Callas Enterprises v. Travelers Indemnity

United States Court of Appeals
FOR THE EIGHTH CIRCUIT

____________

No. 98-3802
____________

Callas Enterprises, Inc., *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota
The Travelers Indemnity Company *
of America, *
*
Appellee. *
____________

Submitted: June 17, 1999

Filed: October 15, 1999
____________

Before MURPHY and MAGILL, Circuit Judges, and REASONER,1 District
Judge. ____________

REASONER, District Judge.

This is an appeal from the district court's2 order granting
summary judgment in favor of Appellee, The Travelers Indemnity
Company of America (“Travelers”), and against Appellant, Callas
Enterprises, Inc. (“Callas”). Callas brought this action for
declaratory relief with regard to Travelers’ duty to defend
and/or indemnify it in a lawsuit brought against it by Sbemco,

1
The Honorable Stephen M. Reasoner, Chief Judge, United
States District Court for the Eastern District of Arkansas,
sitting by designation.
2
The Honorable Paul A. Magnuson, Chief United States
District Judge for the District of Minnesota.
Inc. (“Sbemco”).3 Callas argues that the district court erred in:
(1) holding that the “knowledge of falsity” exclusion in the
insurance policy at issue (“the Policy”) applied to Sbemco’s
defamation claim against Callas; (2) holding that the “breach of
contract” exclusion in the Policy applied to Sbemco’s defamation
claim against Callas; (3) not deciding the question of whether
Sbemco’s trademark infringement claim constituted an advertising
injury for which the Policy would have provided coverage; (4)
holding that Sbemco asserts no claim that would exist in the
absence of the exclusive sales contract between Callas and Sbemco;
and (5) holding that the “knowledge of falsity” exclusion applies
because Sbemco’s complaint alleges Callas acted with knowledge when
it created false advertisements. Travelers avers that the district
court erred in concluding that Callas’s actions constituted
advertising and that the alleged injury had the requisite causal
connection with the advertising. We affirm.

I. Background

Callas was sued in an underlying action by its contractual
business partner, Sbemco. Sbemco manufactured custom safety floor
matting, and Callas sold Sbemco’s products through an exclusive
right-to-sell agreement in a three-state area which included
Minnesota. Pursuant to this agreement, Callas agreed that it would
not sell floor matting manufactured by anyone but Sbemco.

In 1996, Sbemco filed suit against Callas alleging that Callas
had breached their contract by selling non-Sbemco products to
Sbemco customers. In this underlying action, Sbemco alleged that

3
See Part I (“Background”) for the specific claims made by
Sbemco against Callas in the underlying litigation.

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Callas had engaged in deceptive trade practices in utilizing a
“bait and switch” scheme in that Callas allegedly solicited
business from Sbemco customers by showing them one sample of
Sbemco’s matting and then obtaining orders from these same
customers for either non-Sbemco matting or for Sbemco matting of a
different type or grade. Due to this conduct, Sbemco asserted nine
claims against Callas in the underlying action: (1) breach of
contract, (2) breach of contract-failure to pay, (3) accounts
stated, (4) breach of fiduciary duty, (5) violation of Minnesota’s
Deceptive Trade Practices Act (“MDTPA”), (6) unfair competition,
(7) violation of the Lanham Act, (8) defamation, and (9) tortious
interference with a business relationship. In each count of its
Complaint, Sbemco repeated and realleged all averments with respect
to its exclusive agency contract with Callas and the breach of the
parties’ contract.

The parties do not contest that the Policy was in effect
during the time period of the alleged breach of contract. Further,
the Policy contains the following pertinent provisions as it
relates to advertising injuries: “We will pay those sums that the
insured becomes legally obligated to pay as damages because of...
‘advertising injury’4 to which this insurance applies. We will

4
The contract states:

“Advertising injury” means injury arising out of one or
more of the following offenses:

a. Oral or written publication of material that slan-
ders 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 vio-
lates a person’s right of privacy;

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

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have the right and duty to defend any ‘suit’ seeking those
damages.” The Policy covers advertising injuries “caused by an
offense committed in the course of advertising your goods,
products, or services.” However, the Policy excludes coverage for
advertising injuries “arising out of oral or written publication of
material, if done by or at the direction of the insured with
knowledge of its falsity” and for injuries “arising out of [b]reach
of contract, other than misappropriation of advertising ideas under
an implied contract.”

