Aluminum Trailer Co. v. Westchester Fire Ins. Co.

522 F.Supp.3d 464

The ALUMINUM TRAILER COMPANY d/b/a ATC Trailers, Plaintiff,

v.WESTCHESTER FIRE INSURANCE CO., Defendant.

CAUSE NO. 3:20-CV-721 DRL-MGG

United States District Court, N.D. Indiana, South Bend Division.

Signed February 25, 2021

Mark A. Matthes, Yoder Ainlay Ulmer & Buckingham LLP, Goshen, IN, for Plaintiff.

Christopher A. Wadley, Walker Wilcox Matousek LLP, Chicago, IL, for Defendant.

OPINION & ORDER

Damon R. Leichty, Judge

This is an insurance dispute. In Arizona state court, Sidi Spaces, LLC d/b/a BizBox sued The Aluminum Trailer Company d/b/a ATC Trailers for breach of contract and interference with its business expectancies after ATC allegedly sold "knockoff" trailers to BizBox's customers using its design. ATC filed this declaratory judgment action against Westchester Fire Insurance Company to secure a defense and indemnification. Westchester moves to dismiss ATC's complaint, arguing that it owes no coverage for BizBox's lawsuit. The court grants the motion to dismiss.

BACKGROUND

Taking all well pleaded facts as true at this stage, the following facts emerge. In October 2014, ATC contracted to manufacture BizBox-designed trailers for BizBox to sell to its customers (ECF 4, Ex. C ¶ 6). ATC agreed not to use BizBox's design for any other purpose (Id. ¶ 11). The contractual relationship seemingly worked well for several years. ATC manufactured approximately 65 to 70 BizBox trailers that BizBox then used to fulfill its purchase orders (Id. ¶ 21).

Westchester issued ATC a commercial general liability insurance policy that covered "sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’ " from September 3, 2016 to September 3, 2017 (ECF 4, Ex. A, Cover. B(1)(A); ECF 4 ¶¶ 6-7). The policy defined "personal and advertising injury" as injury arising out of "[i]nfringing upon another's ... trade dress ... in your ‘advertisement’ " (ECF 4, Ex. A, § V(14)(g)), and "advertisement" as "a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers" (Id. § V(1)). The policy also included certain exclusions—particularly here, a "knowing violation" exclusion that barred coverage for " ‘personal and advertising injury’ caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury’ " (Id. Cover. B(2)(a)).

In November or December 2018, ATC allegedly sold a "knockoff" trailer, nearly identical in design to the BizBox trailer but with an ATC logo, directly to a BizBox customer (ECF 4, Ex. C ¶¶ 27-29). After this sale, ATC notified BizBox that it would be increasing the price to manufacture trailers under their contract, allegedly in an effort to undercut BizBox's pricing and sell knockoff trailers to BizBox customers (Id. ¶¶ 29-35). BizBox learned of the improper sale in January 2019 and immediately filed suit in Arizona (Id. ¶ 32; ECF 4 ¶ 13). In February 2019, ATC provided Westchester notice of the BizBox lawsuit, but Westchester denied coverage (ECF 4 ¶¶ 15-16). ATC later filed this action for a declaration of Westchester's duty to defend and indemnify it.

STANDARD

In reviewing a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the court accepts all well-pleaded factual allegations as true and draws all reasonable inferences in the plaintiff's favor. Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010). When reviewing a complaint's adequacy, the court accepts all exhibits attached to the pleading "as part of the pleading for all purposes." Fed. R. Civ. P. 10(c). A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The statement must contain sufficient facts, accepted as true, to state a claim for relief that is plausible on its face and more than just speculative. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Though a plaintiff's claim must be plausible, it need not rise to the level of probable to survive a motion to dismiss. Indep. Trust Corp. v. Stewart Info. Servs. Corp. , 665 F.3d 930, 935 (7th Cir. 2012). Evaluating whether a claim is plausible enough is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." McCauley v. City of Chi. , 671 F.3d 611, 616 (7th Cir. 2011). "[A]llegations in the form of legal conclusions are insufficient," as are "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements." McReynolds v. Merrill Lynch & Co. , 694 F.3d 873, 885 (7th Cir. 2012).

