Citizens Ins. Co. v. Pro-Seal Service Group, Inc.

Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:

Opinion Clifford W. Taylor Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman

FILED APRIL 25, 2007

CITIZENS INSURANCE COMPANY,

Plaintiff/Counter-Defendant-Appellant,

v No. 130099

PRO-SEAL SERVICE GROUP, INC, d/b/a
PRO-SEAL, INC,

Defendant/Counter-Plaintiff-Appellee,

and

SETH SHORT, RANDY QUINCY,
FLOWSERVE CORPORATION, and
FLOWSERVE MANAGEMENT COMPANY,
Defendants.
_______________________________

BEFORE THE ENTIRE BENCH

PER CURIAM.

At issue in this insurance coverage dispute is whether defendant Pro-Seal

Service Group, Inc.’s, act of shipping a product in a competitor’s packaging with

Pro-Seal’s labeling affixed to it constitutes an “advertisement” for purposes of an

insurance policy. The Court of Appeals determined that plaintiff (Citizens

Insurance Company) was required to defend defendant under the terms of a
commercial general liability policy (CGL policy) because the underlying

complaint alleged a violation of trade dress1 and such a violation inherently

involves advertising activity. Because we conclude that the act of shipping a

product in a competitor’s packaging with one's own name affixed to it is

insufficient to satisfy the CGL policy’s definition of an “advertisement,” we

reverse the judgment of the Court of Appeals that held to the contrary and remand

this case to the trial court for further proceedings not inconsistent with this

opinion.

I. FACTS AND PROCEDURAL HISTORY

Defendant Pro-Seal Service Group, Inc., is a Michigan corporation that

sells and repairs mechanical seals used in oil production facilities in Alaska. Pro-

Seal has a CGL policy and an umbrella insurance policy with plaintiff Citizens

Insurance. Pro-Seal’s major competitor for mechanical seal sales in the Alaskan

market is defendant Flowserve Corporation, a New York corporation that

manufactures, sells, and refurbishes mechanical seals. The dispute between

Flowserve and Pro-Seal began in June 2003, when a Flowserve employee

discovered that two Flowserve mechanical seals that had been repaired by Pro-

1
“The trade dress of a product is essentially its total image and overall
appearance. It involves the total image of a product and may include features such
as size, shape, color or color combinations, texture, graphics, or even particular
sales techniques.” Two Pesos, Inc v Taco Cabana, Inc, 505 US 763, 764 n1; 112
S Ct 2753; 120 L Ed 2d 615 (1992) (internal quotation marks and citations
omitted).

2

Seal were being shipped to a customer in the original Flowserve container, with

the name “Pro-Seal” affixed to the outside of the container. Flowserve brought a

suit against Pro-Seal in the United States District Court for the District of Alaska,

claiming that Pro-Seal created confusion in the marketplace by imitating or

infringing trademarks or product marks, and by using trade secrets, blueprints,

engineering drawings, packaging materials, and sales practices that misrepresented

Pro-Seal seals as being Flowserve seals.2 Pro-Seal requested that plaintiff defend

it in the Flowserve action pursuant to both insurance policies. Plaintiff concluded

that the nature of the allegations in the Flowserve complaint were beyond the

scope of either policy and, therefore, refused to defend Pro-Seal. Plaintiff filed the

instant action seeking a declaration that plaintiff was not required to defend Pro-

Seal under either policy.

The trial court granted plaintiff’s motion for summary disposition,

introducing its analysis by noting that if a contract is plain and unambiguous, it

must be enforced according to its terms. Burkhardt v Bailey, 260 Mich App 636,

656; 680 NW2d 453 (2004). According to the terms of the instant insurance

contract, coverage is excluded for advertising injuries that are “knowingly made.”

The trial court concluded that coverage did not exist for the conduct asserted in the

2
After a facilitation session, the Flowserve complaint was dismissed by
stipulation. Defendant admitted two inadvertent trademark infringements and
settled the case for $1,800.

3

Flowserve lawsuit because it “alleges an intentional course of conduct involving

fraud, deceit, and counterfeit parts being sold as genuine.”

On appeal, the Court of Appeals vacated the judgment of the trial court in a

published opinion, holding that plaintiff was required to represent defendant Pro-

Seal because Flowserve’s allegations fell within the definition of an “advertising

injury” under the CGL policy. 268 Mich App 542; 710 NW2d 547 (2005). The

Court of Appeals undertook its analysis by noting that the protection of trade dress

is intended to “‘“secure to the owner of the mark the goodwill of his business and

to protect the ability of consumers to distinguish among competing producers.”’”

