation of trade secrets. The jury in that matter rendered a verdict in favor of the insured.

Hartford denied the insured's claim for $170,988.50 in costs incurred in defending Facstore's counterclaim, asserting that the alleged offense did not occur in the course of advertising the insured's products and therefore it was outside the policy's terms. Hartford also denied the claim on grounds that $162,184.50 of the amount was incurred before the insurer was given notice of the suit. The insured filed this insurance action against Hartford.

In the insurance action, the insured conceded that its policy did not cover any of the causes of action asserted in Facstore's counterclaim except insofar as coverage could be found in its advertising injury provisions. In that regard, the policy provided coverage for injuries"caused by an offense committed in the course of advertising [the insured's] goods, products or services; but only if the offense was committed in the'coverage territory' during the policy period." The policy further limited coverage for advertising injuries to certain enumerated categories, including"misappropriation of advertising ideas or style of doing business" and"infringement of copyright, title or slogan." The insured contended that Facstore's claims fell within these two categories.

The trial court granted summary judgment in favor of the insured. The motion judge did not attempt to equate any of Facstore's claims to the policy's enumerated categories and held that the duty to defend was triggered even though Facstore did not allege that the insured advertised the offending or violating product. Instead, the motion judge held that the policy provisions did not require the existence of a discrete piece of advertising.

The Appellate Division reversed and remanded the case to the trial court for the entry of summary judgment in favor of Hartford. 364 N.J. Super. 54 (2003). On appeal, the insured had conceded that the policy did not provide coverage for most of Facstore's claims, but argued that the copyright infringement and Lanham Act claims were covered because they fell within the policy's enumerated categories. The panel rejected the argument that the Lanham Act claim fell within the enumerated offenses, explaining that Lanham Acts claims are not mentioned by name or description in the policy. The panel agreed that the copyright infringement claim fell with an enumerated category, but because Facstore's allegations did not assert any injury caused by the insured's advertising, no obligation to defend was triggered. Finally, emphasizing that coverage could be triggered only by injury caused by the insured's advertising of the infringing or misappropriated product, the panel noted that Facstore's only allegation relating to advertising concerned a product demonstration by the insured at an exposition in 1999 -- well after the policy had terminated.

HELD: The judgment of the Appellate Division is affirmed substantially for the reasons expressed in the Appellate

Division's opinion. Under the advertising injury provisions of the comprehensive liability policy, the insurer was not required to defend the claim against the insured because the alleged harm was not caused by an advertising act.

1. Under the advertising injury provisions of this policy, a duty to defend attached if a claimed injury was"caused by" an offense committed"in the course of" advertising and if the injury fell within one of the enumerated categories. Here, Facstore never alleged that the insured advertised the offending product, let alone that the advertising engendered the injury. (Pp. 3 - 5).

2. Moreover, even if Facstore had complained of incidental marketing activities, that would not have brought the claim within the policy language. For the"advertising injury" provisions of the policy to apply, the harm alleged must be"caused by" the advertising act itself, and not by the underlying purloinment. As the Appellate Division correctly concluded, that simply did not happen here. (P. 5).

The judgment of the Appellate Division is AFFIRMED.

CHIEF JUSTICE PORITZ and ASSOCIATE JUSTICES LONG, LaVECCHIA, ZAZZALI, ALBIN, WALLACE and RIVERA-SOTO join in the Court's opinion.

Per curiam.

Argued September 27, 2004

The facts of this insurance coverage case are detailed in the decision of the Appellate Division. Information Spectrum, Inc. v. The Hartford, 364 N.J. Super. 54 (App. Div. 2003). At its heart is the claim of Facstore, Inc. that the insured, Information Spectrum, Inc., misappropriated a computerized police reporting system developed by Facstore. Facstore sued and the insured sought coverage*fn1 from The Hartford Casualty Insurance Company under an "advertising injury" clause in a Commercial General Liability policy. The policy provided:

1. "Advertising injury" means injury arising out of one or more of the following offenses:

a. 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;

b. Oral or written publication of material that violates a person's right of privacy;

c. Misappropriation of advertising ideas or style of doing business; or

d. Infringement of copyright, title or slogan.

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this coverage part applies. We will have the right and duty to defend any "suit" seeking those damages. We may at our discretion investigate any "occurrence" or offense and settle any claim or "suit" that may result.

b. This insurance applies to:

(1) "Personal injury" caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you;

(2) "Advertising injury" caused by an offense committed in the course of advertising your goods, products or services; but only if the offense was committed in the "coverage territory" during the policy period.

[emphasis added.]

Hartford denied coverage and this suit followed in which the insured claimed that Facstore's complaint of misappropriation and copyright infringement, standing alone, fell within the "advertising injury" provisions of the policy although Facstore did not contend that the insured advertised the offending product. In granting summary judgment, the motion judge agreed with the insured and held that the duty to defend was triggered even without an allegation of advertising.

The Appellate Division reversed and remanded the case to the trial court for the entry of summary judgment in favor of the insurer. In so doing, the court properly recognized that, to be covered, there must be an allegation that the claimed injury was "caused by" an offense committed "in the course of" advertising:

[T]he advertising injury provision requires "a causal connection between the advertising and the injury and the injury must fall within one of the four categories defined by the policy." Tradesoft, supra, 329 N.J. Super. at 152, 746 A.2d 1078 (citing Frog Switch, supra, 193 F.3d at 751 n.8). Accordingly, resolving whether a duty to defend attaches in this context requires not only that the injury fall within one of the four categories (which only the copyright infringement does) but also a determination of whether the claimant asserts that an injury was caused by the insured's advertising of its good and services.

The principal misconception which led to the erroneous summary judgment in favor of the insured was the motion judge's view that it was not relevant whether the insured advertised the infringing product. We recognize that focus can be lost in intellectual property disputes because such litigation "often proceeds under a bewildering variety of different labels covering the same material facts." Frog Switch, supra, 193 F.3d at 747. In emphasizing in Tradesoft that the primary question turns on the insured's advertising as a cause of the claimant's harm, we relied upon the succinct comment of the court in Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219, 1223 (9th Cir. 1996) to illustrate the thrust of the advertising injury provision: in order to invoke coverage "the advertising activities must cause the injury -- not merely expose it." As a result, in ascertaining whether a duty to defend has been triggered by a claim against the insured, the claim must be examined for allegations of injuries caused by the insured's advertising.

[Information Spectrum, supra, 364 N.J. Super. at 65-66.]

We affirm that determination substantially for the reasons expressed in Judge Fisher's thorough and thoughtful opinion. Here Facstore never alleged that the insured advertised the offending product, let alone that the advertising engendered the injury. Moreover, even if Facstore had complained of incidental marketing activities, that would not have brought the claim within the policy language. For the "advertising injury" provision of the policy to apply, the harm alleged must be "caused by" the advertising act itself and not by the underlying purloinment. As the Appellate Division correctly concluded, that simply did not happen here.

Affirmed.

CHIEF JUSTICE PORITZ and JUSTICES LONG, LaVECCHIA, ZAZZALI, ALBIN, and RIVERA-SOTO join in this opinion. JUSTICE WALLACE did not participate.

Chief Justice Poritz PRESIDING


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