Opinion
No. COA07-1002.
Filed 6 May 2008.
1. Appeal and Error — appealability — interlocutory order — insurer's duty to defend — substantial right
Although an appeal from a grant of partial summary judgment is generally an appeal from an interlocutory order, the issue of whether an insurer has a duty to defend the insured in the underlying action affects a substantial right and is immediately appealable.
2. Insurance — liability insurers — duty to defend — comparison test
Liability insurance carriers had a duty to defend IGT in an action against IGT for trademark infringement and false advertising because: (1) utilization of the comparison test revealed that the allegations disclosed a possibility that IGT was liable and that the carriers had a duty to defend IGT against the action since the allegations in the complaint claim that IGT made false, negative comparative statements about the pertinent goods in the course of its advertising; (2) the conduct giving rise to the cause of action occurred within the coverage dates of the carriers' policies; and (3) the allegations did not fall within the carriers' "Quality or Performance of Goods — Failure to Conform to Statements" exclusion.
Judge GEER dissenting.
Appeal by plaintiff and defendants Erie Insurance Exchange and Erie Insurance Company from judgments entered 24 May 2007 and 25 June 2007 by Judge John O. Craig, III in Guilford County Superior Court. Heard in the Court of Appeals 7 February 2008.
Pinto, Coates, Kyre Brown, P.L.L.C., by David L. Brown and John I. Malone, Jr., for plaintiff-appellant. Cozen O'Connor, by Michael A. Hamilton, Philadelphia, Pennsylvania, pro hac vice; and Burton Sue, L.L.P., by Gary K. Sue, for defendant-appellants Erie Insurance Exchange and Erie Insurance Company. Brooks, Pierce, McLendon, Humphrey Leonard, L.L.P., by Mack Sperling and John S. Buford; and Latham Watkins, L.L.P., by Cecilia O'Connell Miller, San Diego, California, pro hac vice, for defendant-appellees International Garment Technologies, L.L.C. and Buzz Off Insect Shield, L.L.C.
Harleysville Mutual Insurance Company ("Harleysville") and Erie Insurance Exchange and Erie Insurance Company ("Erie") (collectively, "the Carriers") appeal from orders entered by the superior court, which: (1) granted International Garment Technologies, L.L.C.'s ("IGT") motion for partial summary judgment and granted in part and denied in part the Carriers' motions for partial summary judgment; and (2) denied the Carriers' motions to alter, amend, or vacate judgment. We affirm.
I. Background
On 22 February 2005, S.C. Johnson Son, Inc. ("S.C. Johnson"), filed a complaint in the United States District Court for the Northern District of Illinois and alleged claims against Buzz Off Insect Shield, L.L.C. ("BOIS") for: (1) trademark infringement; (2) false advertising; (3) unfair competition; (4) unjust enrichment; and (5) other related violations of Illinois state law. On 26 April 2005, BOIS and IGT filed a complaint in the United States District Court for the Middle District of North Carolina and sought a declaration: (1) of trademark rights and non-infringement; (2) that S.C. Johnson's claims are barred; (3) that BOIS and IGT have not engaged in false advertising; and (4) of no unjust enrichment. The Honorable P. Trevor Sharp of the United States District Court for the Middle District of North Carolina consolidated the two cases. S.C. Johnson amended its original complaint and added IGT as a defendant.
On 18 May 2006, Harleysville filed a complaint in Guilford County Superior Court and sought a declaratory judgment that the policies of insurance issued by Harleysville to IGT do not provide coverage to BOIS or IGT for any of the claims or damages resulting from the allegations contained in the underlying lawsuit. In the alternative, Harleysville sought to have the superior court declare that Erie: (1) is afforded coverage to BOIS or IGT for the damages resulting from the allegations in the underlying lawsuit; (2) is required to defend BOIS and/or IGT in the underlying lawsuit; and (3) is obligated to pay any damages that BOIS and/or IGT may become legally obligated to pay as a result of the underlying lawsuit.
