Samsco, et al. v. Hartford, et al. CV-92-564-M 11/06/98 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Samsco, Inc. and Samuel G. Travis, Plaintiffs

v. Civil No. 92-564-M

Hartford Accident & Indemnity Company; Massachusetts Bay Insurance Company; and Maine Bonding & Casualty Company, Defendants

O R D E R

The plaintiffs, Samsco, Inc., and Samuel G. Travis, brought

this declaratory judgment action to establish the defendant

insurers' obligation to defend and indemnify them in connection

with a suit then pending in the United States District Court for

the District of Minnesota, Nordale, Inc. v. Samsco, Inc. and

Samuel G. Travis, Docket No. 4-91-C-598 (the "underlying

litigation"). The underlying litigation charged Samsco and

Travis with two counts of patent infringement, two counts of

breach of contract, misappropriation of trade secrets, breach of

fiduciary duty, and unfair competition based on product

disparagement.

The defendant Hartford Accident & Indemnity Company

("Hartford") insured Samsco under a policy effective July 11,

1988 through July 11, 1989. Samsco was later insured by the

defendant Maine Bonding and Casualty Company ("Maine Bonding")

under a policy running from July 11, 1989 through January 1,

1990. The defendant Massachusetts Bay Insurance Company ("Massachusetts Bay") insured Samsco under two successive

commercial general liability policies covering the periods

January 1, 1990 through January 1, 1991 (policy number

ZDV3519818) and January 1, 1991 through January 1, 1992 (policy

number ZDV3810763). The two Massachusetts Bay policies are

substantially similar in pertinent language and will be

collectively referred to as the "Policy". Direct guotations of

policy language are taken from the earlier policy, number

ZDV3519818.

Hartford and Maine Bonding agreed to defend Samsco in the

underlying litigation subject to a reservation of their rights to

later contest coverage. Massachusetts Bay flatly denied coverage

and declined to participate in the defense. This declaratory

judgment action was stayed pending the outcome of the underlying

litigation.

The jury in the underlying litigation found Samsco and

Travis liable for breach of contract and the verdict was upheld

on appeal. Although no claim for indemnity was made (Samsco and

Travis conceded that the Hartford and Maine Bonding policies did

not provide coverage for breach of contract) , Hartford and Maine

Bonding did expend $1,111,245,10 to defend the underlying

litigation. After taking an assignment of Samsco's right to a

defense under the Massachusetts Bay policies, Hartford and Maine

Bonding filed counterclaims in the instant case to recover one

third of their defense costs from Massachusetts Bay.

2 Massachusetts Bay has filed a motion for summary judgment,

claiming that no genuine issue of material fact exists and, as a

matter of law, it had no contractual duty to defend Samsco in the

underlying litigation. Hartford and Maine Bonding jointly object

and have filed a cross motion for summary judgment. For the

reasons that follow, Massachusetts Bay's motion for summary

judgment is granted and Hartford and Maine Bonding's joint cross

motion for summary judgment is denied.

________________________ Standard of Review

Summary judgment is appropriate when the record reveals "no

genuine issue as to any material fact and . . . the moving party

is entitled to a judgment as a matter of law." Fed. R. Civ. P.

56(c). When ruling upon a party's motion for summary judgment,

the court must "view the entire record in the light most

hospitable to the party opposing summary judgment, indulging all

reasonable inferences in that party's favor." Griqqs-Rvan v.

Smith,

(1st Cir. 1990).

The moving party "bears the initial responsibility of

informing the district court of the basis for its motion, and

identifying those portions of [the record] which it believes

demonstrate the absence of a genuine issue of material fact."

Celotex Corp. v. Catrett,

(1986). If the

moving party carries its burden, the burden shifts to the

nonmoving party to demonstrate, with regard to each issue on

which it has the burden of proof, that a trier of fact could

3 reasonably find in its favor. DeNovellis v. Shalala,

(1st Cir. 1997).

At this stage, the nonmoving party "may not rest upon mere

allegation or denials of [the movant's] pleading, but must set

forth specific facts showing that there is a genuine issue" of

material fact as to each issue upon which he or she would bear

the ultimate burden of proof at trial.

(guoting Anderson v.

Liberty Lobby, Inc.,

(1986)). In this context,

"a fact is 'material' if it potentially affects the outcome of

the suit and a dispute over it is 'genuine' if the parties'

positions on the issue are supported by conflicting evidence."

