Opinion
No. C00-521P
November 20, 2000
ORDER ON SUMMARY JUDGMENT MOTIONS
The following motions are currently pending before the Court:
1) Defendants' consolidated motion for summary judgment (Dkt. No. 155);
2) Plaintiffs motion for partial summary judgment (Dkt. No. 159); and
3) A contingent motion for summary judgment by Zurich American Insurance Compa ("Zurich American") and National Union Fire Insurance Company of Pittsburgh ("National Union") (Dkt. No. 157).
The Court, having reviewed the papers and pleadings submitted by the parties, and having heard o argument, hereby rules as follows:
1) Defendants' consolidated motion for summary judgment is DENIED, without prejudice to renewal following discovery;
2) Plaintiffs motion for partial summary judgment is DENIED, without prejudice to renewal following discovery; and
3) The contingent motion for summary judgment by Zurich American and National Union is GRANTED.
I. Background
In an order dated August 9, 2000 (Dkt. No. 147), the Court granted a motion to stay discovery in this action temporarily, pending the Court's rulings on an initial round of potentially dispositive motions. The pending motions have been brought by the parties pursuant to the terms and conditions of that order.The motions concern the scope of coverage under Commercial General Liability (CGL) policies purchased by Microsoft from various defendants over a number of years. Microsoft argues that the CGL insurers are obliged to defend and/or indemnify Microsoft against a host of lawsuits that have been brought against the company across the country. These lawsuits (the "Underlying Complaints") are largely based upon allegations that Microsoft engaged in unfair, anti-competitive and monopolistic practices, which permitted the company to charge inflated and supra-competitive prices for a number of its products. The plaintiffs in the Underlying Complaints are consumers of Microsoft's products. Defendants maintain, and Microsoft does not dispute, that none of the plaintiffs in the Underlying Complaints are competitors of Microsoft.
The CGL policies provide, without material differences, that the insurer will "pay those sure that the insured becomes legally obligated to pay as damages because of `personal injury' or `advertising injury' . . ." In turn, the terms "personal injury" and "advertising injury" are defined the policies as "injuries arising oat of . . . offenses" which include "oral or written publication of material that . . . disparages a person's or organization's good, products or services."
None of the Underlying Complaints expressly state a cause of action for the common law t of product disparagement; instead, the Underlying Complaints largely bring claims for violations federal and state antitrust laws. However, at least some of the complaints include factual allegation that Microsoft disparaged its competitors' products and engaged in so-called "FUD" (fear, uncertainty, and doubt) campaigns which were intended to undermine their competitors' products.
II. Analysis
As a preliminary matter, the Court notes that for the purposes of the pending motions, none of the parties dispute that the law of Washington state applies.
1. Coverage Under the Policies' Personal Injury and/or Advertising Injury Provisions
Both Defendants' consolidated motion for summary judgment and Microsoft's motion for partial summary judgment focus on whether the insurers are obliged to provide coverage to Microsoft under the CGL policies' "personal injury" and "advertising injury" provisions. Although Microsoft's motion seeks somewhat narrower relief than Defendants' consolidated motion, the two motions are largely based on the same facts and legal authority. Therefore, the court analyzes these two motions together.
On the record before it, the Court believes that Defendants' arguments on the coverage issue are stronger than Plaintiffs. Under Washington law, courts "must look to the type of offense that alleged" in the underlying complaint in order to determine whether personal injury coverage exists Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567, 580, 964 P.2d 1173 (1998). This court reads Kitsap County as requiring the court to determine whether the claims that are alleged in the underlying complaints are analogous to claims for the offense of product disparagement. It does n appear to the Court that the claims for antitrust violations in the Underlying Complaints are "analogous" to claims for the offense of product disparagement.
To be sure, some of the Underlying Complaints include scattered factual allegations that Microsoft disparaged and engaged in so-called "FUD" campaigns against its competitors' products However, the Underlying Complaints plainly do not allege claims for the offense of product disparagement or trade libel; indeed, the Court is unaware of any authority which would provide the plaintiffs in the Underlying Complaints with standing to maintain such a cause of action against Microsoft, given that the plaintiffs are consumers of Microsoft's products, rather than competitors Microsoft. In short, Microsoft's claims for coverage under the personal injury and advertising injury provisions of the CGL policies are quite tenuous.
