Select Design, Ltd. v. Union Mutual Fire Insurance Co.

Select Design, Ltd. v. Union Mutual Fire Insurance Co.  (95-203); 165 Vt 69;
674 A.2d 798

[Opinion Filed 22-Mar-1996]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 No. 95-203


Select Design, Ltd., Kevin Owens,                 Supreme Court
Jeffrey Beer and Glen Cousins
                                                  On Appeal from
     v.                                           Chittenden Superior Court

Union Mutual Fire Insurance Company               November Term, 1995


Linda Levitt, J.

       Shapleigh Smith, Jr., of Dinse, Erdmann & Clapp, Burlington, for
  plaintiffs-appellants

       Bruce C. Palmer of Downs Rachlin & Martin, P.C., St. Johnsbury, for
  defendant-appellee


PRESENT:   Gibson, Dooley, Morse and Johnson, JJ.

       DOOLEY, J.  Plaintiffs, Select Design, Ltd. (SDL) and certain of its
  officers and employees, sought a declaration that defendant Union Mutual
  Fire Insurance Co. owes them a duty to defend an action brought against
  them by RMH Associates, Inc. (RMH), pursuant to a business owner's
  liability policy defendant issued to SDL.  Plaintiffs appeal from an order
  of the Chittenden Superior Court granting defendant's motion for summary
  judgment and denying plaintiffs' cross-motion for partial summary judgment. 
  We affirm.

       SDL is in the custom design screen-printing business in Burlington,
  and in March 1994 hired Glen Cousins, sales manager of RMH, SDL's
  competitor in Burlington.  At the time, SDL was covered by a business
  owners' liability insurance policy issued by defendant.  Cousins stopped
  working for RMH on March 7, 1994 and immediately began working for SDL.

       On March 10, 1994, RMH sued SDL, along with its president, secretary,
  and Cousins, in Chittenden Superior Court, alleging that, on leaving RMH,
  Cousins took with him proprietary information, including a customer list,
  and then tried to lure RMH customers to SDL using the proprietary
  information he had taken.  The RMH complaint specifically alleged breach of

 

  contract, tortious interference with contractual relations, breaches of
  fiduciary duties by Cousins before and after leaving RMH's employ, unlawful
  destruction of commercial opportunity by disrupting a private stock
  offering, and fraud.  It requested both injunctive relief and damages.

       SDL notified defendant of the RMH lawsuit and requested that it defend
  and indemnify them all in that suit.  Defendant denied coverage, refusing
  to defend or indemnify SDL and its officers.  Plaintiffs thereafter sought
  a declaration that defendant owes a duty to defend and indemnify them in
  the RMH action.

       The policy provides coverage for "bodily injury," "property damage,"
  "personal injury," and "advertising injury."  Plaintiffs' main theory was
  that RMH's damages, if any, arise out of an advertising injury.  Plaintiffs
  also argued that RMH's allegation of unexpected and unintended property
  damage triggered a duty to defend under the coverage for property damage. 
  Finally, plaintiffs argued that RMH's suit also fell under the policy's
  "personal injury" coverage.

       Defendant moved for summary judgment on the ground that it had no
  obligation to defend or indemnify plaintiffs because there was no coverage
  under any of the pertinent policy provisions.  The court ruled that no
  "advertising," as that term is commonly understood, had been alleged in
  RMH's suit.  As to the personal injury and property damage claims, it ruled
  that neither involved an "accident," as required by the policy, which the
  court defined as an unexpected happening without intention and design.  The
  court granted defendant's motion for summary judgment, and the present
  appeal followed.

       We have decided a number of recent cases involving insurance coverage
  disputes that come to us on appeal from the grant of summary judgment to
  the insurer, and the basic principles governing such disputes are clear. 
  See, e.g., City of Burlington v. Associated Elec. & Gas Ins. Servs.,
  ___Vt.___, 669 A.2d 1181 (1995); Nationwide Mut. Fire Ins. Co. v. Lajoie,
  163 Vt.___, 661 A.2d 85 (1995) (mem); Winn v. Becker, 163 Vt. ___, 660 A.2d 284 (1995) (mem);  City of Burlington v. National Union Fire Ins. Co., 163
  Vt. ___, 655 A.2d 719 (1994). The duty to defend is broader than the duty
  to indemnify and is generally determined by

 

  comparing the allegations of the complaint in the underlying suit to the
  coverage terms in the policy.  National Union, 163 Vt. at ___, 655 A.2d  at
  721.  "If any claims are potentially covered by the policy, the insurer has
  a duty to defend."  Id.  Otherwise, it does not.  Id.