Id. at 550-551, quoting Two Pesos, supra at 774, quoting Park 'N Fly, Inc v Dollar

Park & Fly, Inc, 469 US 189, 198; 105 S Ct 658; 83 L Ed 2d 582 (1985). Because

the underlying complaint alleged that Pro-Seal’s conduct confused and misled

customers into believing that Pro-Seal seals were Flowserve seals, the ability of

customers to “distinguish between competing producers” was implicated. On that

basis, the Court of Appeals held that Flowserve’s complaint alleged a trade dress

infringement. The Court of Appeals also held that the alleged trade dress

infringement occurred in an “advertisement” because “‘allegations of trademark

and trade dress infringement inherently involve advertising activity. In other

words, there can be no trademark/trade dress infringement without advertising

having occurred.’” Id. at 551-552, quoting Poof Toy Products, Inc v United States

Fidelity & Guaranty Co, 891 F Supp 1228, 1235-1236 (ED Mich, 1995).

4

 Leave to appeal was sought in this Court and, after directing the parties to

address certain issues,3 we heard oral argument on whether to grant the plaintiff’s

application for leave to appeal or take other peremptory action permitted by MCR

7.302(G)(1). 474 Mich 1112 (2006).

II. STANDARD OF REVIEW

We review de novo the grant or denial of a motion for summary

disposition. Kreiner v Fischer, 471 Mich 109, 129; 683 NW2d 611 (2004). This

case requires that we consider whether defendant’s alleged conduct took place in

an “advertisement” as that term in defined in the insurance policy. The

construction and interpretation of the language in an insurance contract is a

question of law that this Court reviews de novo. Klapp v United Ins Group

Agency, Inc, 468 Mich 459, 463; 663 NW2d 447 (2003).

III. ANALYSIS

The terms of the CGL policy provide that plaintiff “will pay those sums

that the insured becomes legally obligated to pay as damages because of ‘personal

and advertising injury’ to which this insurance applies.” The CGL policy defines

a “personal and advertising injury” as follows:

3
These issues were as follows: “(1) whether Flowserve's complaint alleged
an advertising injury within the meaning of the commercial general liability policy
that Citizens Insurance Company issued to Pro-Seal, Inc., and (2) if so, whether
Citizens was relieved of its duty to defend Pro-Seal by operation of the policy
exclusion for actions taken with knowledge that an advertising injury would
result.”

5

 14. “Personal and advertising injury” means injury, including
consequential “bodily injury”, arising out of one or more of the
following offenses:
* * *

(f) The use of another’s advertising idea in your
“advertisement”; or

(g) Infringing upon another’s copyright, trade dress or slogan
in your “advertisement.”

The umbrella policy defines an “advertising injury” as follows:

A. Advertising Injury means injury caused by one or more of
the following offenses committed during the policy period in the
course of advertising your goods, products or services:

1. 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.

2. Oral or written publication of material that violates a
person’s right or [sic] privacy.

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

4. Infringement of copyright, title or slogan.

The term “advertisement” is defined in the CGL policy as4

4
The umbrella policy does not define the word “advertising.” However,
the umbrella insurance policy does state:

The definitions, terms, conditions and exclusions of
underlying insurance in effect at the inception of this policy apply to
[the umbrella] coverage unless:

A. They conflict with any of the provisions of this policy; or

(continued…)

6

 a notice that is broadcast or published to the general public or
specific market segments about your goods, products or services for
the purpose of attracting customers or supporters.

“[I]n reviewing an insurance policy dispute we must look to the language of

the insurance policy and interpret the terms therein in accordance with Michigan’s

well-established principles of contract construction.” Henderson v State Farm

Fire & Cas Co, 460 Mich 348, 353-354; 596 NW2d 190 (1999). In Henderson,

this Court described those principles as follows:

First, an insurance contract must be enforced in accordance
with its terms. A court must not hold an insurance company liable
for a risk that it did not assume. Second, a court should not create
ambiguity in an insurance policy where the terms of the contract are
clear and precise. Thus, the terms of a contract must be enforced as
written where there is no ambiguity.

While we construe the contract in favor of the insured if an
ambiguity is found, this does not mean that the plain meaning of a
word or phrase should be perverted, or that a word or phrase, the
meaning of which is specific and well recognized, should be given
some alien construction merely for the purpose of benefiting an
insured. The fact that a policy does not define a relevant term does
not render the policy ambiguous. Rather, reviewing courts must
interpret the terms of the contract in accordance with their

(…continued)
B. There is a provision in this policy for which a similar
provision is not contained in underlying insurance.

As it relates to an “advertising injury,” there is no conflict between the terms of
the CGL policy and the umbrella policy. Furthermore, the “advertising injury”
section of the umbrella policy is substantially similar to the “advertising injury”
provisions in the CGL policy. The dictionary defines the term “advertising” as
“paid announcements; advertisements.” Random House Webster’s College
Dictionary (1997) at 20. Therefore, pursuant to the terms of the umbrella policy,
the definition of the term “advertisement” in the CGL policy applies to the
umbrella policy as well.

7

 commonly used meanings. Indeed, we do not ascribe ambiguity to
words simply because dictionary publishers are obliged to define
words differently to avoid possible plagiarism. [Id. at 354 (citations
omitted).]