II. Standard of Review

This Court reviews a grant of summary judgment de novo and
must apply the same standard as that applied by the district court.
First Bank of Marietta v. Hagge, 161 F.3d 506, 509 (8th Cir. 1998).
Summary judgment is appropriate when the evidence, viewed in a
light most favorable to the non-moving party, demonstrates that
there is no genuine issue of material fact, and that Travelers is
entitled to judgment as a matter of law. Id.

This Court will apply the substantive law of the forum state,
Minnesota. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). We
review de novo the district court’s application of state law, and,
if the state law is ambiguous, this Court predicts how the highest
court of that state would resolve the issue. First Colony Life
Ins. Co. v. Berube, 130 F.3d 827, 829 (8th Cir. 1997).

III. Analysis

d. Infringement of copyright, title, or slogan.

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 A. “Breach of Contract” Exclusion

Under Minnesota law, an insurer’s duty to defend a suit
alleging an advertising injury is triggered if the advertising
injury occurs during the course of the insured’s advertising
activities, if the injury arguably falls within the insurance
policy’s defined scope of advertising injury coverage, and if none
of the policy’s exclusions negates coverage. See Fluoroware, Inc.
v. Chubb Group of Ins. Cos., 545 N.W.2d 678, 681 (Minn. Ct. App.
1996); Polaris Indus., L.P. v. Continental Ins. Co., 539 N.W.2d
619, 621 (Minn. Ct. App. 1995). If any part of the underlying
action is “arguably within the scope of coverage, the insurer must
defend.” Fireman’s Fund Ins. Co. v. Hartford Fire Ins. Co., 73
F.3d 811, 816 (8th Cir. 1996). To determine whether an insurer does
have a duty to defend, a court compares the allegations made in the
underlying complaint with the relevant language of the insurance
policy. Ross v. Briggs and Morgan, 540 N.W.2d 845, 847 (Minn.
1995).

As to the various contentions raised by Callas on appeal, the
Court finds that all are subsumed by the Policy exclusion which
excludes coverage for injuries “arising out of breach of contract.”
The district court’s treatment of this issue is both cogent and
well-reasoned. We find the Policy’s language is clear,
unambiguous, and broad in its scope. The Supreme Court of
Minnesota has previously interpreted insurance policy language of
this nature. In Associated Indep. Dealers, Inc. v. Mutual Service
Ins. Co., 229 N.W.2d 516, 518 (1975)(citation omitted), that court
concluded that this “arising out of” language meant “originating
from,” “having its origins in,” “growing out of,” or “flowing
from.” Given such a broad interpretation of this “arising out of”
language, we cannot read any of the counts alleged in Sbemco’s

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underlying complaint which flow from or have their origins in
anything other than Callas’ alleged breach of the exclusive agency
contract, including those counts alleging violations of the MDTPA,
violations of the Lanham Act, and defamation.

B. Coverage for Trademark Infringement and Defamation Claims

Although we conclude that all causes of actions raised by
Sbemco in its complaint in the underlying action are excluded
because they arise out of breach of contract, other grounds also
exist which we find would preclude coverage. First, we find that
the Policy’s language would not have covered the allegations of
trademark infringement under the Lanham Act, and second, we
conclude that the Policy excluded coverage for Sbemco’s defamation
claim under the “knowledge of falsity” provision.

Callas argues that the district court erred by not determining
whether Sbemco’s trademark infringement claim constituted an
advertising injury for which the Policy provided coverage.
Although the district court did not address this issue in its
opinion, we now hold that the Policy did not provide such coverage,
and we adopt the persuasive reasoning of two recently decided cases
from the Sixth Circuit Court of Appeals which explicated identical
insurance policy language. In Advance Watch Co. v. Kemper Nat’l
Ins. Co., 99 F.3d 795 (6th Cir. 1996), Cross Company, the
manufacturer of Cross pens, sued Advance Watch over Advance Watch’s
sale of pens under a licensing agreement it had with Pierre Cardin.
Cross Company alleged that the pens Advance Watch was selling under
this licensing agreement were confusingly similar to Cross pens and
infringed its trademark and its trade dress. Id. at 797-98. The
Sixth Circuit concluded that no “advertising injury” coverage
existed under the insurance policy Advance Watch had with its