       We construe the policy according to its terms and the evident intent
  of the parties as expressed therein.  Id.  "Disputed terms should be read
  according to their plain, ordinary and popular meaning."  Id.  We will
  strictly construe the insurance contract against the insurer, but will not
  deprive the insurer of the protection of unambiguous terms placed in the
  policy for its benefit.  See Suchoski v. Redshaw, 163 Vt. ___, ___, 660 A.2d 290, 292 (1995).

       "Summary judgment is appropriate where there is no genuine issue of
  material fact and the moving party is entitled to judgment as a matter of
  law, after giving the benefit of all reasonable doubts and inferences to
  the nonmoving party."  National Union, 163 Vt. at ___, 655 A.2d  at 721; see
  V.R.C.P. 56.  The standard on appeal is the same as that used by the trial
  court.

                         I.  Advertising Injury

       With these principles in mind, we address the plaintiffs' arguments,
  beginning with their claim that the complaint against them alleges an
  advertising injury.  Although the policy does not define "advertising," it
  defines "advertising injury" for purposes of the policy.  To trigger
  "advertising injury" coverage, a suit must allege an injury "in the course
  of advertising [the insured's] goods, products or services" that stems from
  one of four "offenses" defined in Section F of the policy:

     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.


  The parties agree that plaintiffs have two hurdles to overcome in
  establishing the duty to defend: (1) the alleged injury must have arisen in
  the course defendant's "advertising," and (2) the injury must have been
  caused by one of the offenses listed in the policy.

       Plaintiffs argue with respect to the first hurdle that the term
  advertise is broad enough to encompass solicitation, and the underlying
  lawsuit charged Cousins with soliciting customers from RMH's customer list. 
  With respect to the second hurdle, plaintiffs argue that two offenses are
  implicated by the conduct alleged in the complaint against them: (a) the
  "misappropriation of advertising ideas" caused by the alleged improper use
  of RMH's customer lists to solicit customers for SDL; and (b) disparagement
  of RMH's "goods, products or services," which necessarily occurred when
  Cousins allegedly induced RMH customers to switch to SDL.  We address only
  whether the injury arose in the course of advertising.

       Although the term "advertising" is not defined in the policy, it has
  been defined in case law as "the widespread distribution of promotional
  material to the public at large."  International Ins. Co. v. Florists' Mut.
  Ins. Co., 559 N.E.2d 7, 10 (Ill. App. Ct. 1990).  Other courts have
  endorsed substantially the same definition.  See, e.g., Playboy Enters. v.
  St. Paul Fire & Marine Ins. Co., 769 F.2d 425, 428 (7th Cir. 1985) ("action
  of calling something (as a commodity for sale, a service offered or
  desired) to the attention of the public especially by means of printed or
  broadcast paid announcements") (quoting Webster's Third New International
  Dictionary of the English Language Unabridged 31 (1963)); MGM, Inc. v.
  Liberty Mut. Ins. Co., 839 P.2d 537, 540 (Kan. Ct. App. 1992), aff'd, 855 P.2d 77 (Kan. 1993) (term "advertising" in policy meant "public or at least
  widely disseminated solicitation or promotion"); Monumental Life Ins. Co.
  v. United States Fidelity & Guar. Co., 617 A.2d 1163, 1173 (Md. Ct. Spec.
  App. 1993), cert denied, 624 A.2d 491 (1993) ("[T]he plain meaning of the
  term 'advertising' to a reasonably prudent person is not susceptible of
  more than one meaning, and encompasses only the 'public'

 

  sense of the word"); Smartfoods, Inc. v. Northbrook Property & Casualty
  Co., 618 N.E.2d 1365, 1368 (Mass. App. Ct. 1993) ("a public announcement to
  proclaim the qualities of a product or point of view"); Fox Chem. v. Great
  Am. Ins. Co., 264 N.W.2d 385, 386 (Minn. 1978) (term "advertising"
  contemplates public or widespread distribution of material); First Bank &
  Trust Co. v. New Hampshire Ins. Group, 469 A.2d 1367, 1368 (N.H. 1983)
  (mere explanation of bank services to couple in private office is not
  considered advertising).

