Tri-State Insurance Company v. B & L Products, Inc., d/b/a Bycin Industries, Inc.

TRI-STATE INSURANCE COMPANY v. B & L
PRODUCTS, INC., d/b/a Bycin Industries, Inc.

CA 97-389                                          ___ S.W.2d ___

                  Court of Appeals of Arkansas
                      Divisions II and III
                Opinion delivered March 11, 1998


1.   Civil Procedure -- failure to introduce underlying complaint and insurance
     policy in declaratory-judgment action -- no prejudicial error requiring
     reversal of summary judgment. -- Where both parties moved for
     summary judgment, alleging that there were no genuine issues
     of material fact, and where both acknowledged that all
     pertinent provisions of the underlying copyright-infringement
     complaint and the commercial general liability insurance
     policy were before the appellate court, the court of appeals
     found no prejudicial error that would require it to reverse
     the summary judgment on the basis that appellee failed to
     attach the underlying complaint and the insurance policy to
     its complaint for declaratory judgment as required by Ark. R.
     Civ. P. 10(d) and 56(c).

2.   Insurance -- term "advertising" viewed as ambiguous -- construed against
     drafter of policy -- manner in which appellee promoted product fell within
     meaning of term. -- The appellate court regarded the term
     "advertising" as ambiguous in the context of the case and
     construed it against appellant as the drafter of the policy;
     accordingly, the appellate court found no error in the trial
     court's finding that the manner in which appellee promoted its
     product fell within the meaning of the term "advertising"
     under the policy, even though the product advertising was not
     aimed at the public at large.  

3.   Insurance -- insurer's duty to defend -- pleadings in underlying action
     determine. -- The pleadings in the underlying action generally
     determine an insurance company's duty to defend; an insurer
     must defend the case if there is any possibility that the
     injury or damage may fall within the policy coverage; it is
     the allegations made against the insured, however groundless,
     false, or fraudulent such allegations may be, that determine
     the duty of the insurer to defend the litigation against its
     insured.

4.   Insurance -- insurer's duty to defend -- underlying complaint contained
     sufficient allegations of appellee engaging in "advertising." -- The
     appellate court found no error in the trial court's finding
     that the underlying copyright-infringement complaint contained
     sufficient allegations of appellee engaging in "advertising"
     activities. 

5.   Insurance -- insurer's duty to defend -- underlying complaint contained
     sufficient allegations that appellee's copyright infringement was caused by
     advertising activities. -- The appellate court found no error in
     the trial court's finding that the underlying copyright-
     infringement complaint contained sufficient allegations that
     appellee's copyright infringement was caused by its
     advertising activities.


     Appeal from Garland Circuit Court; Walter G. Wright, Judge;
affirmed.
     Wright, Lindsey & Jennings, by: James M. Moody, Jr., and J.
Charles Dougherty, for appellant.
     Bachelor, Newell & Oliver, by: C. Burt Newell, for appellee.