The Court of Appeals erred in this case by failing to enforce the terms of

the CGL policy as written.5 While the Court of Appeals noted that the CGL policy

defined the term “advertisement,” it ultimately rejected that definition in favor of a

different definition articulated by the United States District Court in Poof Toy,

supra at 1235-1236. In Poof Toy, the United States District Court held that

allegations of trademark and trade dress infringement inherently
involve advertising activity. In other words, there can be no
trademark/trade dress infringement without advertising having
occurred. This conclusion results from a required element in every
trademark/trade dress case, that the mark or dress is likely to cause
confusion to the consumer or deceive the consumer as to the origin
or manufacturer of the goods. See 15 U.S.C. § 1125(a). To have (or
potentially cause) this effect, one must clearly advertise (announce
to the intended customers) the mark or dress.

However, the Court of Appeals failed to recognize that Poof Toys is readily

distinguishable because the insurance contract at issue in that case did not define

the term “advertisement.” Because the term was left undefined, the United States

5
Justice Cavanagh argues that Flowserve alleged in its complaint that Pro-
Seal used the Flowserve trademark to identify its products as Flowserve products
and, on that basis, “it can be deduced that Pro-Seal was accused of taking actions
that inherently involved notice broadcast or published to the general public or
specific market segments about its goods, products, or services for the purpose of
attracting customers or supporters.” Post at 4. However, the only portion of the
Flowserve complaint relied upon by the Court of Appeals in this case is the
allegation that Pro-Seal “shipped the counterfeit [seals] to the customer in a
shipping crate prominently labeled with the Flowserve label.” Flowserve
complaint at paragraph 22. We should not resolve this case on the basis of
allegations that were not addressed by the Court of Appeals.

8

District Court consulted a dictionary to define the term and concluded on the basis

of that definition that there was coverage under that policy. Because the term

“advertisement” is defined in the instant CGL policy, and that definition is

incorporated into the umbrella policy as well, the Court of Appeals’ reliance on

Poof Toy was inappropriate inasmuch as it potentially subjects plaintiff to a risk

that it did not assume. See, e.g., Westfield Companies v OKL CAN Line, 155 Ohio

App 3d 747, 755; 804 NE2d 45 (2003) (holding that Poof Toy did not apply to an

insurance policy that specifically defined the term “advertisement”).

Thus, in order to determine whether plaintiff had a duty to defend in this

case, we must ascertain whether defendant’s conduct falls within the scope of the

term “advertisement” as written in the CGL policy. This Court interprets the

words used in a contract “in accordance with their commonly used meanings.”

Henderson, supra at 354. Further, when defining a phrase used in a contract, this

Court “read[s] the phrase as a whole, giving the phrase its commonly used

meaning.” Id. at 356. Under the instant policy, an “advertisement” takes place

when there is: (1) a notice; (2) that is broadcast or published; (3) to the general

public or specific market segments; (4) about [the company’s] goods, products, or

services; and (5) for the purpose of attracting customers. “When considering a

word or phrase that has not been given prior legal meaning, resort to a lay

dictionary such as Webster’s is appropriate.” Greene v A P Products, Ltd, 475

Mich 502, 510; 717 NW2d 855 (2006). The dictionary defines “notice,” in

relevant part, as “a written or printed statement conveying . . . information . . . .”

9

Random House Webster’s College Dictionary (1997) at 895. The dictionary

defines “broadcast,” in relevant part, as “to speak, perform, or present on a radio

or television program” or “to spread widely; disseminate.” Id. at 166. “Publish”

is defined, in relevant part, as “to announce formally or officially; proclaim;

promulgate” or “to make publicly or generally known.” Id. at 1054. These

definitions are consistent with the common understanding of the term “broadcast

or publish” in the advertising realm as the public dissemination of information

intended to inform potential customers of a company’s availability to do business.

Thus, for example, a business such as Pro-Seal may utilize television, radio,

newspapers, or billboards in order to inform potential customers about the goods

and services they provide and to attract the patronage of such customers.

The Court of Appeals concluded that when defendant shipped one of its

seals to a customer in a Flowserve container, that was an act that “constitute[ed]

notice that is published to the specific market segment in which Pro-Seal and

Flowserve compete about the seals for the purpose of attracting customers or

supporters.” 268 Mich App at 552. Pro-Seal seizes on this argument, claiming

that when it shipped the seal at issue to a distribution center to be forwarded to its

customer, it could be observed by members of the general public visiting that

distribution center. Therefore, according to defendant, the use of the Flowserve

packaging constituted an “advertisement.”