       Many of these cases deal with fact patterns legally indistinguishable
  from the one before us.  In Monumental Life Ins. Co., the insured was
  itself an insurance company accused of pirating employees from a
  competitor, misusing trade secrets and confidential information from the
  competitor, and telling the competitor's policyholders that the competitor
  was having financial difficulties and could not afford to pay its claims. 
  617 A.2d  at 1165-67 & n.5. Making arguments virtually identical to those
  made by plaintiffs here, the plaintiff in Monumental argued that an
  advertising injury was alleged.  The court held that one-to-one sales
  activity by the plaintiff's agents, which induced customers to switch
  coverage to the plaintiff, was not advertising: "[A]dvertising and
  solicitation [are] . . . mutually exclusive, the difference being that
  advertising must be of a public nature."  Id. at 1173.

       In Smartfoods, the plaintiff, a producer of snack foods, was sued when
  it terminated all its distribution contracts.  618 N.E.2d  at 1366.  The
  distributors alleged breach of contract, unfair trade practices, tortious
  interference with contractual relations and misappropriation of trade
  secrets.  The plaintiff sought insurance coverage by characterizing its
  letters soliciting distributors as advertising and arguing that the
  complaint against it alleged injuries from advertising activities.  Id. at
  1368.  The court rejected the argument, reasoning "a proposal to a
  particular company to do business together does not conform to ordinary
  notions of calling to the attention of the public the merits of a product,"
  and added "we doubt that every pitch made by one businessman in a letter to
  another constitutes advertising as the word is understood in American
  usage."  Id.

 

       Plaintiffs rely on a small number of federal district court cases that
  define "advertising" more broadly than those in the majority of precedents. 
  See 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., 696 F. Supp. 434 (D.
  Minn. 1988).  The most expansive definition is in John Deere Ins. Co. under
  a policy defining "advertising injury" in nearly the same words as those in
  the policy before us.  There, the insured wrote letters to a single buyer
  soliciting sale of a machine that the insured allegedly misappropriated
  from a former employer.  The court held that "[w]hile activity directed at
  one customer seems to stretch the meaning of advertising, Black's Law
  Dictionary's definition of `advertise' encompasses any form of
  solicitation, presumably including solicitation of one person."  696 F. Supp.  at 440.  Foxfire embraced a modified version of the broad
  interpretation in John Deere, holding that where the insured had solicited
  the entire customer base of the company which sued it, approximately
  twenty-two to thirty-one customers, there was advertising activity.  820 F. Supp.  at 494.  Merchants Co. held that where the insured is alleged to have
  improperly used another company's customer list to send a flyer to some of
  the other company's customers, the unlawful conduct was committed "in the
  course of advertising."  794 F. Supp.  at 619.

       For three reasons, we adopt the majority view and reject the
  interpretation of advertising offered by plaintiffs.  First, we cannot
  agree that the three federal court cases are persuasive. We note that even
  the John Deere court acknowledged that its interpretation "seems to stretch
  the meaning of advertising."  696 F. Supp.  at 440; see also Smartfoods, 618 N.E.2d  at 1368 (John Deere is "unpersuasively reasoned").  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.  See Peerless Ins. Co. v. Wells, 154 Vt. 491, 495, 580 A.2d 485, 488 (1990) (ambiguity not established by differences

 

  in conclusions reached by courts where alternative is based on forced
  reading of policy language).

