St. Paul Guardian Insurance Companyv.Recognition Int.

United States District Court, N.D. TexasJan 31, 2001
Civil Action No. 3:97-CV-0590-L (N.D. Tex. Jan. 31, 2001)

Civil Action No. 3:97-CV-0590-L

January 31, 2001


MEMORANDUM OPINION AND ORDER


SAM LINDSAY, District Judge

Before the court are Recognition International, Inc.'s Motion for Summary Judgment, filed September 15, 1998; Plaintiffs' First Amended Motion for Summary Judgment, filed September 21, 1998; and Liberty Mutual Insurance Company's Motion for Summary Judgment, filed September 29, 1998. After careful consideration of the parties' respective motions, responses, replies, the summary judgment evidence, and applicable authority, the court, for the reasons stated herein, grants Plaintiffs' First Amended Motion for Summary Judgment, denies Recognition International Inc.'s Motion for Summary Judgment, and denies Liberty Mutual Insurance Company's Motion for Summary Judgment.

I. Factual and Procedural Background

This is a declaratory judgment action filed pursuant to 28 U.S.C. § 2201. Plaintiffs St. Paul Guardian Insurance Company ("St. Paul Guardian") and St. Paul Fire Marine Insurance Company ("St. Paul Fire") (collectively "St. Paul") seek a declaration that they had no duty to defend or to indemnify Defendant Recognition International, Inc. ("Recognition") in two separate lawsuits. The relevant facts in this case are undisputed.

In 1993, Recognition purchased from St. Paul two separate liability insurance policies, both of which provided coverage for the policy period September 1, 1993 to September 1, 1994. Specifically, St. Paul Guardian issued its comprehensive general liability policy, Policy No. 0696NK9278-02 ("CGL Policy"), and St. Paul Fire issued an excess general liability policy, Policy No. 0696NK9278-06 ("Excess Policy") to Recognition. Under the CGL Policy, St. Paul Guardian has "the right and duty to defend any claim or suit for covered injury or damage made or brought against any protected person." Pls.' App. to First Am. Mot. for Summ. J. Br. in Supp. at 4 (Ex. A). This right and duty exists even if the allegations of any such claim or suit are groundless, false or fraudulent. Id. The CGL Policy also includes the following insuring agreements: What This Agreement Covers

Personal injury liability. We'll pay amounts any protected person is legally required to pay as damages for covered personal injury that:
• results from your business activities, other than advertising, broadcasting, publishing or telecasting done by or for you; and • is caused by a personal injury offense committed while this agreement is in effect.
Advertising injury liability. We'll pay amounts any protected person is legally required to pay as damages for covered advertising injury that:
• results from the advertising of your products, work or completed work; and • is caused by an advertising injury offense committed while this agreement is in effect.

Unless otherwise stated, the court will refer to the CGL Policy and the Excess Policy collectively as the "St. Paul Policies."

St. Paul filed its amended summary judgment motion pursuant to the procedures of the court that was previously assigned this case. Under those procedures, any party filing a dispositive motion had to submit all papers relating to the motion (including the nonmovant's response, the movant's reply and exhibits filed in connection with the dispositive motion) in a single package, as a Joint Motion Submission. Consequently, the parties have submitted a joint appendix of exhibits with each of their respective summary judgment motions. Since the court first addresses St. Paul's motion, and the exhibits contained therein are, with the exception of two or three, the same as those submitted in connection with Recognition and Liberty Mutual's summary judgment motions, the court will refer to St. Paul's joint appendix, unless otherwise stated. The court will hereafter refer to that appendix as "St. Paul's J.A."

The St. Paul Policies also provide liability coverage for "bodily injury" and "property damage" caused by an event. Recognition, however, has stipulated that neither the bodily injury nor the property damage provisions are applicable. See St. Paul's J.A. at 83 (Ex. O). Therefore, the only provisions in dispute are those providing coverage for "personal injury" and "advertising injury."

Under the CGL Policy, personal injury means injury, other than bodily injury or advertising injury, caused by a personal injury offense. Personal injury offense includes, inter alia, libel, slander and making known to any person or organization written or spoken material that belittles the products, work or completed work of others. St. Paul's J.A. at 3 (Ex. A).

The term advertising is defined in the CGL Policy as attracting the attention of others for the purpose of seeking customers or increasing sales or business. Advertising injury means injury, other than bodily injury or personal injury, caused by an advertising injury offense. Advertising injury offense includes the following relevant offenses: libel, slander, and making known to any person or organization written or spoken material that belittles the products, work or completed work of others. St. Paul's J.A. at 3 (Ex. A).

St. Paul's J.A. at 2-3 (Ex. A).

The Excess Policy contains the same insuring agreements and definitions for "personal injury" and "advertising injury" as the CGL Policy. See St. Paul's J.A. at 6 (Ex. B). It also provides that St. Paul Fire has "the right and duty to defend any claim or suit for covered injury or damage made or brought against any protected person" that is not covered by the CGL Policy. See St. Paul's J.A. at 7 (Ex. B). The Excess Policy further provides that St. Paul Fire will "assume the duty to defend any claim or suit brought against any protected person only if: the claim or suit is for injury or damage covered by [the Excess Policy] agreement. . . ." Id. Like the CGL Policy, St. Paul Fire has a duty to defend under the Excess Policy even if the allegations of any such claim or suit are groundless, false or fraudulent. Id. at 7-8.

