Yates Carpet, Inc., A/K/A Yates Flooring Center, A/K/A Yates Carpet & Interiors, A/K/A Discount Carpet Warehouse v. the Travelers Lloyds Insurance Company

NO. 07-06-0478-CV

IN THE COURT OF APPEALS

FOR THE SEVENTH DISTRICT OF TEXAS

AT AMARILLO

PANEL D

JUNE 19, 2008
______________________________

YATES CARPET, INC. a/k/a YATES FLOORING CENTER
a/k/a YATES CARPET & INTERIORS
a/k/a DISCOUNT CARPET WAREHOUSE,

Appellant

v.

THE TRAVELERS LLOYDS INSURANCE COMPANY,

Appellee
_________________________________

FROM THE 99TH DISTRICT COURT OF LUBBOCK COUNTY;

NO. 2005-531,800; HON. WILLIAM C. SOWDER, PRESIDING
_______________________________

Memorandum Opinion
______________________________

Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.

Yates Carpet, Inc. (Yates), doing business in Lubbock, Texas, appeals from a

summary judgment granted in favor of The Travelers Lloyds Insurance Company

(Travelers) and denying Yates’ own motion for summary judgment. Travelers sought

summary judgment on the basis that it had no duty to defend Yates in a lawsuit filed in

Missouri under an insurance policy issued to Yates. On appeal, Yates contends it was

entitled to summary judgment because an advertising injury was alleged in the Missouri
complaint and such an injury was covered under the insurance policy. We disagree and

affirm the judgment.

Background

CCA Global Partners, Inc., FA Cooperative, Inc., and FA Management Enterprises,

Inc. (collectively referred to as “CCA”) sued Yates for trademark infringement, unfair

competition, deceptive and unfair trade practices, fraud, breach of contract and unjust

enrichment. The dispute arose from an agreement Yates had entered into with CCA.

Through the agreement, Yates received a license to use CCA’s registered marks,

proprietary marks, and FA System1 as long as it purchased 80% of its floor covering

products through arrangements established by CCA. Terms of the agreement also

prohibited Yates from purchasing like items through any other cooperative or under a

similar buying arrangement with others. Despite these restrictions and requirements, Yates

executed a similar purchasing agreement with Mohawk Industries and Floorz without

informing CCA. So too did it continue to use CCA’s registered marks, proprietary marks,

and FA System. CCA eventually discovered this, believed it to be a breach of their

agreement, and initiated suit against Yates in Missouri.

At the time CCA filed suit, Yates was insured under a liability policy issued by

Travelers and requested that Travelers provide it a defense. Travelers denied the request,

contending that the matter fell outside the scope of coverage. This resulted in Yates

initiating a declaratory action asking the trial court, among other things, to determine

1
The FA System was defined in the com plaint as consisting of unique and proprietary business
m ethodologies, operational procedures, business techniques, advertising, sales, and prom otional techniques,
personnel training, purchasing practices, m erchandising program s, access to favorable pricing from suppliers
and distributors of floor covering products, and other m atters related to the efficient operation of a retail floor
covering business.

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whether the claims in the Missouri suit were within the policy’s scope. Travelers answered,

denied liability, and counterclaimed for judgment declaring that it had no responsibility to

provide a defense. Once issue was joined, the parties filed cross motions for summary

judgment. That of Travelers was granted.

Law

The standards by which we review summary judgment are well established and

need not be discussed. Similarly settled is the standard used to assess whether an insurer

has a duty to defend an insured against claims asserted in a lawsuit. That standard

obligates us to compare the four corners of the complaint or petition with the four corners

of the insurance policy. National Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc.,

939 S.W.2d 139, 141 (Tex. 1997); Atlantic Lloyd’s Ins. Co. of Texas v. Susman Godfrey,

L.L.P., 982 S.W.2d 472, 475 (Tex. App.–Dallas 1998, pet. denied); Feed Store, Inc. v.

Reliance Ins. Co., 774 S.W.2d 73, 74-75 (Tex. App.–Houston [14th Dist.] 1989, writ denied).