However, both the Court of Appeals and defendant overlook that, under the

terms of the CGL policy, defendant must publicly disseminate information about

10

its goods and services for the purpose of attracting the patronage of potential

customers. Here, defendant sent a seal to a specific customer in a Flowserve

container for the purpose of completing a single transaction. At best, Pro-Seal’s

argument that it expected that other customers might view the package at the

distribution center and, as a result, would be encouraged in doing business with

defendant was an incidental and remote benefit that does not fundamentally alter

the fact that this was a single transaction with a specific customer. We conclude

that the purpose for placing a Pro-Seal label on the Flowserve container in this

instance was to identify for that specific customer the source of the seal to allow

that specific customer to contact defendant with any questions or complaints about

that product.6 Accordingly, we conclude that the harm alleged to have been

6
We do not, as Justice Kelly asserts, hold that a company must engage in
“wide-scale dissemination of information, such as by television or radio, for there
to be an advertisement.” Post at 10. In fact, we agree with Justice Kelly that, in a
limited market such as the Alaskan oil market, a notice broadcast to even a single
customer might constitute “advertising,” as long as that notice was designed to
“attract[] customers or supporters.” However, Justice Kelly overlooks the fact that
the conduct complained of in this case, namely Pro-Seal’s act of shipping the seal
in question to its customer in the original Flowserve container affixed with a Pro-
Seal label, was not undertaken to “attract[] customers or supporters.” Rather, Pro-
Seal shipped the seal in question in order to complete an already agreed-upon
transaction. In other words, Pro-Seal had already “attracted” its customer by the
time the seal in question was shipped in the container provided to Pro-Seal by that
customer. While the complaint alleges that customer was confused about the
origin of the seal at issue in this appeal, there is nothing in the complaint that
could reasonably be construed as an allegation that the Pro-Seal labeling was
designed to “attract” that customer to purchase another seal from Pro-Seal.
Rather, looking at the context of the transaction, the Pro-Seal labeling simply
served to identify the source of the repaired seal and to provide contact
information if the customer had any questions or concerns. Likewise, contrary to
(continued…)

11

caused by Pro-Seal’s act of shipping a seal in a Flowserve container did not “arise

out of an advertisement” and, therefore, plaintiff was not obligated to tender a

defense based on this allegation under the terms of the CGL policy.7

IV. CONCLUSION

In order to constitute an advertisement under the CGL policy, defendant

must publicly disseminate information about its goods and services for the purpose

of attracting the patronage of potential customers. We conclude that when

defendant shipped the seal in question to its customer in a Flowserve container

affixed with a Pro-Seal label, there was no "advertising injury" under the CGL

policy. Accordingly, we reverse the judgment of the Court of Appeals and remand

this case to the trial court for further proceedings not inconsistent with this

opinion.8

(…continued)
Justice Kelly’s contention, nothing in the Flowserve complaint alleged that Pro-
Seal utilized the container in question in order to “attract[] customers or
supporters.” Rather, Flowserve alleged that the shipping container was used as
part of an attempt by Pro-Seal to lead customers to believe that its seals were
actually Flowserve seals. Accordingly, Pro-Seal’s act of shipping a seal to its
customer in the original Flowserve container is simply not an “advertisement” as
the term is defined by the policy.
7
Because we conclude that no advertising occurred, we find it unnecessary
to decide whether the underlying complaint alleged a “trade dress” or “trademark”
violation, or whether Citizens Insurance was relieved of its duty to defend Pro-
Seal by operation of the policy exclusion for actions taken with knowledge that an
advertising injury would result.
8
Justice Cavanagh argues that a remand to the trial court is inappropriate
because when the trial court held that the policy did not apply to advertising
(continued…)

12

 Clifford W. Taylor
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman

(…continued)
injuries that are knowingly made, “it is clear that it found [an advertising injury]
because it determined that the advertising injury was made knowingly.” Post at 4.
We disagree. In granting summary disposition to plaintiff, the trial court
concluded that the Flowserve complaint “alleges an intentional course of conduct
involving fraud, deceit, and counterfeit parts being sold as genuine. Clearly, this
conduct does not fall within the scope of the limited coverage for advertising
injury provided by the policy.” Because the trial court relied wholly on the
intentional nature of Pro-Seal’s conduct, it did not address whether the Flowserve
complaint actually set forth an “advertising injury” as defined by the policy.
Because the trial court never addressed the issue left unresolved in this opinion, it
should do so on remand.

13

 STATE OF MICHIGAN

SUPREME COURT

CITIZENS INSURANCE COMPANY,

Plaintiff/Counter-Defendant-

Appellant,

v No. 130099

PRO-SEAL SERVICE GROUP INC., doing
business as PRO-SEAL INC.,

Defendant/Counter-
Plaintiff-Appellee,

and

SETH SHORT, RANDY QUINCY,
FLOWSERVE CORPORATION, and
FLOWSERVE MANAGEMENT
COMPANY,

Defendants.

CAVANAGH, J. (dissenting).

I agree with dissenting Justice Kelly that in the underlying complaint in

this action, Flowserve’s allegations amounted to allegations of a violation of its

trade dress. I also agree with her analysis of the terms “advertisement” and

“notice.” However, I would resolve this case simply by reviewing the specific

allegations Flowserve made in its complaint against Pro-Seal Service Group, Inc.,

because as Justice Kelly notes, and as the majority ignores, the question whether
an insurer has the duty to defend must be answered by examining the allegations

in the underlying complaint, rather than by looking at the insured’s specific

actions. In fact, “[i]f the allegations of a third party against the policyholder even

arguably come within the policy coverage, the insurer must provide a defense.”