       Second, we find little congruity between the definition of
  "advertising" offered by plaintiffs and the definition of "advertising
  injury" set out in the policy before us.  The term "advertising injury," as
  defined in the offenses set out in the policy, and as construed in an
  overwhelming majority of reported cases, is injury to another that results
  from the content of statements about the products or services of the
  insured.  Thus, in Section F.1.a., the offense is advertising that results
  in libel or slander: for example, an advertisement that disparages a
  product.  See, e.g., Collier County Publishing Co. v. Chapman, 318 So. 2d 492 (Fla. Dist. Ct. App. 1975), cert denied, 333 So. 2d 462 (1976);
  Restatement (Second) of Torts §§ 623A-630 (1977).  Section F.1.b.,
  concerning invasions of privacy, might, for example, relate to an
  advertisement that includes a photograph or statement of a person who has
  not authorized publication of the likeness or the implied endorsement of
  the product.  See, e.g., Staruski v. Continental Tel. Co. of Vt., 154 Vt.
  568, 581 A.2d 266 (1990).  Section F.1.d. speaks to advertisements that
  appropriate the trademark of a competitor and thus trade on its reputation
  and advertising efforts.  See, e.g., Bank of the West v. Superior Court,
  833 P.2d 545, 551 (Cal. 1992).

       Plaintiffs' theory seeks coverage for the fact that advertising
  occurred and not for the content of that advertising.  Plaintiffs rely on
  the definition of "advertise" in Black's Law Dictionary 50 (5th ed. 1979):
  "To advise, announce, apprise, command, give notice of, inform, make known,
  publish.  On call to the public attention by any means whatsoever.  Any
  oral, written, or graphic statement made by the seller in any manner in
  connection with the solicitation of business . . . ."  Plaintiffs reason
  that under such definition "solicitation" constitutes "advertising."  But
  the definition is clear that it is the statement made in connection with
  solicitation that is the advertisement.  Again, we must manipulate the
  policy language inappropriately to accommodate the theory.

 

       Third, plaintiffs' theory involves a very weak causal relationship
  between the advertising and the injury.  In Bank of the West v. Superior
  Court, 833 P.2d  at 559, the California Supreme Court examined the
  precedents around the country and concluded that "the  apparent majority
  rule, under which `advertising injury' must have a causal connection with
  `advertising activities,' best articulates the insured's objectively
  reasonable expectations about the scope of coverage." See also A. Meyers &
  Sons Corp. v. Zurich Am. Ins. Group, 545 N.E.2d 1206, 1208 (N.Y. 1989). 
  The Court found that this rule fits best with the policy language and
  limits advertising injury coverage, which would otherwise extend to most
  claims related to an insured's business. Bank of the West, 833 P.2d  at 560. 
  We agree.

       There is virtually no causal connection here between the alleged
  injury and the alleged advertising.  RMH alleged that Cousins left its
  employ, taking with him proprietary information such as the customer list,
  existing orders, pending quotes and customer art work to use on behalf of
  SDL to take customers away from RMH.  The only relationship between the
  injury and advertising is that Cousins had to somehow contact these
  customers to steal them from RMH. If the act of contacting potential
  customers is advertising for purposes of the policy, then any dispute
  related to economic competition among businesses is covered by the policy
  provision for advertising injury.

       Having adopted defendant's interpretation of "advertising," we
  conclude that no advertising is alleged in the complaint against
  plaintiffs.  There is no allegation of distribution of promotional material
  to the public at large.  Instead, the only allegation is that SDL solicited
  RMH's customers, which does not amount to advertising.  The superior court
  was correct in awarding summary judgment to defendant on this coverage
  theory.

                  II. Property Damage and Personal Injury

       Plaintiffs next argue that, its complaint presented a genuine issue of
  material fact as to whether the RMH complaint alleged "property damage"
  within the meaning of the policy.  The policy provides coverage for
  property damage where it is caused by an "occurrence."  It defines

 

  "occurrence" to mean "an accident, including continuous or repeated
  exposure to substantially the same general harmful conditions."  It defines
  "property damage" to include either "[p]hysical injury to tangible
  property" or "[l]oss of use of tangible property."  Plaintiffs argue that
  they were alleged to have taken tangible property, that is, the customer
  list and customer artwork. They further argue that there is an issue of
  fact as to whether any injury to RMH was expected or intended and thus an
  "accident."