During the period from September 1, 1994 to September 1, 1995, Recognition was insured under a commercial general liability insurance policy, Policy No. TB7-191-417568-044, issued by Liberty Mutual Insurance Company ("Liberty Mutual"). Under the Liberty Mutual policy, the insuring agreements and definitions pertaining to "personal injury" and "advertising injury" are set forth in the Personal and Advertising Injury Liability Endorsement. The insuring agreements and definitions for "personal injury" and "advertising injury" under the Liberty Mutual policy are similar to those provided under the St. Paul Policies, except that the term "personal injury" means, inter alia, "injury to the feelings or reputation of a natural person other than `bodily injury' or `property damage.'" St. Paul's J.A. at 88-89 (Ex. Q).

In August 1995, James Henry ("Henry"), along with his wife and two corporate entities (Equipos Opticos de Reconocimeinto, S.A. de C.V. ("Equipos") and Reymsa, Inc. ("Reymsa")), filed a lawsuit against Recognition in the United States District Court for the Southern District of Texas, Houston Division, styled Equipos Opticos de Reconocimeinto, S.A. de C.V., Reymsa Inc., James Henry and Mrs. James Henry v. Recognition International, Inc., Michael Potts, James Bethmann, Robert Vanourek and Robert Swartz, Civil Action No. H-95-4126 (the "federal action"). By order dated December 4, 1995, the action was transferred to this court where it was docketed under Civil Action No. 3:95-CV-3017-H and assigned to United States District Judge Barefoot Sanders. App. to Recognition's Mot. for Summ. J. Br. in Support at 57-58 (Ex. J). On February 15, 1996, Plaintiffs filed their Third Amended Original Complaint (the "federal complaint") in this court, asserting claims under both federal law and state law. Specifically, Plaintiffs asserted claims for breach of contract, usurpation of corporate opportunities, tortious interference with business relations, tortious interference with a contract, antitrust violations, fraud and fraudulent failure to disclose, conspiracy, intentional infliction of emotional distress, and breach of duty of good faith and fair dealing. St. Paul's J.A. at 30-43 (Ex. C). Plaintiffs sought to recover, inter alia, actual and special damages, including lost profits, lost marketing costs, and Recognition's ill-gotten profits; punitive damages; damages on behalf of the Henrys for mental anguish and emotional distress; incidental and consequential damages; attorneys' fees; and costs. Id.

Unless otherwise stated, the court will refer to James Henry and his wife, Armida Henry, collectively as the "Henrys." The court will refer to the Henrys, Equipos and Reymsa collectively as the "Plaintiffs."

In early 1996, Recognition notified Liberty Mutual of the federal action and requested that it provide Recognition with a defense against the claims asserted against it (Recognition) in the federal complaint. By letter dated April 9, 1996, Liberty Mutual agreed to defend Recognition subject to a reservation of rights. See St. Paul's J.A. at 65 (Ex. J). On December 9, 1996, Recognition notified St. Paul of the allegations asserted against it (Recognition) in the federal action and requested that St. Paul provide a defense of the case. On January 7, 1997, St. Paul rejected Recognition's request for a defense and denied coverage, concluding that none of the claims asserted by Plaintiffs in the federal action was covered under the St. Paul Policies. By letter dated January 27, 1997, Recognition requested that St. Paul reconsider its decision to deny coverage, which St. Paul denied on March 13, 1997. Five days later, on March 18, 1997, St. Paul filed the instant declaratory judgment action seeking a judicial interpretation of the St. Paul Policies and a declaration with respect to its rights and duties under the policies.

In its letter acknowledging Recognition's tender of defense, Liberty Mutual stated that it would provide Recognition with a defense, to the extent the allegations in the federal complaint created an offense potentially covered under the Liberty Mutual policy. As to damages caused by a personal injury offense committed prior to September 1, 1994 (the effective date of the Liberty Mutual policy), however, Liberty Mutual declined to indemnify Recognition for such damages, and advised it to tender a defense to its previous carrier. St. Paul's J.A. at 65, 67 (Ex. J).

In the meantime, Recognition moved for partial summary judgment in the federal action on Plaintiffs' antitrust claim, and, on April 8, 1997, filed a separate lawsuit against Equipos, Reymsa and Henry in state court seeking to recover on a sworn account. By order dated September 8, 1997, the court in the federal action granted Recognition's motion for partial summary judgment, and dismissed Plaintiffs' antitrust claim. Soon thereafter, on September 24, 1997, Equipos, Reymsa and Henry filed their original answer to Recognition's state court petition, and asserted as counterclaims the same state law claims that Plaintiffs brought against Recognition in the federal action. By order dated October 7, 1997, the federal district court dismissed the federal action, pursuant to the parties' stipulation of dismissal. The state action proceeded to mediation, and on December 18, 1997, Plaintiffs and Recognition entered into a settlement agreement with respect to all claims. On December 19, 1997, Equipos, Reymsa and Henry filed their First Amended Answer and Counterclaim, in which they deleted their claim for conspiracy and asserted additional counterclaims for promissory estoppel and unjust enrichment. St. Paul's J.A. at 70 (Ex. L). On December 29, 1997, Equipos, Reymsa and Henry filed their Second Amended Answer and Counterclaim, wherein they asserted additional claims for business disparagement and defamation. St. Paul's J.A. at 73 (Ex. M). By order dated July 28, 1998, the court granted Liberty Mutual leave to intervene in this action.

Unless otherwise stated, the court will refer to the lawsuit filed by Recognition in state district court in Dallas County, Texas, styled Recognition International, Inc. v. Equipos Opticos de Reconocimiento, S.A. de C.V. and Reymsa, Inc. and James J. Henry, Cause No. 97-03133, as the "state action."