Intern'1 Ass'n of Machinists and Aerospace Workers v. Winship

Green Nursing Center,

(1st Cir. 1996)

(citations omitted).

____________________________ Discussion

The parties agree that whether Massachusetts Bay had a duty

to defend in the underlying litigation is an issue governed by

New Hampshire law.

It is well-settled law in New Hampshire that an insurer's obligation to defend its insured is determined by whether the cause of action against the insured alleges sufficient facts in the pleadings to bring it within the express terms of the policy, even though the suit may eventually be found to be without merit.

United States Fidelity & Guar. Co., Inc. v. Johnson Shoes, Inc.,

(1983). In resolving this issue, the court

considers what the insured would reasonably expect that his

4 rights are under the policy. I_d. at 152. The "court must

compare the policy language with the allegations in the original

suit, inguiring into the underlying facts if necessary, to see if

the claim falls within the express terms of the policy. A. B .C .

Builders v. American Mut. Ins. Co.,

(1995) .

The underlying litigation contained seven counts: two counts

asserting patent infringement, two counts asserting breach of

contract, three counts asserting, respectively, misappropriation

of trade secrets, breach of fiduciary duty, and unfair

competition/product disparagement. Although Massachusetts Bay

moved for total summary judgment, it discussed only Count VII in

its brief. It argued that Hartford and Maine Bonding were

necessarily estopped from asserting that Massachusetts Bay had a

duty to defend any counts for which Hartford and Maine Bonding

had themselves denied coverage under their own policies. Without

addressing the estoppel argument on its merits, the court notes

that Hartford and Maine Bonding are asserting the insured's

contractual rights to a defense, under an assignment.

Massachusetts Bay does not seem to claim that Hartford's and

Maine Bonding's denial of coverage under their own policies

somehow estops the insured from asserting coverage under

Massachusetts Bay's own policy. Massachusetts Bay's argument is

without merit. However, as none of the factual allegations or

legal claims described in the first six counts of the complaint

relate to bodily injury, property damage, personal injury or

advertising injury as covered by the policy, the court is able to

5 rule as a matter of law that none of those counts gives use to

coverage or a right to a defense under the Massachusetts Bay

policy.

Count VII alleged a cause of action under

(a)

for unfair competition based on product disparagement.

(a) (1998) provides that

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which-

(B) in commercial advertising or promotion misrepresents the nature, characteristics, gualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

Count VII specifically alleged that "Samsco and Travis made false

and deceptive statements about Nordale's Evaporator Apparatuses.

The statements included false, misleading and disparaging

statements regarding the operation, guality and safety of the

Nordale Evaporation Apparatuses." (Complaint 5 4 6.) The

complaint further alleged that the statements were made willfully

and maliciously. (Complaint 5 47.)

The Policy provides: "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 insurance

applies. ... We will have the right and duty to defend any

6 'suit' seeking those damages." (Policy, Coverage B, 1(a).)

Advertising injury is defined as follows:

"Advertising Injury" means injury arising out of one or more of the following offences: 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.

(Policy § V, 1.)

The policy further provides that an "advertising injury" is

covered only if the offen[s]e is committed during the policy

period in the "coverage territory" and in the course of

advertising the insured's goods, services or products. (Policy

Coverage B, c.) Thus, Count VII, on its face, arguably described

an advertising injury as defined in the Policy and, absent an

applicable exclusion, Massachusetts Bay would have been obligated

to defend the insured as to that count.

But Massachusetts Bay argues that two exclusions apply. The

first disclaims coverage for an advertising injury "[a]rising out

of oral or written publication of material, if done by or at the

direction of the insured with knowledge of its falsity." (Policy

Coverage B, 2b.) Massachusetts Bay says that because Count VII

alleged that the disparaging statements were made wilfully and

maliciously, the exclusion applies. Hartford and Maine Bonding

counter that acting wilfully and maliciously is not the same

thing as acting with knowledge of falsity.

7 The New Hampshire Supreme Court has noted that "willful"

means intentional, deliberate or voluntary. See Appeal of N.H.

Sweepstakes Commission,

(1988). Thus, the

complaint alleges an intentional act. While some courts have

read allegations of intent, in conjunction with a cause of action

that reguires a false statement, as necessarily implying

knowledge of falsity. See e.g., E.E.O.C. v. Southern Pub. Co.,

Inc.,

(5th Cir. 1990) (intentional slander

excluded), more caution is appropriate when the second term at

issue is ambiguous.

