United States Court of Appeals
For the First Circuit
No. No. 01-1029
EKCO GROUP, INC.,
Plaintiff, Appellee,
v.
THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Joseph A. DiClerico, Jr., U.S. District Judge]
Before
Boudin, Chief Judge,
Torruella, Circuit Judge,
and Barbadoro,* District Judge.
William T. Corbett with whom Laura A. Brady, Drinker Biddle
& Shanley LLP, John A. Lassey, Jennifer L. Murphy and Wadleigh,
Starr & Peters, P.L.L.C. were on brief for appellant.
Gordon A. Rehnborg, Jr. with whom Doreen H. Connor and
Wiggin & Nourie, P.A. were on brief for appellee.
*Of the District of New Hampshire, sitting by designation.
December 10, 2001
BOUDIN, Chief Judge. This case presents, once again,
see Liberty Mut. Ins. Co. v. Metro. Life Ins. Co., 260 F.3d 54
(1st Cir. 2001), the vexing question of how to interpret an
"advertising injury" clause in a general commercial liability
("GCL") policy. EKCO Housewares, Inc., a subsidiary of EKCO
Group, Inc. (collectively "the EKCO companies"), markets kitchen
products, some of which it makes itself. Among its products are
metal tea kettles, which are sold to K-Mart, a large,
independent chain of retail stores. In 1998, Chantal Cookware
Corporation of Houston, Texas, brought suit in federal court in
Texas against EKCO Housewares, K-Mart and others. Chantal
Cookware Corp. v. Vitrex Gourmet Corp., No. H-97-3978 (S.D. Tex.
1998).
The complaint in the Chantal case, as ultimately
amended, charged that the EKCO tea kettle (its "Royale" 2.5
quart kettle) resembled in design and ornament Chantal's best
selling tea kettle (its "Classic" 2.5 quart kettle) and that the
defendants were liable for trade dress infringement and unfair
competition under both the Lanham Act, 15 U.S.C. § 1125(a)
(1994), and state law, and for infringement of a design patent
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covering Chantal's kettle, 35 U.S.C. § 271 (1994 & Supp. V
1999). Chantal said that EKCO had deliberately copied the well
known design, features, and packaging of Chantal's tea kettle,
that the EKCO version was a low quality replica, and that the
production and sale of the EKCO tea kettle had damaged Chantal.
Travelers Indemnity Company of Illinois ("Travelers")
had insured EKCO Group and EKCO Housewares under GCL policies
covering successive time periods from 1993 to 1997. The EKCO
companies notified Travelers of the Chantal lawsuit, asserting
that Travelers was obligated to defend and indemnify. Although
the Travelers policies provided various coverages, the provision
invoked by the EKCO companies insured them against liability
for, and promised to defend suits based upon, "advertising
injury caused by an offense committed in the course of
advertising your goods, products or services." This coverage
was subject to several limitations. The policy defined the
phrase "advertising injury" as follows:
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;
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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.
Travelers refused to defend, and the EKCO companies
thereupon brought suit against Travelers in New Hampshire state
court seeking a declaration that Travelers was obligated to
defend the Chantal lawsuit. EKCO Group, which had purchased the
policies for itself and affiliated companies, has ties with New
Hampshire. Travelers removed the case to federal district court
in New Hampshire, claiming jurisdiction based on diversity of
citizenship. 28 U.S.C. § 1332. Thereafter, the Chantal lawsuit
was settled. The EKCO companies hope to recover their defense
costs and amounts paid in settlement.
In the federal action, both sides moved for summary
judgment, and on November 29, 2000, the district court filed a
decision in favor of the EKCO companies. Applying New Hampshire
law to construction of the policy, the district court held inter
alia that the trade dress and unfair competition claims made by
Chantal against EKCO Housewares fell within the policy coverage
for advertising injury, that the injuries were caused by an
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offense committed in the course of advertising EKCO's goods, and
that certain exclusions relied upon by Travelers did not apply.
Travelers appealed to this court. Thereafter, the
EKCO companies filed a motion, joined by Travelers, to dismiss
EKCO Housewares as a party-plaintiff; the purpose was to
preserve federal jurisdiction, it having become clear belatedly
that EKCO Housewares, like Travelers, is an Illinois
corporation. EKCO Group is a proper plaintiff, having
contracted for the policies in question, and both sides have
stipulated that rulings as to EKCO Group's rights will control
as to EKCO Housewares despite its dismissal. Precedent permits
us to grant the requested motion, Newman-Green, Inc. v. Alfonzo-
Larrain, 490 U.S. 826, 833 (1989), and we now do so.