American Bumper & Mfg Co v Hartford Fire Ins Co, 452 Mich 440, 450-451;

550 NW2d 475 (1996), citing Polkow v Citizens Ins Co, 438 Mich 174, 178, 180;

476 NW2d 382 (1991); Allstate Ins Co v Freeman, 432 Mich 656, 662; 443

NW2d 734 (1989). “This is true even where the claim may be groundless or

frivolous.” Id.

Here, Flowserve accused Pro-Seal’s individual employees of

misrepresenting to the public that they were associated with Flowserve, that they

were capable of performing certified repairs on Flowserve products, and that Pro-

Seal seals were Flowserve seals. Flowserve further alleged that defendant

“improperly appropriated and used Flowserve’s “P-50” trademark to identify

their inferior seal” to “capitalize on Flowserve’s goodwill and to further confuse

the process industry into believing that [Pro-Seal’s] competitive seals are

Flowserve seals.” Further, Flowserve accused Pro-Seal of using three of

Flowserve’s trademarks and attached several purchase orders allegedly showing

that customers were ordering Flowserve seals from Pro-Seal and were being sent

Pro-Seal seals. Flowserve attached a photograph of a Flowserve product bearing

Flowserve trademarks and alleged that Pro-Seal had replaced internal parts with

Pro-Seal parts. Flowserve explained that it discovered these internal parts while

2

fixing a pump in which the seal had been installed and that it also discovered

another seal it accused Pro-Seal of altering before it was installed. Another

allegation involved an allegedly improperly labeled crate, which contained

another allegedly altered Flowserve product, and an assembly drawing bearing

the Flowserve name and trademark in the box in which the seal was shipped.

Specific guiding principles governing the determination of an insurer’s

duty to defend were aptly set forth in American Bumper, supra, and bear

repeating here:

“‘An insurer has a duty to defend, despite theories of liability
asserted against any insured which are not covered under the policy,
if there are any theories of recovery that fall within the policy.
Dochod v Central Mutual Ins Co, 81 Mich App 63; 264 NW2d 122
(1978). The duty to defend cannot be limited by the precise
language of the pleadings. The insurer has the duty to look behind
the third party’s allegations to analyze whether coverage is possible.
Shepard Marine Construction Co v Maryland Casualty Co, 73 Mich
App 62; 250 NW2d 541 (1976). In a case of doubt as to whether or
not the complaint against the insured alleges a liability of the insurer
under the policy, the doubt must be resolved in the insured’s favor
14 Couch, Insurance, 2d (rev ed), § 51:45, p 538 (now § 51:49, p
489).’” [American Bumper, supra at 451-452, quoting Protective
Nat’l Ins Co v City of Woodhaven, 438 Mich 154, 159; 476 NW2d
374 (1991), quoting Detroit Edison Co v Michigan Mut Ins Co, 102
Mich App 136, 142; 301 NW2d 832 (1980).]
While the complaint in the present case certainly could have been crafted

more specifically with respect to describing precisely how defendant

accomplished these violations, i.e., how it “advertised,” Flowserve’s allegations

were sufficient to trigger a duty to defend. Flowserve alleged that Pro-Seal used

Flowserve’s trademarks to identify Pro-Seal products and through its actions

3

caused customer confusion regarding the origin or manufacturer of the goods.

From these allegations alone, it can be deduced that Pro-Seal was accused of

taking actions that inherently involved notice broadcast or published to the

general public or specific market segments about its goods, products, or services

for the purpose of attracting customers or supporters. Thus, the Court of Appeals

correctly determined that plaintiff had a duty to defend Pro-Seal.

On that basis, I would affirm the Court of Appeals. But even if I agreed

with the majority’s substantive analysis, I would not remand this case to the trial

court to allow it to determine anew whether plaintiff was required to defend Pro-

Seal. The trial court was presented with this and other issues in the proceedings

on this declaratory judgment action, and it made its ruling accordingly. In its

written opinion and order granting summary disposition for plaintiff, the trial

court described the nature of the claims being made, summarized the various

complaint allegations, and ruled that plaintiff had no duty to defend. In fact, it

ruled that “coverage is excluded for advertising injuries that are ‘knowingly

made.’” See ante at 3. While the trial court did not provide a detailed analysis

with regard to the alleged “advertising injury,” it is clear that it found one

because it determined that the advertising injury was made knowingly. And it

did not use conditional language, such as stating that if there were an advertising

injury, it was knowingly made. Presumably, the trial court is unlikely to change

its mind on remand, making the preliminary “victory” in this case hollow for

4

defendant. Quite simply, the majority’s remand unfairly gives plaintiff a second

opportunity to convince the trial court to again rule in its favor.

Michael F. Cavanagh
Elizabeth A. Weaver

5

 STATE OF MICHIGAN

SUPREME COURT

CITIZENS INSURANCE COMPANY,

Plaintiff/Counter-Defendant-

Appellant,

v No. 130099

PRO-SEAL SERVICE GROUP, INC., doing
business as PRO-SEAL, INC.,

Defendant/Counter-
Plaintiff-Appellee.

and

SETH SHORT, RANDY QUINCY,
FLOWSERVE CORPORATION, and
FLOWSERVE MANAGEMENT
COMPANY,

Defendants.

