Case Briefs

Sport Supply contended that the policy covered “advertising injury” and that trademark infringement constituted either “misappropriation of advertising ideas or style of doing business” or “infringement of copyright, title or slogan,” as defined by the policy. Columbia responded that the policy specifically excluded coverage for “advertising injury arising out of … breach of contract, other than misappropriation of advertising ideas under an implied contract.”

Finding that the exclusion applied, the court then had to determine whether the exception for “misappropriation of advertising ideas” included trademark infringement. After a detailed analysis of trademark law, the court found that under Texas law “a trademark is a device intended primarily to identify and distinguish a particular producer's goods.”

The court next considered the meaning of the individual terms in the phrase “misappropriation of advertising ideas.” The court found that under Texas law “the term 'advertising' in an insurance policy is used in a conventional sense: to refer to a public announcement that induces the public to patronize a particular establishment or buy a particular product.” In other words, “advertising” is “a common device for soliciting business.”

The court concluded that under Texas law the Macgregor trademark would not be “advertising,” the idea for the Macgregor trademark was not an “advertising idea” and therefore the infringement of the Macgregor trademark could not be seen as the “misappropriation of an advertising idea.” The court added that even under the “broadest reading” of the phrase “misappropriation of advertising ideas” as “the … wrongful taking of an idea about the solicitation of business,” Sport Supply's alleged infringement of the Macgregor trademark did not constitute the “misappropriation of an advertising idea.” Accordingly, the exception to the breach of contract exclusion did not apply. The court held that the breach of contract exclusion applied and Sport Supply was not entitled to recover any of its defense costs.

The court found that since Sport Supply was not entitled to recover any insurance proceeds it could not demonstrate all of the necessary elements of either a breach of contract or a tort claim against RSKCo. Accordingly, summary judgment was properly granted by the trial court to both Columbia and RSKCo.

Faulty Construction Is Not An 'Occurrence'

In ACS Construction Company, Inc. of Mississippi v. CGU formerly known as General Accident Insurance Company, 332 F. 3d 885 (5th Cir. Miss. 2003), the U.S. Court of Appeals for the Fifth Circuit (applying Mississippi law) affirmed a district court's grant of summary judgment in favor of an insurer holding that faulty construction that resulted in leaking from a roof does not constitute an “occurrence” under the policy.

ACS Construction Company, Inc. of Mississippi contracted with the U. S. Army Corps of Engineers to construct munitions bunkers in North Carolina. ACS subcontracted with Chamberlin Co. Inc. (Chamberlin/Southern) to install waterproofing membranes to the roof of the bunkers. Chamberlin merged with Southern Commercial Waterproofing Co. of Alabama, Inc., which accepted all responsibility for the work under the subcontract. Leaks developed in the roofs of some of the bunkers. Chamberlin/Southern failed to correct the leaks. ACS made the repairs at a cost in excess of $190,000. ACS sought to recover the loss from its commercial general liability insurer, CGU. CGU determined that no coverage existed because no “property damage” caused by an “occurrence” took place as defined by the policy and denied coverage. ACS filed suit in Mississippi state court. CGU removed to federal court invoking the court's diversity jurisdiction. The parties filed cross motions for summary judgment. The district court granted CGU's motion for summary judgment finding that there was no “occurrence” under the policy.

The Fifth Circuit first determined that it was undisputed that the leaks developed because the installation of the waterproofing membrane by Chamberlin/Southern was faulty. The parties disputed whether an “occurrence” took place as defined by the policy under these facts. Although the policy defines “occurrence” as an “accident, including continuous or repeated exposure to substantially the same harmful conditions,” it does not define “accident.” The court therefore looked to Mississippi law to determine whether an “accident” refers to the unintended consequences of installing the waterproofing or to the underlying act of the installation itself.