Turning to the merits, we note that the parties agree
that New Hampshire law controls the interpretation of the
policies. This position is colorable (EKCO Group had its main
office there when it contracted for coverage), so we accept it,
Merchants Ins. Co. of N.H., Inc. v. U.S. Fid. & Guar. Co., 143
F.3d 5, 8 (1st Cir. 1998), observing that the pertinent precepts
of New Hampshire law appear much like those of other states.
Because the interpretation of the insurance policy in this case
presents a question of law, see Ross v. Home Ins. Co., 773 A.2d
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654, 656 (N.H. 2001), we review the district court's ruling and
construe the policy de novo.
Needless to say, the advertising injury provision is,
at least in certain applications, unclear and has provoked a
good deal of litigation. E.g., Liberty, 260 F.3d at 54. New
Hampshire, like most states, tends to favor the insured where
the policy is genuinely ambiguous and the choice is between two
plausible readings, one providing coverage and the other not.
Fed. Bake Shop v. Farmington Cas. Co., 736 A.2d 459, 460 (N.H.
1999). But plausibility is a matter of degree, and a policy may
be unclear in some respects and clear enough in others.
In this case, under the plain terms of the policy there
is coverage only if two different conditions are satisfied.
First, there must be injury "arising out of" a defined offense;
here the only listed offense claimed by EKCO Group to be
applicable is "[m]isappropriation of advertising ideas or style
of doing business." Second, the offense in question "must be
committed in the course of advertising your [the insured's]
goods, products or services." As we shall see, the two
provisions cannot be construed wholly in isolation from one
another.
It is by no means impossible, by piecing together
dictionary definitions, to read the policy language in question
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to provide coverage here for the EKCO companies. This is
easiest to do (and most defensible) for the first part of the
pertinent offense definition--the term "misappropriation"--
although even here the coverage might be debated. This is so
because it is not easy to match Chantal's claims to whatever
remains of the evanescent common law tort so labeled (EKCO does
not even try), and it is uncertain whether the policy used the
term in a generic sense.
There is no general common law rule against using the
ideas, inventions and practices of others, absent deception or
wrongful acquisition. See Prosser & Keeton on Torts 1020-22
(5th ed. 1984). Rather, the label "misappropriation" has been
used to describe a judicially created tort where, in narrow
categories or for special reasons, common law protection has
been given to a few intangibles.1 Chantal's design patent claim
is statutory, and its trade dress claim would more commonly be
described in common-law jargon as "passing off," "trademark" or
"unfair competition."
1 The classic case is Int'l News Serv. v. Assoc. Press, 748
U.S. 215 (1918), now obsolete as a federal doctrine but possibly
still available under state law in unusual cases. Nat'l
Basketball Ass'n v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir.
1997). Restatement (Third) of Unfair Competition § 38 cmt. c,
at 412 (1995); id. reporters' note cmts. a and b. The original
Restatement of Torts did not use the term, and the Restatement
of Unfair Competition uses it only generically to encompass
trade secret law and right of publicity.
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Alternatively, the policy reference to misappropriation
might be read not as a technical legal reference but generically
to include any tort, statutory or otherwise, for which wrongful
acquisition is an element. Both trade dress and design patent
suits are based in part on wrongful appropriation in this latter
sense. If everything turned on the reference to
"misappropriation," the canon that policies be construed in
favor of the insured might resolve the case for EKCO, Fed. Bake
Shop, 736 A.2d at 460, although this is not a foregone
conclusion.2
The other part of the offense definition--that the
misappropriation be of an advertising idea or style of doing
business--is harder to satisfy, but perhaps not linguistically
impossible. To call a real teapot intended for sale as a
kitchen utensil an "advertising idea" is not a natural usage:
the phrase refers more readily to an advertising concept or plan
for an advertising campaign (both of which could indeed be
2 Other circuits have viewed the omission of specific
references (e.g., to trademark) as precluding coverage. Callas
Enters., Inc. v. Travelers Indem. Co. of Am., 193 F.3d 952, 956-
57 (8th Cir. 1999); ShoLodge, Inc. v. Travelers Indem. Co. of
Ill., 168 F.3d 256, 260 (6th Cir. 1999); Advance Watch Co., Ltd
v. Kemper Nat'l Ins. Co., 99 F.3d 795, 806 (6th Cir. 1996)
(product itself not "advertising"). See also Curtis-Universal
v. Sheboygan Emergency Med. Serv., Inc., 43 F.3d 1119, 1123 (7th
Cir. 1994) (refusing to construe "unfair competition" in its
broadest sense in predecessor policy).
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misappropriated). And "style of doing business" seems even more
remote to the teapot; the phrase is commonly used, in the legal
context, to refer to a theme or motif of packaging of products
or of the business venue itself, such as the Mexican restaurant
decor involved in Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S.
763 (1992).