     John F. Stroud, Jr., Judge. 
     This appeal arises from a summary judgment entered in a
declaratory judgment action in Garland County, Arkansas, in favor
of appellee, B&L Products, Inc., against appellant, Tri-State
Insurance Company.  We attempted to certify this appeal to the
supreme court, but certification was refused.  We affirm.
     Appellant issued a commercial general liability (CGL)
insurance policy to appellee in 1994.  The policy provides coverage
for any þ`[a]dvertising injury' caused by an offense committed in
the course of advertising [appelleeþs] goods, products, or
services.þ  In 1995, a company called Geographics, Inc., filed the
underlying copyright-infringement action against appellee in
federal court in the State of Washington.  The copyright action
involves paper products produced by appellee that are known as
þKoolnotesþ and paper products produced by Geographics that are
known as þGeoNotes.þ  Geographics learned that OfficeMax, a large
retailer of office and school supplies, was selling appelleeþs
Koolnotes, which according to Geographics were virtually identical
to its GeoNotes.
     Appellant refused to defend the underlying lawsuit on behalf
of appellee, contending that the claim did not arise out of
þadvertisingþ as provided in the insurance policy.  On March 8,
1996, appellee filed a complaint for declaratory judgment in the
circuit court of Garland County, Arkansas, asking that the court
declare that appellant must provide a full defense in the
underlying copyright-infringement case and that appellant must
fully indemnify appellee with respect to the underlying action,
including costs, attorney's fees, expenses, and any judgment that
might issue in the underlying action.
     On October 7, 1996, appellant filed its motion for summary
judgment, asserting that there were no genuine issues of material
fact and that it was entitled to summary judgment as a matter of
law.  Appellee responded to the motion for summary judgment and
filed its own countermotion for the same, agreeing that there were
no genuine issues of material fact but asserting that it, rather
than appellant, was entitled to summary judgment.  The trial judge
entered summary judgment in favor of appellee.
     Appellant raises three points of appeal:  (1) appellee failed
to introduce in the declaratory judgment action the insurance
policy and underlying copyright-infringement complaint as required
by Rules 10(d) and 56(c) of the Arkansas Rules of Civil Procedure;
(2) the underlying copyright-infringement complaint contains no
allegation that appellee engaged in advertising activities; and (3)
the underlying copyright-infringement complaint contains no
allegation that appelleeþs copyright infringement was caused by
advertising activities.
     Under the first point, appellant argues that Rule 10(d) of the
Arkansas Rules of Civil Procedure requires that a copy of the
written instrument be attached as an exhibit to the pleading that
asserts a claim or defense based upon the written instrument. 
Since appellee failed to attach the insurance policy and the
underlying copyright-infringement complaint to its complaint for
declaratory judgment, appellant argues that the trial court erred
in granting summary judgment pursuant to Rule 56(c) of the Arkansas
Rules of Civil Procedure.  We disagree.
     Neither party argued to the trial court that any pertinent
language from the policy or the underlying complaint was missing. 
Moreover, in oral arguments before this court appellantþs counsel
was candid in responding to our questions on this point and
acknowledged that the pertinent language from the policy and the
underlying complaint was before us.  In short, both parties moved
for summary judgment in this case, alleging that there were no
genuine issues of material fact, and both have acknowledged to this
court that all pertinent provisions of the underlying complaint and
insurance policy are before this court.  We find no prejudicial
error that would require us to reverse on this point.  See
Jefferson v. State, 328 Ark. 23, 941 S.W.2d 404 (1997).
     Under the second point, appellant argues that the term
þadvertisingþ includes only promotional activities that are
directed to the public at large; that it does not include a
salespersonþs one-on-one solicitation for sales; and that the
underlying complaint in the Washington case did not allege that
appellee engaged in þadvertisingþ activities.  We disagree.
     The pertinent policy language provided coverage against any
þþ[a]dvertising injuryþ caused by an offense committed in the
course of advertising [appelleeþs] goods, products, or services.þ 
The term þadvertising injuryþ is defined in the policy as: 
     [an] 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 personþs or
          organizationþs goods, products or services;
          (b) Oral or written publication of material
          that violates a personþs right of privacy; (c)
          Misappropriation of advertising ideas or style
          of doing business; or (d) Infringement of
          copyright, title or slogan.