St. Paul, Recognition and Liberty Mutual have filed competing motions for summary judgment. St. Paul contends that it had no duty to defend or indemnify Recognition in either of the underlying lawsuits because Plaintiffs' claims were not covered under the St. Paul Policies. Recognition, on the other hand, contends that Plaintiffs' claims were covered under the St. Paul Policies, that St. Paul had a duty to defend Recognition in both the federal and state actions, and a duty to indemnify it (Recognition) in the state action. Similarly, Liberty Mutual contends that the allegations asserted by Plaintiffs in the federal complaint stated causes of action within the coverage of the St. Paul Policies and, therefore, St. Paul had a duty to defend Recognition in both the federal and state actions. Liberty Mutual further contends that because St. Paul was required to provide Recognition with a defense in the underlying lawsuits, it (St. Paul) is liable to Liberty Mutual for a pro-rata portion of the reasonable and necessary defense costs incurred by Liberty Mutual in defending Recognition in the underlying lawsuits. II. Summary Judgment Standard

St. Paul requests the court take judicial notice of the parties' Fifth Joint Status Report filed in this case, wherein Recognition appears to abandon its initial contention that St. Paul had a duty to indemnify it in the federal action. Recognition did not object to this request. The court grants St. Paul's request, and takes judicial notice of the parties' Fifth Joint Status Report pursuant to Fed.R.Evid. 201. The court also reviewed, sua sponte, the parties' Sixth Joint Status Report, filed on October 13, 1998, wherein Recognition states that it is no longer contending that St. Paul had a duty to indemnify it in the federal action. Based on the representations made by Recognition in the aforementioned status reports, and since it does not present a contrary argument in its response to St. Paul's summary judgment motion, the court concludes that Recognition has indeed abandoned its previous position that St. Paul had a duty to indemnify it in the federal action. Accordingly, a determination as to that issue is unnecessary.

Summary judgment shall be rendered when 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 the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Ragas, 136 F.3d at 458.

Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr. 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Ragas, 136 F.3d at 458. Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support the nonmovant's opposition to the motion for summary judgment. Id., see also Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 n. 7 (5th Cir.), cert. denied, 506 U.S. 832 (1992). "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues which are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.

III. Analysis A. Interpretation of Insurance Contracts

The interpretation of an insurance policy is a question of law. Coker v. Coker, 650 S.W.2d 391, 393-94 (Tex. 1983). Insurance policies are contracts and are governed by the principles of interpretation applicable to contracts. Amica Mut. Ins. Co. v. Moak, 55 F.3d 1093, 1095 (5th Cir. 1995) ( citing Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987)). As this is a diversity case, Texas rules of contract interpretation control. See id.; see also Potomac Ins. Co. v. Jayhawk Medical Acceptance Corp., 198 F.3d 548, 550 (5th Cir. 2000).

B. Duty to Defend and Duty to Indemnify

In determining whether an insurer has a duty to defend, the court must examine the latest amended pleading upon which the insurer based its refusal to defend the action. See Canutillo Indep. Sch. Dist. v. National Union Fire Ins. Co., 99 F.3d 695, 701 (5th Cir. 1996). Texas courts follow the "eight corners" or "complaint allegation" rule, which requires the trier of fact to examine only the allegations in the underlying complaint and the insurance policy, see Id.; see also Gulf Chem. Metallurgical Corp. v. Associated Metals Minerals Corp., 1 F.3d 365, 369 (5th Cir. 1993), without reference to their veracity. See Argonaut Southwestern Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex. 1973). In reviewing the underlying pleadings, the court must focus on the factual allegations that show the origin of the damages rather than on the legal theories alleged. American States Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir. 1998); National Union Fire Ins. Co. v. Merchants Fast Motor Lines, 939 S.W.2d 139, 141 (Tex. 1997) ( citing Adamo v. State Farm Lloyds Co., 853 S.W.2d 673, 676 (Tex.App.-Houston [14th Dist.] 1993, writ denied) ("It is not the cause of action alleged that determines coverage but the facts giving rise to the alleged actionable conduct.")). The allegations in the underlying petition are to be interpreted liberally, resolving any doubt in favor of the insured. National Union, 939 S.W.2d at 141. The duty to defend arises when the facts alleged in the petition, if taken as true, potentially state a cause of action within the terms of the policy. Canutillo, 99 F.3d at 701. Thus, it is the insured's burden to show that the claim against it is potentially within the policy's coverage. Id. An insurer has an obligation to defend an insured if the petition alleges at least one cause of action within the policy's coverage. Id. If, however, under the facts alleged, there is a prima facie showing that the claim is not covered under the policy, the insurer has no duty to defend. See National Union, 939 S.W.2d at 141.

Unlike the duty to defend, however, which is based on the allegations in the petition, the duty to indemnify is triggered by the actual facts establishing liability in the underlying suit. See Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex. 1997). If there is no duty to defend, there is no duty to indemnify. See Bailey, 133 F.3d at 368.

C. St. Paul's Motion for Summary Judgment

1. Federal Action

St. Paul contends that it had no duty to defend Recognition in the federal action because none of the claims asserted by Plaintiffs against Recognition was covered under the St. Paul Policies. Both Recognition and Liberty Mutual disagree, and contend that one or more of the claims were covered under the "personal injury" or "advertising injury" provisions of the St. Paul Policies. Specifically, Recognition contends that the federal complaint alleged facts sufficient to state a claim for defamation (libel or slander), and belittlement of Plaintiffs' work product. The court first addresses whether the federal complaint alleged facts sufficient to state a claim for defamation. If it did, St. Paul would have had a duty to defend Recognition in the federal action, as these claims (libel and slander) are offenses expressly covered under the "personal injury" and "advertising injury" provisions of the St. Paul Policies.