KELLY, J. (dissenting).

The majority has decided that plaintiff Citizens Insurance Company had no

duty to defend defendant Pro-Seal Service Group, Inc., in the underlying

trademark infringement action. It asserts that the complaint did not allege an

advertising injury as that term is defined by the parties’ commercial general

liability policy (CGL policy). I believe that the complaint alleges one of the

advertising injury offenses covered by the policy and the injury complained of
does not fall within an enumerated exception to coverage. As a consequence, I

respectfully dissent. I would affirm the judgment of the Court of Appeals.

THE UNDERLYING FACTS

Defendant Pro-Seal is in the business of selling and repairing mechanical

seals used in high-temperature and extreme-pressure environments. It is not a

manufacturer of these seals but a distributor that sells mechanical seal products

manufactured by others and performs repairs on seals, using its own employees.

In the underlying action, a customer of Pro-Seal requested that Pro-Seal

make repairs and modifications to mechanical seals that the customer had

purchased from defendants Flowserve Corporation and Flowserve Management

Company (Flowserve). Flowserve is a large manufacturer of mechanical seals that

also operates a repair business for its seals. Flowserve and Pro-Seal are

competitors in the Alaskan market in both the sale of new seals and in the repair of

worn seals.

Pro-Seal repaired two Flowserve mechanical seals and shipped them to

Alaska Roteq Corporation, an Alaskan distribution center engaged in the

distribution and sale of mechanical seals, for delivery to Pro-Seal’s client. The

seals were shipped in a distinctive Flowserve reusable container. Pro-Seal’s name

appeared on the outside with a prominent red label that displayed the location of

and contact information for Pro-Seal, a product description, and testing

information. The exterior packaging also displayed the Flowserve trademark.

2

 An employee of Flowserve observed the packaging while it sat in the open

on the premises of Roteq. The Flowserve employee knew that the product inside

had been repaired by Pro-Seal because the affixed label displayed Pro-Seal’s

name. Flowserve intercepted the repaired seal and the box in which it was

contained.

Four months after the incident, Flowserve filed a complaint against Pro-

Seal in the United States District Court in Alaska. It alleged, among other things,

that Pro-Seal created confusion in the marketplace by (1) imitating or infringing

trademarks and product marks, (2) by using trade secrets, blueprints, engineering

drawings, and packaging materials, and (3) by engaging in sales-related conduct,

all of which misrepresented Pro-Seal’s products as being Flowserve products in

violation of Flowserve product trademarks, trade names, and the Lanham Act. 15

USC 1125(a). The complaint asserted that Pro-Seal unfairly competed with

Flowserve through these devices and misrepresented to particular customers and

the public that Pro-Seal’s products and services were Flowserve products and

services.

Pro-Seal notified its insurer, Citizens Insurance Company, of the lawsuit

and requested that it provide a defense. Citizens Insurance declined and filed this

lawsuit seeking a declaration that it had neither a duty to defend nor an obligation

to indemnify. Both parties moved for summary disposition. The trial court went

directly to an exclusion in the CGL policy. It pertains to injuries caused by acts of

the insured done with knowledge that an injury to another will occur. It decided

3

that the exclusion applied and, as a result, that Citizens Insurance had no duty to

defend.

Pro-Seal appealed to the Court of Appeals, which, in a published opinion,

vacated the trial court’s order. The appellate court determined that the advertising

injury coverage under the CGL policy required Citizens Insurance to defend the

underlying action. It reasoned that the substance of the complaint relied on the

doctrine of “trade dress,” a theory on which recovery could be based. The claimed

injury, the appeals court held, arguably fell within the definition of an advertising

injury. It ruled that the CGL policy exclusion did not apply because the complaint

alleged both intentional and nonintentional acts. Flowserve, it held, could have

recovered without proving that any relevant act was committed intentionally.

STANDARD OF REVIEW

This Court reviews de novo the interpretation given to language in an

insurance contract. Klapp v United Ins Group Agency, Inc, 468 Mich 459, 463;

663 NW2d 447 (2003). An insurance company’s duty to defend its insured

depends on the allegations the third party makes in the underlying complaint

against the insured. Illinois Employers Ins of Wausau v Dragovich, 139 Mich App

502, 506; 362 NW2d 767 (1984). If the allegations fall even arguably within the

coverage of the policy, the insurer has a duty to defend. American Bumper & Mfg

Co v Hartford Fire Ins Co, 452 Mich 440, 450-451; 550 NW2d 475 (1996).

Where there is doubt about whether the complaint alleges a liability of the insurer

4

under the policy, the doubt must be resolved in favor of the insured. Polkow v

Citizens Ins Co, 438 Mich 174, 180; 476 NW2d 382 (1991).

ADVERTISING INJURY

The issue in this case is whether Citizens Insurance had a duty to defend

under the CGL policy. In resolving this issue, the Court must construe the terms

of the policy. A court will not hold an insurance company liable for a risk that it

did not assume. Henderson v State Farm Fire & Cas Co, 460 Mich 348, 354; 596

NW2d 190 (1999).