The term þadvertisingþ is not defined in the policy, and we have
found no Arkansas cases defining the term in the context of a CGL
policy.
     Appelleeþs product promotion was not aimed at the general
public, but rather at a small, targeted market of large retailers. 
Appellant contends that appelleeþs one-on-one sales solicitation
cannot constitute þadvertisingþ because it is not aimed at the
public at large.  Appellant acknowledges in its reply brief,
however, that þsome dictionaries include definitions of
þadvertisingþ that require public dissemination and other
definitions that do not.þ  In attempting to give this term its
plain, ordinary, and popular meaning in the context of this case,
members of this court have also viewed the term differently.  We
therefore regard the term as ambiguous in the context of this case
and construe it against the appellant as the drafter of the policy. 
Hartford Fire Ins. Co. v. Carolina Cas. Ins., 52 Ark. App. 35, 914 S.W.2d 324 (1996).  Construing the term "advertising" in the manner
urged by the dissent would mean that appellee could never recover
under this provision of the insurance policy because its product
market is a relatively small group of large retailers, not the
public at large.  Accordingly, under the circumstances presented in
this case, we find no error in the trial courtþs finding that the
manner in which appellee promoted its product falls within the
meaning of the term þadvertisingþ under the policy, even though the
product advertising was not aimed at the public at large.  
     Moreover, appellant acknowledges that the pleadings in the
underlying action generally determine an insurance companyþs duty
to defend.  Madden v. Continental Cas. Co., 53 Ark. App. 250, 922 S.W.2d 731 (1996).  An insurer must defend the case if there is any
possibility that the injury or damage may fall within the policy
coverage.  Id.  It is the allegations made against the insured,
however groundless, false, or fraudulent such allegations may be,
that determine the duty of the insurer to defend the litigation
against its insured.  Id.
     Paragraph nine of the underlying copyright-infringement
complaint provided in pertinent part:
          On information and belief, since at least as early
     as July 13, 1995, B&L, with full knowledge of
     Geographicsþ rights, has been infringing Geographicsþ
     copyrights in and relating to the Subject Works by using,
     reproducing, displaying, distributing, marketing, and
     offering for sale unauthorized copies of each of the
     Subject Works.  Among other things, B&L has been
     manufacturing, distributing, and offering to sell memo
     pads under the mark KOOLNOTES which are copies of the
     Subject Works....

The prayer for relief in the underlying complaint provided in
pertinent part:
          [That appellee] be enjoined from ... marketing,
     offering, selling, disposing of, licensing, leasing,
     transferring, displaying, advertising, reproducing,
     developing, or manufacturing any work derived or copied
     from any of the Subject Works....

We find no error in the trial courtþs finding that the underlying
complaint contained sufficient allegations of appellee engaging in
þadvertisingþ activities.  
     Under its last point, appellant argues that the underlying
complaint contains no allegation that appelleeþs copyright
infringement was caused by advertising activities.  Appellant
argues that coverage only extends to an advertising injury that is
þcaused by an offense committed in the course of advertising [the
insuredþs] goods, products or services,þ and that the policyþs
causation requirement was not satisfied in this case because the
in-person sales talk, even if regarded as þadvertising,þ was not
the cause of the alleged copyright infringement.
     Paragraph nine of the underlying complaint alleges that
appellee þhas been infringing Geographicsþ copyrights in and
relating to the Subject Works by using, reproducing, displaying,
distributing, marketing, and offering for sale unauthorized copies
of each of the Subject Works.þ  (Emphasis added.)  The prayer for
relief asks that appellee þbe enjoined from ... marketing,
offering, selling, disposing of, licensing, leasing, transferring,
displaying, advertising, reproducing, developing, or manufacturing
any work derived or copied from any of the Subject Works....þ
     Once again, we find no error in the trial courtþs finding that
the underlying complaint contained sufficient allegations that
appelleeþs copyright infringement was caused by its advertising
activities.
     Affirmed.
     Meads, J., agrees.
     Robbins, C.J., and Arey, J., concur.
     Jennings and Roaf, JJ., dissent. 
     D. Franklin Arey, III, Judge, concurring.  I agree that this
matter should be affirmed.  This court is not empowered to ignore
the rules of construction established by the supreme court.  We
should therefore affirm on the basis that we cannot construe the
insurance policy since it is not in the record before us.
     The commercial general liability insurance policy at issue has
not been abstracted, nor does the policy appear in the record.  As
the prevailing opinion indicates, apparently the policy was not
even produced before the trial court.  
     The applicable rules of construction set out by our supreme
court require us to examine the insurance policy as a whole, in
order to construe any part of it.  
     [I]t may be said to be a settled rule in the construction
     of contracts that the interpretation must be upon the
     entire instrument and not merely on disjointed or
     particular parts of it.  The whole context is to be
     considered in ascertaining the intention of the parties,
     even though the immediate object of inquiry is the
     meaning of an isolated cause.