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insurer, Kemper, because the “misappropriation of advertising ideas
or style of doing business” provision could not be so broadly
construed as to include trademark or trade dress infringement. Id.
at 802. The Court also concluded that another factor supported its
decision: the absence of any reference to trademark or trade dress
infringement within the insurance agreement. The court reasoned
that “if the [insurer] had intended to provide coverage for such
liability, [it] would have referred to it by name in the policy, as
it did in the case of ‘infringement of copyright, title, or
slogan.’” Id. at 803 (citations omitted).

Subsequently, in ShoLodge, Inc. v. Travellers Indem. Co. of
Illinois, 168 F.3d 256 (6th Cir. 1999), the Sixth Circuit further
held that coverage did not exist for trademark infringement under
the “infringement of copyright, title, or slogan” provision. Id.
at 259. In ShoLodge, one hotel chain alleged that another chain
had infringed its service mark. The insured, ShoLodge, averred
that its insurer had a duty to defend and indemnify it in the
underlying lawsuit pursuant to the terms of the policy therein at
issue. ShoLodge contended that the language contained in the
“misappropriation of advertising ideas” provision and the
“infringement of copyright, title, or slogan” provision were
ambiguous; therefore, it argued the policy should be construed in
its favor to include coverage for claims such as service mark
infringement. The Sixth Circuit disagreed, and we adopt its
reasoning. After referring to the Advance Watch decision to
foreclose the proposition that the “misappropriation of advertising
ideas” provision extended coverage for service mark infringement,
the court concluded that trademark and service mark infringement
did not fall within the enumerated coverage of the “copyright,
title, or slogan” provision. Id. at 259. The court found that
trademarks and service marks were not “copyrightable,” that they

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were not “slogan[s],” and that they could not be considered
“title[s],” as that term was not ambiguous. The court further
noted that “the word ‘title’ generally refers to a non-
copyrightable title of a book, film, or other literary or artistic
work.” Id. (citation omitted). As in Advance Watch, the ShoLodge
court further bolstered its decision by noting the “absence of any
express reference to trade mark or service mark infringement” in
the insuring agreement. Id. at 260.

We find the Sixth Circuit’s treatment of this policy language
natural, reasonable, and unforced. Therefore, we also conclude
that trademark infringement is not covered under the Policy herein
at issue and that Travelers had no obligation to defend or
indemnify Callas with regard to these claims.

Finally, with regard to the defamation claim, we hold that
coverage would have been obviated under the “knowledge of falsity”
exclusion even if the “breach of contract” exclusion had not
precluded coverage. The Policy specifically provides that it does
not apply to advertising injuries “[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.” As the district court was
bound to compare the allegations made in the complaint to the
Policy in order to determine whether or not a duty to defend
existed, we find no error in its determination that Sbemco
adequately alleged that Callas had acted with knowledge in making
any defamatory statements and that the “knowledge of falsity”
provision precluded coverage for any such remarks attributable to
Callas.5

5
The underlying complaint filed by Sbemco against Callas
(A30-38) does not specifically allege that Callas knowingly made
false oral or written publication of material. However, each of

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 The Court, having carefully reviewed the other contentions
raised by Callas and Travelers on appeal, finds them to be non-
meritorious. We find the district court did not err with regard to
any of these additional arguments.

VI. Conclusion

We conclude that summary judgment was properly entered for
Travelers by the district court in this matter. Therefore, the
judgment of the district court is affirmed.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT

the nine claims for release begins with a sentence which re-
alleges, inter alia, paragraph 1 of the complaint, also referred
to as the “preliminary statement.” In that statement, the
following allegation is made:

Moreover, Defendant engaged in deceptive trade prac-
tices using “bait and switch tactics” in breaching its
agreement with Sbemco - Defendant solicited Sbemco
customers showing the customers samples of Sbemco
custom safety floor matting and obtaining orders from
these customers of Sbemco custom safety floor matting
but actually selling the customers either non-Sbemco
floor matting or a different type of Sbemco floor
matting than that shown to the customer.

It would defy logic to interpret this language as alleging
anything other than that Callas acted falsely and with knowledge
of that falsity.

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