The policy provides in section 1(a) that Citizens Insurance “will pay those

sums that the insured becomes legally obligated to pay as damages because of

personal and advertising injury.” In relevant part, “advertising injury” is defined

in Section V, paragraph 14:

“Personal and advertising injury” means injury, . . . arising
out of one or more of the following offenses:

* * *

(g) Infringing upon another’s copyright, trade dress, or slogan
in your “advertisement.”

In order to qualify as an advertising injury under this subsection, two

requirements must be satisfied: Pro-Seal must have infringed Flowserve’s

copyright, trade dress, or slogan, and the infringement must have occurred in Pro-

Seal’s “advertisement.”

Flowserve alleged that Pro-Seal used Flowserve’s trademark and

represented Flowserve products to be its own, and sent a seal that it had repaired to

5

a customer in distinctive Flowserve packaging. The “trade dress” of a product

refers to the product’s overall image and may include features such as a particular

sales technique. Two Pesos, Inc v Taco Cabana, Inc, 505 US 763, 764; 112 S Ct

2753; 120 L Ed 2d 615 (1992). It is a broad term that is expansive enough to

include Flowserve’s allegations, even though Flowserve never used the term

“trade dress.” Thus, considering the substance of the claim, contrasted with the

language of the complaint, as this Court must do, the complaint alleged that Pro-

Seal infringed Flowserve’s trade dress. See American Bumper, 452 Mich 451-

452.

The injury must also arise out of an “advertisement” in order to qualify as

an advertising injury. As defined by the CGL policy, an “advertisement” takes

place when the following four elements are satisfied: (1) a notice about the

company’s goods, products, or services, (2) is broadcast or published, (3) to the

general public or specific market segments, (4) for the purpose of attracting

customers.1

The first requirement is that there be notice about the company’s goods,

products or services. The majority opinion defines “notice” as including “‘a

written or printed statement conveying . . . information.’” Ante at 9 (citation

omitted.) In this case, Pro-Seal shipped a package containing a label displaying its

1
“Advertisement” is defined in the CGL policy as “[n]otice that is
broadcast or published to the general public or specific market segments about
your goods, products or services for the purpose of attracting customers or
supporters.”

6

name as well as product information. This satisfied the notice requirement under

the majority’s definition.

The next inquiry concerns whether the notice was broadcast or published.

As defined by the majority, “publish” is “‘to make publicly . . . known.’” Ante at

10 (citation omitted). The act of providing a member of the public with

information, without more, makes the information public. Since Pro-Seal placed

the label on a package, then sent that package to a customer, there was publication.

The next requirement is that the notice be conveyed to the general public or

to specific market segments. There is no definition in the CGL policy of “specific

market segments.” However, given that “segment” is a synonym for “piece” or

“section,” it can be presumed that “market segments” refers to particular

customers or vendors in the marketplace. Rogets II: The New Thesaurus (3d ed).

Here, as the parties agree, the geographic area where Pro-Seal and

Flowserve competed, the North Slope of Alaska, contains few customers. Because

the market is so restricted, communication with one customer or vendor would be

communication with a market segment. Accordingly, I conclude that, the sending

of the package to Roteq for delivery to a specific customer constituted giving

notice to a specific market segment.

The final requirement is that the notice be for the purpose of attracting

customers. Flowserve’s complaint alleges that Pro-Seal unfairly competed because

its communications in the marketplace about its products and services caused Pro-

Seal products and services to be confused with those of Flowserve. The essence

7

of Flowserve’s claim is that, by shipping a seal in a Flowserve package with a

label containing Pro-Seal’s contact information, Pro-Seal unfairly sought to attract

customers. This allegation satisfies the final requirement.

Since the allegation is that Pro-Seal infringed Flowserve’s trade dress in

Pro-Seal’s “advertisement,” I believe that the complaint asserted an advertising

injury, as the policy defines that term.2 Accordingly, Citizens Insurance had a

duty to defend unless a specific policy exclusion excused it.

The majority disagrees and holds that Citizens Insurance had no duty to

defend. It claims that the purpose of the notice must be to attract “potential”

customers. Ante at 10. According to the majority, since the package was sent to a

specific customer, the purpose of its label was to “allow that specific customer to

contact defendant with any questions or complaints about the product,” not to

attract potential customers. Ante at 11.

The majority claims that I disregard the fact that the conduct complained of

“was not undertaken to ‘attract[] customers or supporters.’” Ante at 11 n 6. I

disagree. Actually, it is the majority that errs by improperly ignoring the

complaint in deciding that there is no duty to defend. See Protective Nat'l Ins Co

of Omaha v Woodhaven, 438 Mich 154, 159; 476 NW2d 374 (1991).

2
Subsection f provides another means by which there could be an
advertising injury. That subsection indicates that there is an advertising injury
when the injury arises out of “[t]he use of another’s advertising idea in your
‘advertisement.’” However, because coverage is available for an advertising
injury as defined in subsection g, it is unnecessary to determine if an advertising
injury was alleged as defined by subsection f.