The court determined that the Mississippi Supreme Court adopted the following definition of “accident” in an insurance policy: “The only relevant consideration is whether … a chain of events leading to the injuries complained of was set in motion and followed a course consciously devised and controlled by appellant without the unexpected intervention of any third person or extrinsic force.” Citing Allstate Insurance Company v. Moulton, 464 So.2d 507,509 (Miss. 1985).

The court, applying the Moulton test, determined that the faulty workmanship of the waterproofing which resulted in the leaks did not constitute an “occurrence” under the policy that would trigger coverage. The court reasoned that ACS intended to hire Chamberlin/Southern to install the waterproofing even if it did not intend for the waterproofing to be faulty or to leak. The court further reasoned that even though the installation of the waterproofing was done negligently, the action of installing the waterproofing was not accidental or unintended so as to implicate coverage under the policy. The court concluded that the installation of the waterproofing is the underlying act referenced in “occurrence” and, therefore, does not trigger coverage under the policy.

The court summarily rejected ACS' argument that the work product exclusions in the policy rendered the coverage language ambiguous, stating that the Mississippi Supreme Court has held that exclusionary language in a policy cannot be used to create coverage where none exists citing to U.S. Fidelity & Guar. Co. v. Omnibank, 812 So.2d 196, 200 (Miss.2002).

Trademark Infringement Claim Not Covered Under 'Advertising Injury' Provision

In Sport Supply Group, Inc. v. Columbia Cas. Co., 335 F.3d 453 (5th Cir. Tex. July 7, 2003), the U.S. Court of Appeals for the Fifth Circuit (applying Texas law) affirmed a district court's grant of summary judgment in favor of an insurer holding that allegations of trademark infringement were not covered under the provisions of the insurance policy relating to “advertising injury.” The court held that the claim of trademark infringement was excluded by the policy's exclusion for “advertising injury arising out of … breach of contract, other than misappropriation of advertising ideas under an implied contract.”

This suit arose after settlement of an underlying dispute between Sport Supply Inc. (“Sport Supply”) and MacMark Corp. (“MacMark”) over the interpretation of a licensing agreement that allowed Sport Supply to use MacMark's “Macgregor” trademark on certain sporting goods. Sport Supply brought a declaratory action in Texas state court seeking a declaration that it was not in breach of the licensing agreement. MacMark filed a counterclaim alleging breach of the licensing agreement by attempting to sell products bearing the “Macgregor” trademark on the Internet. After the declaratory action was settled, Sport Supply requested its insurer, Columbia Casualty Company, (“Columbia”) to pay a portion of the cost of defending MacMark's counterclaim of trademark infringement. Sport Supply filed suit against Columbia alleging that the insurer was required to reimburse Sport Supply for defense costs. Sport Supply also filed suit against RSKCo., the loss adjusting company, on various state law claims.

Sport Supply contended that the policy covered “advertising injury” and that trademark infringement constituted either “misappropriation of advertising ideas or style of doing business” or “infringement of copyright, title or slogan,” as defined by the policy. Columbia responded that the policy specifically excluded coverage for “advertising injury arising out of … breach of contract, other than misappropriation of advertising ideas under an implied contract.”

Finding that the exclusion applied, the court then had to determine whether the exception for “misappropriation of advertising ideas” included trademark infringement. After a detailed analysis of trademark law, the court found that under Texas law “a trademark is a device intended primarily to identify and distinguish a particular producer's goods.”

The court next considered the meaning of the individual terms in the phrase “misappropriation of advertising ideas.” The court found that under Texas law “the term 'advertising' in an insurance policy is used in a conventional sense: to refer to a public announcement that induces the public to patronize a particular establishment or buy a particular product.” In other words, “advertising” is “a common device for soliciting business.”