In doing so, we are to focus on the facts alleged in the document, as opposed to the legal

theories mentioned. Cigna Lloyds Ins. Co. v. Bradleys’ Elec., Inc., 33 S.W.3d 102, 106

(Tex. App.–Corpus Christi 2000, pet. denied); Atlantic Lloyd’s Ins. Co. of Texas v. Susman

Godfrey, L.L.P., 982 S.W.2d at 475. We also liberally construe the petition and resolve

any doubts arising from the language in favor of the insured. Trinity Universal Ins. Co. v.

Cowan, 945 S.W.2d 819, 825 (Tex. 1997).

Application of Law

According to the policy at issue, Travelers obligated itself to indemnify Yates against

claims involving “advertising injury,” among other things. Moreover, such injury was

defined as injury “. . . caused by an offense committed in the course of advertising your

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goods, products or services . . . .” That, in turn, encompassed 1) the oral or written

publication of material that slandered or libeled a person or organization or disparaged a

person’s or organization’s goods, products, or services, 2) the oral or written publication

of material that violated a person’s right of privacy, 3) the misappropriation of advertising

ideas or style of doing business; and 4) the infringement of copyright, title or slogan.

Excluded from coverage, however, was advertising injury “arising out of . . . [b]reach of

contract, other than misappropriation of advertising ideas under an implied contract . . . .”

It is the latter clause that provides the basis for Travelers’ contention that it need not

defend Yates in the Missouri suit.

Authority has interpreted the phrase “arising out of” as requiring only an incidental

relationship between the claim and the conduct excluded. Sport Supply Group, Inc. v.

Columbia Cas. Co., 335 F.3d 453, 458 (5th Cir. 2003); Scottsdale Ins. Co. v. Tex. Sec.

Concepts & Investigation, 173 F.3d 941, 943 (5th Cir. 1999). Here, CCA alleged in its

petition that “[a]ny right of Yates to utilize the Proprietary Marks . . . pursuant to license

from Plaintiff was conditioned on Yates’ compliance with conditions precedent contained

in the Member Agreement . . . .” In other words, Yates had a contractual right to use

CCA’s trademarks and similar proprietary marks. Yet, by contracting with Mohawk, it

breached its agreement with CCA and lost the privileges bestowed under its contract with

CCA. Thus, it could no longer use the trademarks and like items, and when it continued

to do so, Yates not only breached the agreement or contract but also committed the

various bad acts encompassed within the multiple causes of action alleged.

As can be seen, the purported breach of contract has at least an incidental

relationship to all the other acts of which CCA complains. Without the former, the viability

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of the latter are questionable. This then leads us to hold that the claims involved in the

Missouri suit “arise out of . . . breach of the contract” for purposes of determining Travelers’

obligation to defend Yates. See Pennsylvania Pulp & Paper Co., Inc., v. Nationwide Mut.

Ins. Co., 100 S.W.3d 566, 573 (Tex. App.–Houston [14th Dist.] 2003, pet. denied) (finding

that all of the alleged claims of advertising injury arose from an alleged breach of a

licensing agreement which were excluded from coverage under the insurance policy);

Southstar Corp. v. St. Paul Surplus Lines Ins. Co., 42 S.W.3d 187, 191 (Tex. App.–Corpus

Christi 2001, no pet.) (finding that since the allegation of unauthorized taking or use of title

arose from a breach of a dissolution agreement, the “advertising injury” arose from breach

of contract and, consequently, was expressly excluded from coverage). And, it matters not

that some of CCA’s claims implicate legal theories other than breached contract. See

Cigna Lloyds Ins. Co. v. Bradleys’ Elec., Inc., 33 S.W.3d at 105-06 (holding that while an

“advertising injury” may in some instances cover patent infringement resulting from

advertising activities, the facts alleged must be examined and not the legal theories).

Thus, they were excluded from coverage.

In sum, and upon considering the question de novo, we conclude that the trial court

did not err in granting Travelers’ motion for summary judgment. Furthermore, the latter is

affirmed.

Brian Quinn
Chief Justice

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