In their responses to St. Paul's summary judgment motion, Recognition and Liberty Mutual assert virtually identical arguments with respect to St. Paul's alleged duties to defend Recognition in the underlying lawsuits based on the allegations asserted in the federal complaint. As the insured, Recognition has the burden to establish that the claims were covered under the St. Paul Policies. Therefore, unless otherwise stated, the court will only address the arguments raised by Recognition with respect to St. Paul's alleged duty to defend the allegations asserted in the federal complaint. The court's findings and conclusions on this issue, however, are equally applicable to Liberty Mutual. The court will address later in this opinion Liberty Mutual's claim against St. Paul for a pro-rata portion of the costs incurred in defending Recognition in the underlying lawsuits.

Texas law recognizes two types of defamation — libel and slander. An action for libel requires the publication of a written defamatory statement about the plaintiff to a third party. M.N. Dannenbaum, Inc. v. Brummerhop, 840 S.W.2d 624, 633-634 (Tex.App.-Houston [14th Dist.] 1992, writ denied). Slander is an oral defamation published to a third party without legal excuse. Kelly v. Diocese of Corpus Christi, 832 S.W.2d 88, 91 (Tex.App.-Corpus Christi 1992, writ dism'd w.o.j.). A defamatory statement is one in which the words tend to damage a person's reputation, exposing him to public hatred, contempt, ridicule, or financial injury. Einhorn v. LaChance, 823 S.W.2d 405, 410-11 (Tex.App.-Houston [1st Dist.] 1992, writ dism'd w.o.j.), cert. denied, 517 U.S. 1135 (1996). To "publish" a defamatory word or statement means to communicate orally (or in writing or print) to some third person capable of understanding their defamatory import and in such a way that the person did so understand. See Marshall Field Stores, Inc. v. Gardiner, 859 S.W.2d 391, 399 (Tex.App. — Hous. [1st Dist.] 1993, writ dism'd w.o.j.).

St. Paul contends that Plaintiffs failed to allege facts in the federal complaint that would support a cause of action against Recognition for libel or slander. While Recognition acknowledges that Plaintiffs did not artfully plead a claim for defamation in the federal complaint, it contends that, under a liberal interpretation of the pleadings, Plaintiffs' allegations are sufficient to potentially state a claim for slander. The court disagrees.

Relying on Hardwick v. Houston Lighting Power Co., 881 S.W.2d 195 (Tex.App.-Corpus Christi 1994, writ dism'd w.o.j.), Recognition contends that a claim for slander is a claim for injury to reputation. It argues that since St. Paul acknowledged in its previous summary judgment motion that Plaintiffs had alleged, inter alia, a claim for injuries to their reputations, St. Paul should have provided a defense of the claim based on these allegations pursuant to the "personal injury" or "advertising injury" provisions, despite Plaintiffs' failure to expressly state that they were alleging a claim for slander. The court is unpersuaded. First, Hardwick is inapposite, as the court in that case did not hold that a claim for slander is a claim for injury to reputation. Instead, the court, citing 53 C.J.S. Libel and Slander § 2 (1987), defined the term "defamatory statement," one of the elements necessary to state a claim of slander, as one that "tends to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him, or it tends to expose him to public hatred, contempt, or ridicule." Hardwick, 881 S.W.2d at 197. Second, the court will not consider arguments or contentions asserted by St. Paul in its earlier summary judgment motion, as it has since filed the instant motion, and the first motion is no longer before the court. Moreover, even if the court found St. Paul's previous acknowledgment relevant, it would nevertheless find Recognition's argument unavailing. Regardless of any alleged concessions or admissions by St. Paul, the federal complaint and the insurance policies are the controlling documents on which the court must rely in determining whether St. Paul had a duty to defend. Indeed, nowhere in the federal complaint do Plaintiffs assert a claim for injury to reputation, or allege that their reputations were harmed as a result of some defamatory statement made by Recognition.

Recognition contends that the duty to defend exists even where the injured person's complaint does not state facts sufficient to bring the case within or without the coverage, and cites Mary Kay Cosmetics, Inc. v. North River Ins. Co., 739 S.W.2d 608 (Tex.App. — Dallas 1987, no writ). Mary Kay, however, does not dispense with the requirement that a complaint must allege facts which would potentially bring a claim within the coverage of an insurance policy. Rather, that case instructs, as does Heyden Newport Chemical Corp. v. Southern General Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965), that when there is doubt about whether a case falls within or without the coverage of an insurance policy, the doubt should be resolved in favor of the insured. Under those circumstances, the duty to defend will exist even when there is doubt about whether the case falls within the coverage. Moreover, in Mary Kay the issue before the court was not (as it is here) whether the plaintiff alleged sufficient facts to bring the case within the coverage of the policy, but whether the insurer had a duty to defend where the complaint alleged facts excluded by the policy. The court, therefore, finds Mary Kay inapposite.

In further support of this position, Recognition cites Towne Realty, Inc. v. Zurich Ins. Co., 534 N.W.2d 886 (Wis.App. 1995), modified on other grounds, 548 N.W.2d 64 (Wis. 1996). Towne Realty, however, is not controlling authority for this court, and even if it were, it is distinguishable from this case. In Towne Realty, while the complaint did not allege all facts sufficient to state a claim for slander, the complaint alleged that Towne Realty had seriously maligned the plaintiffs' reputations and that such injury precluded them from engaging in their chosen professions within the country. The court concluded that this allegation was sufficient to fall within the coverage of the policy because the word "malign," in and of itself, means "to utter injuriously misleading or . . . false reports about." 534 N.W.2d at 891. The court stated that "while the Balestrieris' complaint did not expressly state a claim for libel or slander, the implication of this allegation is that Towne published false or misleading statements about them that caused damage to their reputation." Id. Recognition contends that Plaintiffs' allegations that Recognition "humiliated and demeaned" them are similarly sufficient to fall within the coverage of the St. Paul Policies. The court disagrees. The word "malign" is synonymous with slander. It means to injure by uttering misleading or false reports about, or speaking ill of another person. The words humiliate and demean, however, do not have such a meaning and do not alone suggest that a claim for slander is being alleged. Indeed, those words may be associated with any number of causes of action; therefore, allegations that Recognition "humiliated and demeaned" Plaintiffs, without more, are insufficient to place St. Paul on notice of a claim for defamation.