On 20 July 2006, IGT and BOIS answered Harleysville's complaint and IGT filed crossclaims and counterclaims against the Carriers that: (1) sought a declaratory judgment that the Carriers had a duty to defend IGT; (2) alleged the Carriers breached their duty to defend BOIS and IGT; and (3) alleged the Carriers breached their duty to defend in bad faith. On 9 August 2006, Erie answered Harleysville's complaint and filed crossclaims and a counterclaim asserting that it owed no duty to defend or indemnify BOIS and IGT with respect to the underlying action. In the alternative, Erie "request[ed] that the [superior] [c]ourt declare that Harleysville has an obligation to defend and indemnify BOIS and IGT for any costs they, or anyone on their behalf, incur in connection with the underlying lawsuit."
On 8 March 2007, IGT moved for "partial summary judgment as to its duty to defend and breach of duty to defend claims against [the Carriers]." On 24 May 2007, the superior court granted IGT's motion for partial summary judgment and "retain[ed] jurisdiction over any future determination regarding whether any disputed fee, expense, or costs incurred by IGT in its defense of the S.C. Johnson action is reasonable and/or otherwise incurred in the defense of IGT in the S.C. Johnson action." (Emphasis original). The superior court also found "that BOIS is not an `insured' under the relevant Harleysville or Erie policies and that neither Harleysville nor Erie has a duty to defend or to indemnify BOIS regarding the S.C. Johnson action." (Emphasis original). BOIS did not appeal the superior court's judgment.
On 5 June 2007, the Carriers moved to alter, amend, or vacate the 24 May 2007 judgment. On 25 June 2007, the superior court filed its order, which denied the Carriers' motions to alter, amend, or vacate judgment. The Carriers appeal both the 24 May 2007 judgment and the 25 June 2007 denial of their motions to alter, amend, or vacate judgment.
II. Interlocutory Appeal
As a preliminary matter, we note that because the trial court granted partial summary judgment, the trial court's order did not dispose of the entire case and this appeal is interlocutory. See Johnson v. Lucas, 168 N.C. App. 515, 518, 608 S.E.2d 336, 338 ("[T]he order granting partial summary judgment is interlocutory."), aff'd, 360 N.C. 53, 619 S.E.2d 502 (2005); see also Ratchford v. C.C. Mangum, Inc., 150 N.C. App. 197, 199, 564 S.E.2d 245, 247 (2002) ("A final judgment is one that determines the entire controversy between the parties, leaving nothing to be decided in the trial court."). Our Supreme Court has stated:
Generally, a party cannot immediately appeal from an interlocutory order unless failure to grant immediate review would affect[] a substantial right pursuant to N.C.G.S. sections 1-277 and 7A-27(d).
A party may appeal an interlocutory order under two circumstances. First, the trial court may certify [pursuant to N.C. Gen. Stat. § 1A-1, Rule 54(b) (2007)] that there is no just reason to delay the appeal after it enters a final judgment as to fewer than all of the claims or parties in an action. Second, a party may appeal an interlocutory order that affects some substantial right claimed by the appellant and will work an injury to him if not corrected before an appeal from the final judgment.
Davis v. Davis, 360 N.C. 518, 524-25, 631 S.E.2d 114, 119 (2006) (internal citations and quotations omitted).
In Lambe Realty Inv., Inc. v. Allstate Ins. Co., this Court "conclude[d] that the order of partial summary judgment on the issue of whether [an insurer] has a duty to defend [the insured] in the underlying action affects a substantial right that might be lost absent immediate appeal." 137 N.C. App. 1, 4, 527 S.E.2d 328, 331 (2000). Based on this Court's holding in Lambe Realty, the trial court's order is immediately appealable. Id.
III. Issue
The Carriers argue the superior court erred when it granted IGT's motion for partial summary judgment.