The court concluded that under Texas law the Macgregor trademark would not be “advertising,” the idea for the Macgregor trademark was not an “advertising idea” and therefore the infringement of the Macgregor trademark could not be seen as the “misappropriation of an advertising idea.” The court added that even under the “broadest reading” of the phrase “misappropriation of advertising ideas” as “the … wrongful taking of an idea about the solicitation of business,” Sport Supply's alleged infringement of the Macgregor trademark did not constitute the “misappropriation of an advertising idea.” Accordingly, the exception to the breach of contract exclusion did not apply. The court held that the breach of contract exclusion applied and Sport Supply was not entitled to recover any of its defense costs.

The court found that since Sport Supply was not entitled to recover any insurance proceeds it could not demonstrate all of the necessary elements of either a breach of contract or a tort claim against RSKCo. Accordingly, summary judgment was properly granted by the trial court to both Columbia and RSKCo.

Faulty Construction Is Not An 'Occurrence'

In ACS Construction Company, Inc. of Mississippi v. CGU formerly known as General Accident Insurance Company, 332 F. 3d 885 (5th Cir. Miss. 2003), the U.S. Court of Appeals for the Fifth Circuit (applying Mississippi law) affirmed a district court's grant of summary judgment in favor of an insurer holding that faulty construction that resulted in leaking from a roof does not constitute an “occurrence” under the policy.

ACS Construction Company, Inc. of Mississippi contracted with the U. S. Army Corps of Engineers to construct munitions bunkers in North Carolina. ACS subcontracted with Chamberlin Co. Inc. (Chamberlin/Southern) to install waterproofing membranes to the roof of the bunkers. Chamberlin merged with Southern Commercial Waterproofing Co. of Alabama, Inc., which accepted all responsibility for the work under the subcontract. Leaks developed in the roofs of some of the bunkers. Chamberlin/Southern failed to correct the leaks. ACS made the repairs at a cost in excess of $190,000. ACS sought to recover the loss from its commercial general liability insurer, CGU. CGU determined that no coverage existed because no “property damage” caused by an “occurrence” took place as defined by the policy and denied coverage. ACS filed suit in Mississippi state court. CGU removed to federal court invoking the court's diversity jurisdiction. The parties filed cross motions for summary judgment. The district court granted CGU's motion for summary judgment finding that there was no “occurrence” under the policy.

The Fifth Circuit first determined that it was undisputed that the leaks developed because the installation of the waterproofing membrane by Chamberlin/Southern was faulty. The parties disputed whether an “occurrence” took place as defined by the policy under these facts. Although the policy defines “occurrence” as an “accident, including continuous or repeated exposure to substantially the same harmful conditions,” it does not define “accident.” The court therefore looked to Mississippi law to determine whether an “accident” refers to the unintended consequences of installing the waterproofing or to the underlying act of the installation itself.

The court determined that the Mississippi Supreme Court adopted the following definition of “accident” in an insurance policy: “The only relevant consideration is whether … a chain of events leading to the injuries complained of was set in motion and followed a course consciously devised and controlled by appellant without the unexpected intervention of any third person or extrinsic force.” Citing Allstate Insurance Company v. Moulton, 464 So.2d 507,509 (Miss. 1985).

The court, applying the Moulton test, determined that the faulty workmanship of the waterproofing which resulted in the leaks did not constitute an “occurrence” under the policy that would trigger coverage. The court reasoned that ACS intended to hire Chamberlin/Southern to install the waterproofing even if it did not intend for the waterproofing to be faulty or to leak. The court further reasoned that even though the installation of the waterproofing was done negligently, the action of installing the waterproofing was not accidental or unintended so as to implicate coverage under the policy. The court concluded that the installation of the waterproofing is the underlying act referenced in “occurrence” and, therefore, does not trigger coverage under the policy.

The court summarily rejected ACS' argument that the work product exclusions in the policy rendered the coverage language ambiguous, stating that the Mississippi Supreme Court has held that exclusionary language in a policy cannot be used to create coverage where none exists citing to U.S. Fidelity & Guar. Co. v. Omnibank , 812 So.2d 196, 200 (Miss.2002).