Alternatively, Recognition contends that the allegations asserted in the federal complaint are sufficient to state a claim for slander, and relies on Free v. American Home Assurance Co., 902 S.W.2d 51 (Tex.App.-Houston [1st Dist.] 1995, no writ) and Hardwick in support of its position. Recognition contends that the court in each case found the import of the statements alleged sufficient to state a claim for defamation. Recognition's reliance on Free and Hardwick is misplaced.

In Free, an ex-employee sued his former employer for, inter alia, defamation based in part on his former supervisor's statement to a professional employment recruiter that the plaintiff was a "lightweight" who "`lacked a comprehensive grasp of what was necessary to handle large accounts,' failed to produce, failed to follow through, and who `would vacillate, procrastinate and allow things to languish entirely too long.'" 902 S.W.2d at 52. The trial court rendered summary judgment for defendant, and plaintiff appealed. The appellate court concluded that a fact issue existed as to whether the alleged statements were capable of defamatory meaning, and remanded the action to the trial court. In Hardwick, a former power plant employee, brought a slander action against Houston Lighting Power Company ("HLP"), his former employer. The plaintiff alleged that HLP's employees had published statements that he was fired because "HLP, considered him responsible for failing to detect saltwater in the boiler system." 881 S.W.2d at 197. The trial court granted summary judgment for HLP, and the employee appealed. In determining whether the alleged statement could be considered defamatory, the appellate court found that a genuine issue of material fact existed as to whether the statement was defamatory, as one could conclude from the statement that the plaintiff was incompetent or negligent, which would injure his reputation as an operator of machinery. Neither Free nor Hardwick involves the issue of insurance coverage. Moreover, the plaintiffs in those cases set forth the statements allegedly made. Here, Plaintiffs did not allege any statements, let alone defamatory ones, to support a claim of defamation. Therefore, the court finds Free and Hardwick inapposite.

Recognition contends that Plaintiffs alleged several facts which potentially state a claim for a covered offense under the St. Paul Policies. By way of example, Recognition asserts that the federal complaint alleged, inter alia, that:

• Recognition "stole" clients of [Plaintiffs] by making disparaging comments about the abilities of [Plaintiffs] to perform the operations that were needed. [Plaintiffs] complain that Recognition criticized [Plaintiffs'] work and work product and tried to dissuade its customers from giving [Plaintiffs] business by touting another company as being better qualified to provide service and do the job for the customer.
• After two visits by officials of Recognition to Mexico — in which such officials conducted interviews with all of [Plaintiffs'] large accounts or prospects — [Plaintiffs'] deal with one of its largest customers "began to go bad[,]" implying that Recognition's officials had made disparaging remarks about [Plaintiffs] to [Plaintiffs'] customers, thus causing [Plaintiffs] to lose business.
• Recognition had "demeaned and humiliated" Henry and Mrs. Henry (implying that Recognition verbally belittled and/or disparaged them) in a manner and to such an extent it caused them to "lose their businesses . . . their livelihoods, their home, their way of life, their friends, their security and their peace of mind."
• Recognition's alleged behavior toward [Plaintiffs] (that is, demeaning and humiliating them, etc.) caused "grief, severe disappointment, worry, indignation, wounded pride, shame, despair, fear and public humiliation."
• Henry and Mrs. Henry, as a result of Recognition's acts demeaning and humiliating them, suffered "stress related depression and have had to deal with overwhelming feelings of grief, severe disappointment, worry, indignation, wounded pride, shame, despair, fear and public humiliation."

Recognition's Resp. to St. Paul's First Am. Mot. for Summ. J. Am. Br. in Supp. at 3-4 (citations to record omitted) (italics added). Recognition contends that these allegations amount to slander and belittlement, and are therefore within the coverage of the St. Paul Policies. Recognition's position is creative, in that it has speculated about the existence of facts, embellished the record, and mischaracterized those allegations actually pled by Plaintiff. The court has carefully read several times the allegations in the federal complaint, and concludes that it fails to allege facts sufficient to state a claim for libel or slander. While it is true that the factual allegations in the federal complaint are to be liberally interpreted, the court may not read facts into the pleadings, look outside the pleadings, or "imagine factual scenarios which might trigger coverage." National Union 939 S.W.2d at 142. Although the federal complaint is by no means a model of pellucid draftsmanship, Plaintiffs had to at least plead facts showing that Recognition made a defamatory statement about them to trigger coverage under the St. Paul Policies. Plaintiffs, however, failed to relate any statements alleging defamation, and the record is completely void of any statements that could be considered as suggesting a claim for libel or slander. Moreover, where statements are alleged to have been made by Recognition, the federal complaint fails to allege or assert facts suggesting that the statements were defamatory. The court concludes that the allegations in the federal complaint, including those specifically cited by Recognition, were insufficient to constitute libel or slander and, therefore, do not give rise to a cause of action within the coverage of the St. Paul Policies. Recognition and Liberty Mutual have failed to raise a genuine issue of material fact that the federal complaint alleged any defamatory statement, either written or oral, that would constitute a claim for libel or slander to trigger coverage under the St. Paul Policies. St. Paul, therefore, had no duty to defend Recognition in the federal action based on these purported statements, and is entitled to judgment as a matter of law on this issue.