Fowler v. Unionaid Life Ins. Co., 180 Ark. 140, 145, 20 S.W.2d 611,
613 (1929)(emphasis supplied).  Our supreme court has "consistently
adhered" to the notion that the entire contract should be before
it, in order to construe any part of the contract.  See First
National Bank v. Griffin, 310 Ark. 164, 170, 832 S.W.2d 816, 819
(1992).    
     This court adhered to the requirement that we review the
entire contract in Hartford Ins. Co. v. Brewer, 54 Ark. App. 1, 922 S.W.2d 360 (1996).
     It is axiomatic that, to determine the rights and duties
     under a contract, we must determine the intent of the
     parties. ... It is well settled that the intent of the
     parties is to be determined from the whole context of the
     agreement; the court must consider the instrument in its
     entirety.  Clearly, it is an appellant's burden to bring
     up a record sufficient to demonstrate error.  Without the
     contract in question, which may have spoken in any number
     of ways to the issue of the person or persons entitled to
     the policy proceeds, we cannot determine whether the
     trial court erred.

Id. at 3, 922 S.W.2d  at 362 (citations omitted)(emphasis supplied). 
In Hartford, the insurance contract did not appear in the abstract
or the record.  Based upon the rules quoted, we concluded that the
appellant had failed in its burden to produce a record sufficient
to demonstrate error, and we affirmed.  Id.
     In the instant case, we cannot construe the term
"advertising," because the entire policy is not before us.  "The
rights and liabilities of the parties to an insurance contract must
be determined by considering the language of the entire policy. ... 
Whatever the construction of a particular clause standing alone may
be, it must be read in connection with other clauses limiting or
extending the insurer's liability."  Continental Casualty Co. v.
Davidson, 250 Ark. 35, 41-42, 463 S.W.2d 652, 655 (1971)(citations
omitted).  The prevailing opinion neither cites authority for the
proposition that we can ignore this mandate nor cites any authority
for the proposition that these rules can somehow be "waived" by the
parties.  Since the appellant failed to bring up a record
sufficient to demonstrate error, the judgment should be affirmed.
     Robbins, C.J., joins.
     John E. Jennings, Judge, dissenting.  While I agree with Judges
Stroud and Meads that the absence of the insurance policy itself
from the record does not preclude our reaching the merits in this
case, I cannot agree to affirm.  The issue posed is whether one-on-
one sales solicitations may constitute advertising under the terms
of a commercial general liability insurance policy.  This was
precisely the question for decision in Monumental Life Ins. Co. v.
United States Fidelity and Guar. Co., 617 A.2d 1163 (Md. Ct. Spec.
App. 1993).  There, the court held that a reasonable lay person
would not construe "advertising activity" in the context of the CGL
policies to include the one-on-one sales activity of Monumental's
agents.  The court held that "advertising" means advertising, i.e.,
"widespread distribution or announcements to the public." 
Monumental Life Ins. Co., 617 A.2d  at 1173.  
     The Supreme Court of Vermont has reached the same conclusion. 
Select Design, Ltd v. Union Mut. Fire Ins. Co., 674 A.2d 798 (Vt.
1996).  See also Tschimperle v. Aetna Casualty & Surety Co., 529 N.W.2d 421 (Minn. Ct. App. 1995); Bank of the West v. Superior
Court, 833 P.2d 545 (Cal. 1992); International Ins. Co. v.
Florists' Mut. Ins. Co., 559 N.E.2d 7 (Ill. App. Ct. 1990); Playboy
Enter., Inc. v. St. Paul Fire & Marine Ins. Co., 769 F.2d 425 (7th
Cir. 1985); MGM, Inc. v. Liberty Mut. Ins. Co., 839 P.2d 537 (Kan.
Ct. App. 1992), aff'd 855 P.2d 77 (Kan. 1993); Smartfoods, Inc. v.
Northbrook Property & Casualty Co., 618 N.E.2d 1365 (Mass. App. Ct.
1993); Fox Chem. Co., Inc. v. Great Am. Ins. Co., 264 N.W.2d 385
(Minn. 1978).
     There are cases to the contrary: New Hampshire Ins. Co. v.
Foxfire, Inc., 820 F. Supp. 489 (N.D. Cal. 1993); Merchants Co. v.
American Motorists Ins. Co., 794 F. Supp. 611 (S.D. Miss. 1992);
John Deere Ins. Co. v. Shamrock Indus., Inc., 696 F. Supp. 434 (D.
Minn. 1988), aff'd 929 F.2d 413 (8th Cir. 1991).  
     In rejecting the view taken in the three federal cases and
adopting what it described as the "majority view," the Vermont
Supreme Court said:
     Although we strictly construe the policy provisions
     against the insurer, we must read the policy provisions
     according to their plain, ordinary meaning.  The majority
     view does so.  Our conclusion is not undercut by the fact
     that there is some disagreement among courts as to the
     proper meaning of advertising.  