IV. Motion for Summary Judgment
The Carriers argue the superior court erred when it found the allegations in S.C. Johnson's complaint triggered the Carriers' duty to defend IGT. We disagree.
A. Standard of Review
Summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law. The party moving for summary judgment ultimately has the burden of establishing the lack of any triable issue of fact.
A defendant may show entitlement to summary judgment by (1) proving that an essential element of the plaintiff's case is non-existent, or (2) showing through discovery that the plaintiff cannot produce evidence to support an essential element of his or her claim, or (3) showing that the plaintiff cannot surmount an affirmative defense. Summary judgment is not appropriate where matters of credibility and determining the weight of the evidence exist.
Once the party seeking summary judgment makes the required showing, the burden shifts to the nonmoving party to produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that he can at least establish a prima facie case at trial.
We review an order allowing summary judgment de novo. If the granting of summary judgment can be sustained on any grounds, it should be affirmed on appeal.
Wilkins v. Safran, 185 N.C. App. 668, 672, 649 S.E.2d 658, 661 (2007) (internal citations and quotations omitted).
B. Analysis 1. Covered Claim
Our Supreme Court has stated:
Generally speaking, the insurer's duty to defend the insured is broader than its obligation to pay damages incurred by events covered by a particular policy. An insurer's duty to defend is ordinarily measured by the facts as alleged in the pleadings; its duty to pay is measured by the facts ultimately determined at trial. When the pleadings state facts demonstrating that the alleged injury is covered by the policy, then the insurer has a duty to defend, whether or not the insured is ultimately liable.
Waste Management of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 691, 340 S.E.2d 374, 377 (1986) (citation omitted). "[A]llegations of facts that describe a hybrid of covered and excluded events or pleadings that disclose a mere possibility that the insured is liable (and that the potential liability is covered) suffice to impose a duty to defend upon the insurer." Id. at 691 n. 2, 340 S.E.2d at 377 n. 2. "[W]hen the pleadings allege facts indicating that the event in question is not covered, and the insurer has no knowledge that the facts are otherwise, then it is not bound to defend." Id. at 691, 340 S.E.2d at 377; see also Roman Cath. Diocese of Springfield v. Maryland Cas. Co., 139 F.3d 561, 567 (7th Cir. 1998) ("The complaint need not allege or use language affirmatively bringing the claims within the scope of the policy, as the question of coverage should not hinge exclusively on the draftsmanship skills or whims of the plaintiff in the underlying action." (Quotation omitted)).
In order to determine whether the allegations as alleged by S.C. Johnson are covered by the provisions of IGT's liability insurance with the Carriers, the policy provisions must be analyzed and compared with the allegations. Waste Management of Carolinas, Inc., 315 N.C. at 693, 340 S.E.2d at 378. "This is widely known as the `comparison test': the pleadings are read side-by-side with the policy to determine whether the events as alleged are covered or excluded. Any doubt as to coverage is to be resolved in favor of the insured." Id. (citation omitted).
Both of the Carriers' policies contained identical provisions and definitions:
COVERAGE B PERSONAL AND ADVERTISING INJURY LIABILITY
1. Insuring Agreement
a. We 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. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply.
. . . .
SECTION V — DEFINITIONS
. . . .
14. "Personal and advertising injury" means injury, including consequential "bodily injury", arising out of one or more of the following offenses:
. . . .
d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
. . . .
g. Infringing upon another's copyright, trade dress or slogan in your "advertisement."
S.C. Johnson's complaint alleged BOIS and IGT made false advertising claims through the BOIS website and the websites and materials of the BOIS partners. S.C. Johnson also alleged that one such false advertising claim specifically named its OFF! Deep Woods® product. All other alleged false advertising S.C. Johnson complained of was directed toward the whole market of skin-applied insect repellents, a market in which S.C. Johnson asserts it is the "leading sell[er]. . . ."