Still, a distinctively designed teapot could, assuming
secondary meaning, be seen as both a concrete product and as an
insignia triggering a favorable association in the public's mind
with the manufacturer, just as an ordinary trademark device or
name might do. I.P. Lund Trading ApS & Kronin, Inc. v. Kohler
Co., 163 F.3d 27, 51-52 (1st Cir. 1998) (concurring opinion).
To this extent the physical teapot itself might be deemed to
function as an "advertising idea" for Chantal. The district
court took this view and then, by a kind of substitution, deemed
EKCO Housewares's production and sale of the same teapot to
satisfy the other requirement of the policy--that the
misappropriation be "committed in the course of advertising your
[EKCO's] goods, products or services."
This approach to construing the policy presents three
problems. The first is that it requires one to read at least
some of the policy language unnaturally. Yes, EKCO's production
and sale of the teapot could be described as "advertising . . .
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[EKCO's teapot]" in at least two different senses: in the
technical sense that the teapot itself might--assuming secondary
meaning, Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S.
205, 216 (2000)--falsely suggest that Chantal was the source,
and in the banal sense that every product displayed or depicted
is an advertisement for itself and its obvious features. But to
describe this case of product copying as a case about EKCO's
advertising is surely a very strained way to speak.
Although the term "advertising" has a range of
meanings, the one that leaps to mind in reading this policy is
what is surely the most common use: as a reference to
advertising in newspaper, radio, television or other familiar
media where the advertisement is an activity or item distinct
from the product being advertised. This is so even though, as
the district court pointed out, the dictionary also permits the
term "advertising" to be used, with equal legitimacy in the eyes
of lexicographers, to mean any form of "calling public
attention" to something else ( e.g., her tan was an advertisement
for summer vacations; his athletic ability, for vigorous
exercise, etc.).3
3
The Random House Dictionary of the English Language 29 (2d
ed. 1987) ("The act or practice of calling public attention to
one's product . . . esp. by paid announcement in newspapers,
over radio or television, on billboards, etc."); The American
Heritage Dictionary 82 (2d ed. 1992) ("The action of attracting
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The second problem with the approach in this case is
that it is a slippery slope to unacceptable outcomes. Imagine
that Chantal's claim was not for trade dress but solely based on
a design or utility patent, say, because EKCO had copied a
Chantal electric tea kettle shaped like a furnace that boiled
water in 15 seconds. Certainly, the EKCO tea kettle itself
could still be described as "advertising"--in the "calling
public attention to" sense--its own evocative design or
technical prowess; but linguistic awkwardness aside, surely no
one imagines that a policy covering "advertising injury" was
intended to provide coverage for ordinary patent violations.
See St. Paul Fire & Marine Ins. Co. v. Advanced Intercontinental
Sys., Inc., 824 F. Supp. 583, 586 (E.D. Va. 1993), aff'd, 21
F.3d 424 (4th Cir. 1994).
Coverage on the present facts requires that one stretch
the term "advertising" in a way that has no natural stopping
point short of absurd results. The obvious remedy is to read
the term both in the coverage and definitional provisions to
refer to conventional advertising--something separate from the
product--which also happens to be the term's most familiar
usage. So to restrict the term does not banish every
public attention to a product or business."); Black's Law
Dictionary 55 (7th ed. 1999) ("The action of drawing the
public's attention to something to promote its sale.").
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uncertainty--such as whether a one-off prospectus or a
salesman's oral pitch is "advertising," see Liberty, 260 F.3d at
64-66--but does avoid impossible applications.
Finally, this narrower reading coheres with other
language in the same two provisions--the coverage and
definitional paragraphs. To speak of "the course of advertising
your goods" suggests some distinction between producing and
selling the goods on the one hand and "advertising" them on the
other; and all of the definitions of covered offenses apart from
"misappropriation" make clear (in two cases) or imply (in the
last) that the drafter had in mind something akin to
conventional advertising ("oral or written publication of
material" causing libel or invasion of privacy; infringement of
copyright, title, or slogan).
In the end, we are left to choose between two different
concepts of "advertising": the familiar bundle of business
activities associated with that term and the far broader concept
of inviting public attention, deliberately or not and by any
means. Although the bare language of the policy is not
conclusive, the more natural reading and the only one that
avoids outlandish results is the former. It is worth adding
that if the latter, open-ended definition were employed, it is
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hard to see how an insurer could even begin to calculate risks
and set premiums.
Problems of application arise in insurance cases about
which neither side has ever thought. And in those cases, if the
policy language is unclear, the answer is not automatically to
include or exclude but instead to use the "construe against"
canon to help choose among reasonable readings. Taking this
policy as a whole, only the conventional reading of the term
"advertising" is reasonable, even if it too is blurred at the
edges.