However, the Court believes that Microsoft should be permitted to have at least basic discovery before the Court determines whether summary judgment is appropriate on the issue of coverage under the personal injury and advertising injury provisions of the CGL policies. Under Washington law, extrinsic evidence may be admissible to show the context in which an insurance contract was executed, for the purpose of ascertaining the intention of the parties and properly construing the writing. See Lynott v. Nat'l Union Fire Ins. Co., 123 Wn.2d 678, 683 871 P.2d 146 (1994). In addition, the Washington Supreme Court has indicated that "ambiguity in the meaning contract language need not exist before evidence of the circumstances surrounding the making of the contract could be admissible." Id. There are, of course, "substantial limitation[s] on the purpose a: use of such evidence"; extrinsic evidence generally cannot be used to add to, modify, or contradict the tens of a written contract, nor may it be introduced to show intention independent of the instrument. Id. Although these limitations significantly bracket the use of extrinsic evidence, the Court, in an abundance of caution, finds that Microsoft should be entitled to discover information related to the negotiation, formation, and execution of the policies before the Court determines whether summary judgment is appropriate on the issue of coverage under the personal or advertising injury provisions of the policies.
Therefore, the Court denies both Defendants' consolidated motion for summary judgment a Microsoft's motion for partial summary judgment, without prejudice to renewal of the motions following discovery. Given the substantial limitations on the purpose and use of extrinsic evidence in construing insurance policies, the Court cautions the parties that it will not tolerate unduly burdensome or expensive discovery tactics in this litigation. At the status conference scheduled for December 1, 2000, the parties should be prepared for a detailed discussion with the Court regarding their discovery plans.
2. Contingent Motion for Summary Judgment
In addition to joining Defendants' consolidated motion for summary judgment, Defendants Zurich American and National Union (hereinafter the "1999-2000 Insurers") have separately filed contingent motion for summary judgment with respect to coverage obligations under CGL. policies issued by those companies for the period of July 1, 1999, to July 1, 2000. The 1999-2000 Insurers argue, inter aha, that they are not obliged to provide coverage to Microsoft under these policies because the alleged publication of disparaging materials by Microsoft took place prior to the policies' effective date.
Microsoft is unable to point to a single specific allegation in any of the Underlying Complaints which claims that Microsoft disparaged a competitors' product between July 1, 1999, and July 1, 2000. Indeed, many of the product disparagement allegations in the Underlying Complaints are expressly limited to a time period prior to those dates. To support its argument for coverage, Microsoft points to scattered allegations in some of the Underlying Complaints that do not specify the time period when the alleged conduct occurred, as well as general allegations that Microsoft's conduct is continuing. Notably, most of the allegations in the Underlying Complaints that Microsoft cites in its opposition to the 1999-2000 Insurers' motion cannot be reasonably construed as allegations of "product disparagement" in any event.
The Court agrees with the 1999-2000 Insurers' argument that the Underlying Complaints cannot be fairly read to allege that Microsoft committed the offense of product disparagement dun the 1999-2000 policy period. As discussed above, Microsoft's theory of coverage under any of the CGL policies' personal or advertising injury provisions is weak, given that none of the Underlying Complaints include causes of action for product disparagement or trade libel. Microsoft's argument with respect to the 1999-2000 policies relies on an additional and even more tenuous theory of coverage. Microsoft thus seeks to establish its right to coverage under these policies by piling one tenuous theory upon another. While an insurer's duty to defend under Washington law is broad, Microsoft's theories with respect to the 1999-2000 policies stretch that duty to the breaking point.
The Court finds that the facts alleged in the Underlying Complaints, even if proved, have r potential to trigger the 1999-2000 Insurers' duty to indemnify Microsoft. As a result, the Court fix that there is no duty to defend on the part of the 1999-2000 Insurers. See Overton v. Consolidated Ins. Co., 101 Wn. App. 651, 659, 6 P.3d 1178 (2000). In addition, the Court finds that Microsoft h not demonstrated that further discovery is warranted with respect to the issue of coverage under the 1999-2000 policies. Therefore, the Court grants the 1999-2000 Insurers' contingent motion for summary judgment.
III. Conclusion
Consistent with the discussion above, the Court DENIES Defendants' consolidated motion for summary judgment and DENIES Microsoft's motion for partial summary judgment, without prejudice to renewal of the motions following discovery. The Court GRANTS the contingent motion for summary judgment by Defendants Zurich American and National Union.
The clerk is directed to send copies of this order to all counsel of record.