Recognition contends that the Liberty Mutual policy contained terms and definitions "very similar" to those found in the St. Paul Policies. It maintains that St. Paul had a duty to defend it (Recognition) based on the allegations in the federal complaint, arguing that because Liberty Mutual determined that the allegations in the federal complaint were covered under the personal injury provision of the Liberty Mutual policy, and since St. Paul was aware of the same facts, it should have also agreed to defend Recognition under the personal injury provision of the St. Paul Policies. Recognition, however, is comparing apples to oranges. Importantly, with the exception of one claim, Liberty Mutual denied coverage on all claims asserted against Recognition in the federal complaint because the complaint did not allege facts within any one of the enumerated offenses that constituted an advertising injury or personal injury under the Liberty Mutual policy. Liberty Mutual, however, agreed to defend Recognition against Plaintiffs' claim for intentional infliction of emotional distress. Under the Liberty Mutual policy, "personal injury" is defined as "[i]njury to the feelings or reputation of a natural person other than `bodily injury' or `property damage.'" St. Paul J.A. at 88 (Ex. Q.). Liberty Mutual concluded that it had a duty to defend Recognition in the federal action because the federal complaint sought damages for emotional distress, which constituted personal injury under the Liberty Mutual policy. The same cannot be said for St. Paul. The personal injury provision of the St. Paul Policies did not provide coverage for injury to the feelings or reputation of a natural person, as such injuries were specifically covered in the bodily injury provision of the policies. Under the St. Paul Policies, personal injury is defined as injury other than bodily injury or advertising injury, caused by a personal injury offense. As Recognition has stipulated that it is not contending that St. Paul had a duty to defend under the bodily injury provision, the court need not decide whether emotional distress or mental anguish caused by a personal injury offense would fall within the personal injury provision. Even absent Recognition's stipulation, however, the court would conclude that Plaintiffs' claim for emotional distress is not covered under the personal injury provision of the St. Paul Policies because there are no allegations in the federal complaint that would suggest that such injuries were caused by a personal injury offense. Indeed, the underlying facts giving rise to the claims specifically pled by Plaintiffs all center on Recognition's alleged efforts to close Equipos down by, inter alia, backing out of an agreement with Plaintiffs to purchase Equipos and make it a wholly owned subsidiary of Recognition, misappropriating Equipos's trade secrets, and totally abandoning its support of Equipos. Accordingly, because the personal injury provision in the St. Paul Policies is different from that in the Liberty Mutual policy, the court finds Recognition's argument unpersuasive.

The court next addresses whether the federal complaint alleged facts sufficient to state a claim for belittlement. St. Paul contends that Texas law does not recognize an independent cause of action for belittlement, and that the closest cause of action for such conduct is the tort of business disparagement. St. Paul contends that because the federal complaint failed to allege facts sufficient to establish a claim for business disparagement, it had no duty to defend Recognition in the federal action. Recognition contends that because the St. Paul Policies cover any action that involves the belittlement of another's work product, an allegation of belittlement is alone sufficient to trigger the duty to defend, and therefore Plaintiffs did not have to allege facts sufficient to state a claim for business disparagement. The court agrees.

An insurer's duty to defend is determined by the allegations in the pleadings and the language of the insurance policy. National Union, 939 S.W.2d at 141. Contrary to St. Paul's contention, that "belittlement" is not recognized as an independent cause of action under Texas law is not dispositive, as the personal injury and advertising injury provisions of the St. Paul Policies expressly cover an offense that "mak[es] known to any person or organization written or spoken material that belittles the products, work or completed work of others." St. Paul's J.A. at 3, 6 (Exs. A B). The policies further provide that St. Paul's right and duty to defend extends to any claim or suit for a covered injury, even if such claim or suit is groundless, false or fraudulent. Thus, if the federal complaint alleged facts within the scope of that covered offense, St. Paul would have had a duty to defend Recognition in the federal action.

Under Texas law, the terms used in an insurance policy are given their ordinary and generally accepted meaning, unless the policy shows that the words are meant in a technical or different sense. Canutillo, 99 F.3d at 700. The St. Paul Policies do not define the term "belittle." The word "belittle," as defined in Merriam-Webster's Collegiate Dictionary, means: "[t]o speak slightly of[,] [to] disparage . . ., [or] to cause (a person or thing) to seem little or less." Merriam-Webster's Collegiate Dictionary 104 (10th ed. 1997). The term "disparage" means "to lower in rank or reputation[,] [to] degrade . . ., [or] to depreciate by indirect means (as invidious comparison)[,] [to] speak slightly about." Id. at 334. Synonymous with both terms is the word "decry," which means "to depreciate . . . officially or publicly . . . [,] or to express strong disapproval of." Id. at 300. With these definitions in mind, the court concludes that the allegations in the federal complaint do not amount to "belittlement" and are therefore insufficient to trigger coverage under the St. Paul Policies.