DISCUSSION

The parties agree that Indiana law applies here. In Indiana, an insurer's duty to defend is broader than its duty to indemnify. Seymour Mfg. Co., Inc. v. Commercial Union Ins. Co. , 665 N.E.2d 891, 892 (Ind. 1996). "An insurer is obligated to defend its insured against suits alleging facts that might fall within the coverage of the policy." Property-Owners Ins. Co. v. Virk Boyz Liquor Stores, LLC , 219 F. Supp.3d 868, 873 (N.D. Ind. 2016) (Simon, J.) (citing Fed. Ins. Co. v. Stroh Brewing Co. , 127 F.3d 563, 566 (7th Cir. 1997) ). "When the underlying factual basis of the complaint, even if proved true, would not result in liability under the insurance policy, the insurance company can properly refuse to defend." Wayne Twp. Bd. of Sch. Comm'rs v. Ind. Ins. Co. , 650 N.E.2d 1205, 1208 (Ind. Ct. App. 1995) ; see also Transamerica Ins. Servs. v. Kopko , 570 N.E.2d 1283, 1285 (Ind. 1991).

The court "determine[s] [an] insurer's duty to defend from the allegations contained within the complaint and from those facts known or ascertainable by the insurer after reasonable investigation." Defender Sec. Co. v. First Mercury Ins. Co. , 803 F.3d 327, 334 (7th Cir. 2015) (applying Indiana law). "[I]f the pleadings reveal" or "the underlying factual basis of the complaint" shows "that a claim is clearly excluded under the policy, then no defense is required." Id. (internal citations omitted). When there is no possible factual or legal basis on which the insurer might be obligated to indemnify, there is no duty to defend. City of Gary v. Auto-Owners Ins. Co. , 116 N.E.3d 1116, 1121 (Ind. Ct. App. 2018).

The court gives clear and unambiguous language its plain and ordinary meaning while ambiguous terms are construed against the insurer. See Sheehan Constr. Co. v. Cont'l Cas. Co. , 935 N.E.2d 160, 169 (Ind. 2010) ; Property-Owners , 219 F.Supp.3d at 872.

A. BizBox Alleged that a Breach Occurred Within ATC's Policy Period.

To trigger coverage for personal and advertising injury, BizBox must have alleged that it was injured when ATC infringed its trade dress in an advertisement during the policy period. ATC's policy was effective September 3, 2016 through September 3, 2017. Westchester contests whether BizBox's complaint alleges trade dress infringement within the policy period. Because an insurer is excused from defending an insured if no possible factual or legal basis exists for which coverage may be triggered, Kopko , 570 N.E.2d at 1285, the court must first determine whether an alleged breach occurred during the prescribed policy period.

BizBox's complaint identifies one specific sale of an alleged knockoff trailer to its customer, which occurred at some point in November or December 2018—outside the policy period. The underlying state complaint also alleges additional sales of knockoff trailers to BizBox customers, without identifying when such sales took place (ECF 4, Ex. C ¶ 28). In its declaratory complaint, ATC alleges these additional sales occurred previous to November 2018—consistent with Bizbox's state pleading (ECF 4 ¶ 14(h); ECF 4, Ex. C ¶ 34).¹ Previously can mean many things: moments ago, decades ago, or at some point during the policy period. Based on the underlying complaint, the court cannot say there is no possible factual or legal basis that Westchester's policy will be triggered, so the court cannot grant the motion to dismiss on this ground. See Property-Owners , 219 F. Supp.3d at 873.

B. BizBox Does Not Allege Facts that Trigger Coverage for Trade Dress Infringement.

Trade dress refers to a product's total image, including features such as "size, shape, color or color combinations, texture, graphics, or even particular sales techniques." Roulo v. Russ Berrie & Co. , 886 F.2d 931, 935 (7th Cir. 1989) (citation omitted). Trade dress merits protection when the "design or packaging of a product ... acquire[s] a distinctiveness [that] serves to identify the product with its manufacturer or source" in such a way that it gains "secondary meaning." TrafFix Devices v. Mktg. Displays , 532 U.S. 23, 28, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001). Examples of protectible trade dress include the shape of a Coca-Cola bottle, see D'Pergo Custom Guitars, Inc. v. Sweetwater Sound, Inc. , 433 F.Supp.3d 227, 235 (D.N.H. 2020), the red outsole of a Christian Louboutin shoe, see Christian Louboutin S.A. v. Yves Saint Laurent Am. Holdings, Inc. , 696 F.3d 206, 224-25 (2d Cir. 2012), and the red wax seal on a bottle of Maker's Mark, Maker's Mark Distillery, Inc., v. Diageo N. Am., Inc. , 703 F.Supp.2d 671, 704-05 (W.D. Ky. 2010). The bottle's shape, the red design of the sole, and the wax seal signify the origin of these products because their dress has acquired secondary meaning with consumers.

"[A] design or package [that] acquires this secondary meaning, assuming other requisites are met, is a trade dress [that] may not be used in a manner likely to cause confusion as to the origin, sponsorship, or approval of the goods." TrafFix , 532 U.S. at 28, 121 S.Ct. 1255. The Lanham Act protects such trade dress. See id. at 28-29, 121 S.Ct. 1255 ; Arlington Specialties, Inc. v....