Select Design, 674 A.2d  at 802 (citations omitted).  I agree with
both the reasoning of and the conclusion reached by the Supreme
Court of Vermont and therefore respectfully dissent.
     Andree Layton Roaf, Judge, dissenting.  I agree with the majority
and the concurring judge that the absence of the insurance policy
from the record does not prevent us from reaching the merits of
this case.  We have in the record, and properly abstracted,
everything the trial judge had before him when he determined that
summary judgment should be granted to B & L Products, Inc.  The
issue is thus whether the trial court properly granted summary
judgment based on the information available to him at the time.  I
do not believe that he did, and would reverse and remand for entry
of summary judgment in favor of the appellant, Tri-State Insurance
Company.
     It is abundantly clear that B & L Products was being sued for
copyright infringement -- the willful appropriation of the product
design of Geographics, Inc.  Had the object allegedly copied by B
& L Products been a device  rather than a notepad, the action
against it would have been for patent infringement rather than
copyright infringement.  In the context of the litigation against
B & L Products, the two terms are thus synonymous,  and the act
complained of clearly falls outside the definition of þadvertising
injury.þ 
     The trial court, in granting summary judgment, found that þthe
infringing activities of B & L Products, Inc., arose out of
advertising activities of B & L Products.þ  This is certainly not
correct, for advertising did not and could not cause this copyright
infringement.  The injury to Geographics arose from the sales of
products bearing its copyrighted designs, however, those products
might have found their way onto the shelves of the Office Max
stores.  Consequently, it is irrelevant how advertising is defined,
for it is not an advertising offense that is complained of.
     Moreover, although I agree that the term advertising should be
construed broadly and given its plain, ordinary and popular
meaning, this is precisely what the trial court failed to do.  See,
e.g., Columbia Mut. Cas. Ins. Co. v. Coger, 3 Ark. App. 85, 811 S.W.2d 345 (1991).  Here, the offense complained of was not
committed in the course of advertising B & L Productþs goods,
products or services, it was committed when the goods were
manufactured.  I cannot read the language setting forth as a 
covered offense, the  þ[i]nfringement of copyright, title or
slogan,þ to extend beyond an advertising campaign or scheme to the
product itself.
     For the foregoing reasons, I would reverse and remand for
entry of summary judgment in favor of Tri-State Insurance Company.