In addition to those allegations specifically listed by the court supra, Recognition contends that the federal complaint alleged that it had made disparaging remarks to Plaintiffs' customers which denigrated and belittled Plaintiffs' services and abilities while touting the abilities of the company Recognition favored as Plaintiffs' replacement. Recognition's Resp. to St. Paul's First Am. Mot. for Summ. J. Am. Br. in Supp. at 18-19 (citations to record omitted). Recognition contends that these statements, along with allegations that Recognition told Plaintiffs' customers that its new technology partner was better qualified to provide service than Equipos, are sufficient to trigger coverage within the St. Paul Policies. The court disagrees. Plaintiffs' allegation that Recognition told their customers that another company was better qualified than they to provide services is insufficient to constitute a claim for belittlement within the coverage of the St. Paul Policies, and the court declines any suggestion or invitation by Recognition to interpret that statement alone as constituting belittlement. That Recognition touted the abilities of its new technology partner to Plaintiffs' customers does not mean that it also expressed a negative opinion about Plaintiffs or their work. In a business environment one would expect a business to promote or advertise the abilities of its business partner. Indeed, contrary to Recognition's contention, nowhere in the federal complaint do Plaintiffs allege that Recognition "made disparaging remarks about Plaintiffs to their customers"; that Recognition "denigrated and belittled Plaintiffs' services and abilities"; or that Recognition "criticized Plaintiffs' work and work product." The federal complaint makes no mention of belittlement, disparagement, or any other synonymous term, and alleges no conduct that would amount to belittlement to trigger coverage under the St. Paul Policies. Recognition and Liberty Mutual have failed to raise a genuine issue of material fact that the allegations in the federal complaint constituted a claim for belittlement under the St. Paul Policies. Because the factual allegations in the federal complaint do not give rise to a duty to defend under the personal injury or advertising provisions of the St. Paul Policies, St. Paul is entitled to judgment as a matter of law.

Having concluded that the allegations in the federal complaint do not give rise to a personal injury or advertising injury within the scope of the St. Paul Policies, the court finds it unnecessary to determine whether the allegations in the federal complaint alleged an advertising injury resulting from the advertising of Recognition's products, work or completed work, or a personal injury resulting from Recognition's business activities.

2. State Action

Recognition contends that the allegations contained in Plaintiffs' Second Amended Answer and Counterclaim stated a claim for defamation and business disparagement, thereby triggering St. Paul's duty to defend Recognition in the state action. St. Paul contends that Plaintiffs' Original Answer and Counterclaim is the only version relevant to a decision on St. Paul's duty to defend or to indemnify in the state action, as that was the live pleading on file with the state court when Plaintiffs and Recognition settled all their claims. St. Paul contends that because the Original Answer and Counterclaim did not allege facts that would constitute a "personal injury" or "advertising injury" under the St. Paul Policies, it had no duty to defend or indemnify Recognition in the state action. The court agrees.

The Original Answer and Counterclaim was the live pleading at the time of settlement. While that pleading asserted the same legal theories as those pled in the federal action, it alleged no new factual allegations. The court concludes, for the same reasons it determined that St. Paul had no duty to defend in the federal action, that St. Paul had no duty to defend Recognition in the state action. Because there was no duty to defend, St. Paul had no duty to indemnify Recognition in the state action. Therefore, St. Paul is entitled to judgment as a matter of law.

Recognition, however, contends that the Second Amended Answer and Counterclaim applies, which according to it, asserted claims potentially within the coverage of the St. Paul Policies. The court disagrees. Even if, however, the Second Amended Answer and Counterclaim was the live pleading at the time of settlement, the court nevertheless concludes that there was no duty to defend or to indemnify Recognition in the state action for two reasons. First, Recognition neither notified nor tendered a defense to St. Paul with respect to the new claims asserted in the Second Amended Answer and Counterclaim — business disparagement and defamation. Recognition contends that since St. Paul had already refused to defend it in the federal action, and since no new factual allegations were asserted in the Second Amended Answer and Counterclaim (as that pleading incorporated the allegations in the federal complaint), it had no duty to notify St. Paul of the allegations asserted in the state action. According to Recognition, St. Paul forfeited its rights to receive notice of any further pleadings regarding the litigation when it refused to defend Recognition in the federal action. Recognition cites no authority on point in any of its submitted briefing that exempts it from giving notice to St. Paul of new claims which potentially fall within the scope of coverage, and the court is aware of no case that so holds. While the parties and the factual allegations were the same in both the federal and state actions, the state action (which alleged new causes of action) was an entirely separate lawsuit, which would have required Recognition to inform St. Paul of those claims if it wanted St. Paul to defend it against such claims. Whether St. Paul would accept the tender of defense is a different story, as St. Paul has a right to investigate any claim. After an investigation, St. Paul may nevertheless determine that the claims were not covered, but that St. Paul denied coverage previously in an action involving the same facts and parties did not relieve Recognition of its responsibility under the policies to notify St. Paul of all claims potentially within the scope of coverage.

Second, even assuming arguendo that Recognition was not required to notify St. Paul, the court finds that there was no duty to defend or indemnify Recognition based on the claims and allegations asserted in the Second Amended Answer and Counterclaim. In that pleading, Plaintiffs asserted counterclaims against Recognition for business disparagement and defamation, but failed to allege facts to support such claims. Instead, Plaintiffs simply incorporated by reference the same factual allegations contained in the federal complaint. That Plaintiffs specifically alleged counterclaims for defamation and business disparagement, however, does not alone determine whether St. Paul had a duty to defend in the state action. As previously stated, the court considers the factual allegations in the complaint, and not the legal theories pled, in determining the duty to defend. National Union, 939 S.W.2d at 141.

The court has already determined that the factual allegations in the federal complaint do not constitute defamation, and therefore concludes that Plaintiffs' Second Amended Answer and Counterclaim do not allege facts within the coverage of the St. Paul Policies. The court next considers whether the allegations in the federal complaint constitute a claim for business disparagement.