The allegations contained in S.C. Johnson's complaint "disclose a . . . possibility that [IGT] is liable (and that the potential liability is covered) [and] suffice to impose a duty to defend upon the [Carriers]." Id. at 691 n. 2, 340 S.E.2d at 377 n. 2; see also Winklevoss Consultants, Ins. v. Federal Ins. Co., 11 F. Supp. 2d 995, 1000 (N.D. Ill. 1998) (holding that because "[t]he [complaint filed by the plaintiff in the underlying action] . . . includes factual allegations that [the insured] made false negative comparative statements about [the underlying plaintiff's] goods, causing [the underlying plaintiff] to lose sales[] [i]t d[id] not matter that the[] allegations [made by the plaintiff in the underlying action] may not meet the technical requisites for stating a commercial disparagement claim.").
The Carriers have a duty to defend IGT against the S.C. Johnson action because the allegations in that complaint claim that IGT made false, negative comparative statements about S.C. Johnson's goods in the course of its advertising. The Carriers have failed to show the trial court erred when it found the Carriers had a duty to defend.
2. Prior Publication Exclusion
Having determined that S.C. Johnson's complaint contained sufficient allegations to trigger the Carriers' duty to defend, we address whether the conduct giving rise to S.C. Johnson's cause of action occurred within the coverage dates of the Carriers' policies.
Again, both of the Carriers' policies contain identical provisions, which state:
2. Exclusions
This insurance does not apply to:
. . . .
c. Material Published Prior To Policy Period
"Personal and advertising injury" arising out of oral or written publication of material whose first publication took place before the beginning of the policy period.
S.C. Johnson's complaint alleges the false advertising began in August of 2003. Erie's policy initially provided coverage from 25 April 2003 through 25 April 2004. The policy was renewed and later cancelled 4 July 2004. The false advertising is not alleged to have occurred prior to the beginning of Erie's policy period, and is alleged to have specifically occurred within the coverage and term dates of the policy. The superior court did not err when it found Erie incurred a duty to defend IGT.
Harleysville's policy provided coverage from 20 June 2004 though 20 June 2005. While S.C. Johnson's complaint alleged that the false advertising began in August 2003, it also alleged that new press releases on the BOIS website contained false advertising claims as late as 15 September 2004. The superior court did not err when it found Harleysville's policy incurred a duty to defend IGT.
3. Quality or Performance of Goods Exception
The dissenting opinion erroneously concludes that S.C. Johnson's allegations fall within the Carriers' "Quality Or Performance Of Goods — Failure To Conform To Statements" exclusion. Both of the Carriers' policies contain identical provisions, which state:
2. Exclusions
This insurance does not apply to:
. . . .
g. Quality Or Performance Of Goods — Failure To Conform To Statements
"Personal and advertising injury" arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your "advertisement".
The crux of S.C. Johnson's allegations assert that statements IGT made during the course of advertisements disparaged S.C. Johnson's products, and not that IGT's goods fail to conform with IGT's statements of quality or performance. S.C. Johnson's complaint alleges IGT made false, negative comparative statements about S.C. Johnson's goods and the whole market of skin-applied topical insect repellants in IGT's advertising. The allegations contained in S.C. Johnson's complaint do not fall within the "Quality Or Performance Of Goods — Failure To Conform To Statements" exclusion and the superior court did not err when it found the Carriers' policies imposed a duty to defend IGT.
V. Conclusion
S.C. Johnson's complaint contains allegations asserting and giving rise to a possibility that IGT is liable and that IGT's potential liability is covered under the Carriers' policies. S.C. Johnson's complaint was sufficient to impose a duty to defend upon the Carriers. Waste Management of Carolinas, Inc., 315 N.C. at 691 n. 2, 340 S.E.2d at 377 n. 2. The superior court did not err when it granted IGT's motion for partial summary judgment. The superior court's partial summary judgment order is affirmed.
Affirmed.
Judge STROUD concurs.
Judge GEER dissents by separate opinion.