8

 A closer look illustrates that the majority’s decision is contrary to crucial

allegations in the complaint. Paragraph 22 of the complaint alleges that Pro-Seal’s

actions have led to customer confusion and lists specific examples of such acts.

Subpart e of that paragraph discusses the particular act at issue in this case.

Paragraphs 34 through 37 assert the unfair competition claim. Paragraph 34

repeats and realleges the allegations of the prior 33 paragraphs. Paragraphs 35

through 37 contain the substance of the unfair competition claim, which is that

Pro-Seal created confusion in the marketplace and this confusion caused

Flowserve to lose business.

Though the complaint never explicitly states that the particular act at issue

was done to “attract[] customers or supporters,” the duty to defend cannot be

limited by the precise language in the pleadings. American Bumper, 452 Mich

450-451. Rather, the insurer has a duty to look beyond the allegations to analyze

whether coverage is required. Id. at 452 By asserting that the particular act at

issue was done to cause confusion in the marketplace at Flowserve’s expense,

Flowserve alleged that the particular act was done to attract customers.

The majority appears to agree that the act at issue was done to cause

confusion in the marketplace but still concludes that it was not performed to attract

customers. This conclusion ignores reality. The only reason for Pro-Seal to cause

confusion in the marketplace would be to draw customers to itself and away from

Flowserve. Flowserve’s complaint alleges as much by asserting that Flowserve

has lost business as a result of this confusion. The majority errs by failing to look

9

beyond the precise language used in the pleading to determine whether there is a

duty to defend

The majority also errs by relying on the fact that the container was sent to

an existing customer in order to conclude that the notice was not sent to attract

customers. This fact is irrelevant. The policy says nothing about “potential”

customers. As long as the complaint alleges that the notice was meant to attract

customers, be they existing or potential, the requirement is satisfied. Here, the

complaint alleges that the container was sent to an existing customer. It further

alleges that this act was done to cause confusion. Flowserve claims that this

marketplace confusion made it lose business. We should consider the substance of

this claim: Flowserve accused Pro-Seal of confusing this customer so that in the

future the customer would conduct business with Pro-Seal under the mistaken

belief that he was conducting business with Flowserve. By making this allegation,

Flowserve clearly accused Pro-Seal of acting with the intent to attract future

business from this particular customer.

By deciding as it does, the majority would seem to require wide-scale

dissemination of information, such as by television or radio, for there to be an

advertisement. I believe that it is error to impose such a requirement. There is

nothing in the policy that precludes a finding that giving notice to a specific

customer can qualify as an advertisement.3 If the notice is published to the general

3
The policy does require that the notice be sent to the general public or
specific market segments. However, this language does not preclude situations,
(continued…)

10

public or to a specific market segment for the purpose of attracting customers,

there is no requirement that it be widely disseminated. Rather, any such

requirement is one of this Court’s own making.

It is improper to read a nonexistent limitation on coverage into an insurance

policy. This is especially true where, as here, the party benefiting from the

limitation drafted the policy. If Citizens Insurance had intended to require

dissemination through the public airwaves or communication with a large number

of people, it easily could have imposed such a requirement. It did not do so. It is

the insurance company’s obligation to define the coverage to be provided. The

courts should not save an insurance company from the plain meaning of terms that

it used in its policy or artificially limit the scope of coverage, as the majority does

here.

EXCLUSIONS

As discussed above, I believe that the complaint alleged an advertising

injury as that term is defined by the policy. Accordingly, Citizens Insurance has a

duty to defend Pro-Seal unless a specific exclusion excuses it from this duty. See

Protective Nat’l Ins Co, 438 Mich at 159.

The CGL policy’s “personal and advertising injury” coverage is subject to

the following exclusion:

(…continued)

like this one, where the market is so restricted that one customer would constitute

a specific market segment.

11

 2. Exclusions

This insurance does not apply to:

(a) “Personal and advertising injury”:

(1) Caused by or at the direction of the insured with the
knowledge that the act would violate the rights of another and would
inflict “personal and advertising injury[.]”

By requiring knowledge that the acts would violate the rights of another,

this exclusion applies only to claims of intentional wrongdoing. Here, several of

the allegations in Flowserve’s complaint contain no reference to intent and seek

recovery for conduct that was innocent, inadvertent, negligent, or reckless. As a

result, even though Citizens Insurance correctly points out that the complaint also

alleged intentional wrongdoing, the exclusion does not excuse it from its duty to

defend Pro-Seal. An insurer must defend its insured even if theories of liability

asserted are not covered under the policy, if any asserted theories of recovery fall

within the policy coverage. American Bumper & Mfg Co, 452 Mich at 451.

CONCLUSION

Since the complaint alleged that Pro-Seal infringed Flowserve’s trade dress

in its “advertisement,” and no specific policy exclusion excused Citizens

Insurance from its duty to defend, I must dissent. I would affirm the judgment of

the Court of Appeals.

Marilyn Kelly
Elizabeth A. Weaver

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