       We hold that the RMH complaint does not allege an accident and
  therefore does not allege an occurrence as required for coverage. 
  Accordingly, we do not reach whether the RMH complaint alleges a loss of
  use of tangible property.

       This case is controlled by our decision in City of Burlington v.
  National Union Fire Ins. Co., 163 Vt.___, 655 A.2d 719 (1994).  In that
  case, the city was sued by wood chip suppliers for its electric generating
  plant.  The suit alleged that the city failed to purchase the volume of
  wood chips called for in its contract with the suppliers and this failure
  had devastating economic impact on the suppliers.  It sought damages on
  theories of breach of contract, economic duress, deceit, and the tort of
  insult and oppression.  The city sought insurance coverage for the suit,
  arguing the complaint alleged an accident because the city did not expect
  or intend the resulting harm.  Id. at 721.  The city sought insurance
  coverage for the suit alleging that property damage and an "occurrence" was
  involved, arguing there was no showing it intended to injure the wood chip
  suppliers.  Based on policy language virtually identical to that in the
  present case, the city had to show that the suppliers alleged an
  "accident."  We held that the city failed to make that showing:

       Here, it cannot be said that Burlington intended no injury to the
       plaintiffs . . . .  Burlington intended or expected economic injury
       to the wood chip suppliers when it reduced its purchases from
       them.

       The distinction Burlington draws is unworkable and would
       result in a duty to defend in virtually any commercial contractual
       dispute.  No doubt Burlington took the actions it did because of its
       economic interests in the electricity generation business.  There is

 

       no reason that it, or more properly its managers, would have
       precise knowledge of the amount or nature of the damage it might
       inflict on others as a consequence of its business actions.  To
       determine whether there is a duty to defend based on such
       knowledge is arbitrary, far afield from any common-sense
       definition of accident.

  National Union Fire Ins. Co., 163 Vt. at ___, 655 A.2d  at 722.

       The case for coverage is the same here as in National Union.  The
  underlying complaint alleges that SDL and its officers induced Cousins to
  leave RMH, bringing with him as much proprietary information as possible. 
  It alleges Cousins left and used the proprietary information to induce
  RMH's customers to break their contracts with RMH and enter into contracts
  with SDL.  It alleges that SDL and its officers knew this was a sensitive
  time for RMH because of a private stock offering, and SDL hoped to use the
  Cousins information to put RMH out of business.  Finally, it alleges
  Cousins fraudulently executed contracts for RMH for the purpose of
  switching them to SDL contracts.

       None of the alleged conduct constitutes an accident.  The whole
  purpose of the alleged conduct is economic benefit to SDL at the expense of
  RMH.  The fact that SDL and its officers may not know the extent of the
  harm that would result is irrelevant.  Defendant had no duty to defend or
  indemnify based on a property damage theory, and summary judgment was
  appropriate.

       Plaintiffs' final contention is that coverage exists for "personal
  injury."  Specifically, plaintiffs argue that the complaint against them
  necessarily alleges that they disparaged RMH's products to take its
  customers away.  Thus, they argue the complaint allegations fit within one
  of the offenses the policy considers part of personal injury: "[o]ral 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."  The policy covers personal injury only if it is caused by an
  "occurrence," however, and the definition of occurrence is the same for
  personal injury and property damage.  As a result, this contention again
  fails for want of an

 

  "occurrence."

       Moreover, the RMH complaint does not allege that plaintiffs disparaged
  RMH's products or services.  For plaintiffs to argue that Cousins
  necessarily disparaged the goods and services of RMH in soliciting business
  from RMH customers is to contend that all comparison-based advertising is
  actionable and that Cousins necessarily went over the line of protected
  commercial speech.  Disparagement in this context does not simply mean
  comparing a competitor's product or service unfavorably with one's own, but
  must constitute an "injurious falsehood" to be actionable.  W. Keeton et
  al., Prosser and Keeton on the Law of Torts § 128, at 964 (5th ed. 1984). 
  There were no such allegations in the RMH complaint.

       Affirmed.

                                   _______________________________________
                                   Associate Justice