The elements of a claim for business disparagement are publication of disparaging words, falsity, malice, lack of privilege, and special damages. Dickson Const., Inc. v. Fidelity Deposit Co. of Maryland, 960 S.W.2d 845, 850 (Tex.App.-Texarkana 1997, no pet. h.)( citing Hurlbut v. Gulf Atlantic Life Ins. Co., 749 S.W.2d 762, 766 (Tex. 1987)). Like defamation, business disparagement involves the imposition of liability for an injury caused by publication of a false statement about the plaintiff to third parties. Id. While an action for defamation protects the plaintiff's personal reputation, an action for business disparagement protects the plaintiff's economic interests. Id.

The federal complaint is void of any allegations that Recognition published any disparaging comments about Plaintiffs to third parties. As for those statements allegedly made by Recognition, there is no allegation that the statements were false. Neither the federal complaint nor the Second Amended Answer and Counterclaim state the substance of a disparaging remark, or allege conduct which suggests that disparaging and false statements were made about them to third parties. Moreover, there are no allegations that the economic injuries suffered by Plaintiffs were caused by Recognition having published a disparaging statement about them. The allegations in the federal complaint are insufficient to put St. Paul on notice of a claim for business disparagement, and therefore do not give rise to a personal injury or advertising injury within the scope of the St. Paul Policies. As the court has determined that the factual allegations in the federal complaint are insufficient to constitute a claim for business disparagement, it concludes that the Second Amended Answer and Counterclaim does not state a claim giving rise to coverage under the St. Paul Policies. St. Paul therefore had no duty to defend Recognition in the state action. Moreover, since it had no duty defend, it had no duty to indemnify Recognition for the amount of the settlement paid in connection with the settlement entered into between Recognition and Plaintiffs. Recognition and Liberty Mutual have failed to raise a genuine issue of material fact that the allegations asserted in the Second Amended Answer and Counterclaim were within the scope of coverage. St. Paul is therefore entitled to judgment as a matter of law.

D. Recognition's Motion for Summary Judgment on its Counterclaims

As the court has determined that St. Paul had no duty to defend or indemnify Recognition in the federal and state actions, Recognition's counterclaims for breach of contract, violation of Article 21.21 of the Texas Insurance Code, and attorney's fees must be denied.

E. Liberty Mutual's Motion for Summary Judgment

Liberty Mutual contends that based on the allegations in the underlying lawsuits, both it and St. Paul were required to provide a defense to Recognition. Liberty Mutual contends that while it provided Recognition with a defense, as required under its insurance policy, St. Paul refused to do so. Liberty Mutual contends that it was consequently forced to pay defense costs that should have been equally shared with St. Paul. Liberty Mutual contends that it incurred $191,293.98 in defending Recognition and is entitled to payment from St. Paul of one-half that sum, that is $95,646.99, or in the alternative $51,090.50 plus costs and prejudgment interest. As previously stated, the court has determined that St. Paul had no duty to defend Recognition based on the allegations contained in the federal complaint, and that it had no duty to defend Recognition based on the allegations contained in the Second Amended Answer and Counterclaim. As St. Paul had no duty to defend Recognition in the state action, it is not obligated to pay Liberty Mutual a pro rata portion of the costs incurred by it in defending Recognition in the underlying lawsuits. Therefore, Liberty Mutual's claim against St. Paul for one-half of its defense costs incurred on behalf of Recognition in the underlying lawsuits must be denied.

III. Conclusion

For the reasons previously stated, the court concludes that the federal complaint does not assert claims within the coverage of the St. Paul Policies. Moreover, the federal complaint does not allege facts or conduct giving rise to a cause of action potentially within the scope of coverage, and does not allege facts which would constitute a personal injury or advertising injury within the St. Paul Policies. Defendant Recognition International, Inc. and Intervenor Liberty Mutual Insurance Company have failed to raise a genuine issue of material fact that the allegations in the federal complaint were within the coverage of the St. Paul Policies. Plaintiffs St. Paul Guardian Insurance Company and St. Paul Fire Marine Insurance Company's First Amended Motion for Summary Judgment is therefore granted. Consequently, the court declares that St. Paul had no duty to defend or indemnify Defendant Recognition International, Inc. for the claims asserted against it in the underlying federal action styled Equipos Opticos de Reconocimeinto, S.A. de C.V., Reymsa, Inc., James Henry and Mrs. James Henry v. Recognition International, Inc., Michael Potts, James Bethmann, Robert Vanourek and Robert Swartz, Civil Action No. 3:95-CV-3017-H. The court further declares that St. Paul had no duty to defend or indemnify Defendant Recognition International, Inc. for the claims asserted against it in the underlying state action, styled Recognition International, Inc. v. Equipos Opticos de Reconocimeinto, S.A. de C.V., Reymsa, Inc. and James J. Henry, Cause No. 97-03133, and filed in state district court in Dallas County, Texas. Because St. Paul had no duty to defend Recognition in the state action, it is not liable to Liberty Mutual for an pro rata portion of the defense costs incurred by Liberty Mutual on behalf of Recognition in the underlying lawsuits.

As the court has granted St. Paul's First Amended Motion for Summary Judgment, a favorable ruling on either Defendant Recognition International Inc.'s Motion for Summary Judgment or Intervenor Liberty Mutual Insurance Company's Motion for Summary Judgment would be wholly inconsistent with what the court has concluded with respect to St. Paul's First Amended Motion for Summary Judgment. Accordingly, Defendant Recognition International, Inc.'s Motion for Summary Judgment is denied and Liberty Mutual Insurance Company's Motion for Summary Judgment is denied. This action is hereby dismissed with prejudice. Judgment will be issued by separate document.