On appeal, EKCO says briefly that it did advertise the
Royale in the conventional sense as well: it depicted its
teapot, for example, in a printed brochure and in its 1997
annual report. But here EKCO has shifted ground as to just what
it regards as the "misappropriation" charged by Chantal and
ignored the policy requirement that the defined offense--here,
allegedly misappropriation of advertising ideas or style of
doing business--be "committed in the course of advertising
[EKCO's] goods . . . ." Put differently, there must be some
causal connection running from the offense through the
advertising to the injury.4
4Bank of the West v. Superior Court of Contra Costa County,
833 P.2d 545, 558-59 (Cal. 1992) (en banc) (collecting cases);
Lazzara Oil Co. v. Columbia Cas. Co., 683 F. Supp. 777, 780
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Nothing in the Chantal complaint suggests that it was
concerned with EKCO's design of its brochures or annual reports
or that the graphics or typography were invented by or borrowed
from Chantal. The misappropriation offenses charged by Chantal
in its complaint were the physical reproduction and sale of a
look-alike teapot by EKCO. That physical reproduction and sale
were not done "in the course of" making brochures or annual
reports. The latter is advertising, to be sure, but not where
the offenses charged by Chantal occurred.
In 1998--after the events in this case--the insurer
organization that drafts standard form language for insurers to
use altered the provisions that relate to advertising injury.
See generally In re Ins. Antitrust Litig., 938 F.2d 919 (9th
Cir. 1991). The new language (which Travelers may or may not
have adopted) does provide coverage for infringement of trade
dress in "your advertisement" as well as copyright violation or
misappropriation in advertising; but the changed language also
expressly defines "advertisement" as "a notice that is broadcast
(M.D. Fla. 1988), aff'd, 868 F.2d 1274 (11th Cir. 1989); A.
Meyers & Sons Corp. v. Zurich Am. Ins. Group, 545 N.E.2d 1206,
1209 (N.Y. 1989). But see John Deere Ins. Co. v. Shamrock
Indus., Inc., 696 F. Supp. 434, 440 (D. Minn. 1988), aff'd, 929
F.2d 413 (8th Cir. 1991).
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or published to the general public or specific market segments
about your good, products, or services . . . ."5
EKCO mentions this 1998 change, suggesting that the
narrowed definition contrasts with the prior language. Where a
defendant in a trip-and-fall case makes expensive repairs to the
premises before trial, it may or may not (depending on
circumstances) be reasonable to infer that the defendant thought
the prior state of the premises unsafe (although doubt about the
strength of this inference is one reason why such evidence may
be barred, see Fed. R. Evid. 407 & advisory committee's notes.)
But expression can always be made clearer and to change language
in a policy is simply a precaution against recurrent
misunderstanding.
We have not discussed the case law at any length
because there are no New Hampshire cases directly in point and
those from other courts are divided.6 It is true that the two
5
Insurance Service Office, Inc., Commercial General
Liability Coverage Form (1999) CG 00 01 07 98, § 5, reprinted in
1 International Risk Management Institute, Inc., Commercial
Liability Insurance, IV.T.150 (Supp. 2001)
6Compare Bay Elec. Supply, Inc. v. Travelers Lloyds Ins.
Co., 61 F. Supp. 2d 611, 617 (S.D. Tex. 1999), and Am.
Employers' Ins. Co. v. DeLorme Publ'g. Co., 72 F. Supp. 2d 64,
75-76 (D. Me. 1999), with Callas, 193 F.3d at 952, and Advance
Watch, 99 F.3d at 802-07. The only New Hampshire Supreme Court
case we could find construing the advertising injury provisions
is not directly in point, although it did not adopt a
particularly generous reading. First Bank & Trust Co. v. New
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circuit courts construing such policies favor Travelers, see
note 1, above, but their reasoning is different from our own.
In particular, the Sixth Circuit's categorical approach in Sho
Lodge, 168 F.3d at 260, might seem to exclude any possibility of
advertising injury based on a trademark or trade dress
violation. By contrast, we can ourselves imagine a possible
claim if, in the course of a published advertisement, a rival's
trademarked insignia were misappropriated.
There are a host of difficult questions that the
policy, at least in its present form, could present. What
happens when there is conventional advertising in an
unconventional medium (e.g., an advertisement for some other
product on t-shirts or ballpoint pens); and how should one
analyze a claim directed to the appearance of a pirated
trademark depicted in a newspaper advertisement where the harm
flows directly from the publication? Such variations, however,
need not be addressed in order to resolve the present case.
The motion to dismiss EKCO Housewares is granted, and
the judgment of the district court is reversed and the case
remanded for further proceedings consistent with this opinion.
That our own view differs from the very thoughtful opinion of
the district judge in this case merely underscores that the
Hampshire Ins. Group, 469 A.2d 1367 (N.H. 1983).
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issue is a difficult one, which we are obliged to decide de
novo.
It is so ordered.
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