In the context of a defamation action, the New Hampshire

Supreme Court has defined "actual malice" as acting "with

knowledge of the falsity [of a statement] or with a reckless

disregard for truth or falsity." Nash v. Keene Pub. Corp.,

(1985). Thus, the complaint could be read as alleging

either a statement made with knowledge of falsity, a claim

subject to the exclusion, or, a statement made with reckless

disregard for its truth or falsity, a claim covered by the

Policy. See Federal Ins. Co. v. Cablevision Svs. Dev. Co.,

(E.D.N.Y. 1986) (noting that " [d]isparaging

statements obviously may be made wrongfully and with intent to

harm the reputation of another, yet without any actual knowledge

that such statements are false.") (citation omitted). Under New

Hampshire law, such ambiguity must be resolved in favor of the

insured: "[I]n a case of doubt as to whether or not the complaint

against the insured alleges a liability of the insurer under the policy, the doubt must be resolved in the insured's favor."

Green M t . Ins. Co. v. Foreman,

(citation and

internal quotations omitted). Accordingly, the first exclusion

does not apply.

The second exclusion relied on by Massachusetts Bay

disclaims liability for personal or advertising injury "[a]rising

out of oral or written publication of material whose first

publication took place before the policy period." (Coverage B,

2 a (2).) Of all the potentially disparaging statements alleged in

the complaint, only one need be addressed here. In their

objection to Massachusetts Bay's motion for summary judgment,

Hartford and Maine Bonding assert that "discovery in the

underlying case revealed that the only disparaging comments made

by Samsco employees with respect to the underlying plaintiff

suggested that the underlying plaintiff was out of business." As

noted above. New Hampshire law allows the court to look beyond

the pleadings to determine whether the claim is covered by the

policy. See A.B.C. Builders,

.

Hartford and Maine Bonding cite a statement allegedly made

by a representative of Samsco to an employee at Karsten

Manufacturing to the effect that Nordale had gone out of

business. Hartford and Maine Bonding point out that this

statement, allegedly made during the first quarter of 1990, was

within Massachusetts Bay's policy period. Hartford and Maine

Bonding also acknowledge, however, that a similar statement was

allegedly made by Travis to a representative of a plumbing and heating company in Michigan in May of 1989. Hartford and Maine

Bonding argue, however, that Travis has consistently denied

making such a statement. But they rely on what appears to be an

unsworn statement by Travis in which he simply makes a blanket

denial of all the allegations in Count VII of the complaint in

the underlying litigation. That unsworn blanket denial is

insufficient, for summary judgment purposes, to raise a genuine

issue of material fact, and cannot undermine or serve to counter

the specific deposition testimony of Joel R. Ohnesorge that the

disparaging statement was made by Travis in May, 1989. See

DeNovellis,

.

Hartford and Maine Bonding also argue that "each publication

to an individual customer constitutes an entirely independent and

separate loss." The court disagrees. In Applied Bolting Tech.

Prod., Inc. v. United States Fidelity & Guar. Co.,

(E.D.Pa. 1996), aff'd ,

(3d Cir. 1997),

the court noted;

Under the exclusion's plain terms, the "first publication" date is a landmark: if the injurious advertisement was "first published" before the policy coverage began, then coverage for the "advertising injury" is excluded. It is irrelevant that later publications, made after the policy became effective, also caused "advertising injury" or increased the damages.

The critical issue here relates to insurance coverage, not

liability for the underlying tort. Because the allegedly

disparaging statement at issue here was first published in May,

1989, before Massachusetts Bay's policy went into effect,

Massachusetts Bay had no contractual duty to defend the

10 plaintiffs with respect to Count VII in the underlying suit.

Given this conclusion, the court finds it unnecessary to address

Massachusetts Bay's argument that it also had no duty to defend

under the "known loss" doctrine.

Conclusion

As Massachusetts Bay had no duty under the Policy to defend

any of the seven counts in the underlying action, Massachusetts

Bay's motion for summary judgment (document no. 50) is granted

and Hartford and Maine Bonding's joint cross motion for summary

judgment (document no. 53) is denied.

SO ORDERED.

Steven J. McAuliffe United States District Judge

November 6, 1998

cc: James G. Walker, Esg. Brian T. McDonough, Esg. E. Tupper Kinder, Esg. Theodore Wadleigh, Esg.

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