Citizens Ins. v. Pro-Seal Service Group

730 N.W.2d 682

477 Mich. 75

CITIZENS INSURANCE COMPANY, Plaintiff/Counter-Defendant-Appellant, v. PRO-SEAL SERVICE GROUP, INC., d/b/a Pro-Seal, Inc., Defendant/Counter-Plaintiff-Appellee, and Seth Short, Randy Quincy, Flowserve Corporation, and Flowserve Management Company, Defendants.

Docket No. 130099.

Supreme Court of Michigan.

April 25, 2007.

Plunkett & Cooney, P.C. (by Jeffrey C. Gerish and James R. Lilly), Bloomfield Hills, for Citizens Insurance Company.

Pierce, Duke, Farrell & Tafelski, P.L.C. (by Mark C. Pierce), and Foley & Lardner L.L.P. (by Jeffrey G. Collins), Bloomfield Hills, Detroit, for Pro-Seal Service Group, Inc.

PER CURIAM.

At issue in this insurance coverage dispute is whether defendant Pro-Seal Service Group, Inc.'s, act of shipping a product in a competitor's packaging with Pro-Seal's labeling affixed to it constitutes an "advertisement" for purposes of an insurance policy. The Court of Appeals determined that plaintiff (Citizens Insurance Company) was required to defend defendant under the terms of a commercial general liability policy (CGL policy) because the underlying complaint alleged a violation of trade dress¹ and such a violation inherently involves advertising activity. Because we conclude that the act of shipping a product in a competitor's packaging with one's own name affixed to it is insufficient to satisfy the CGL policy's definition of an "advertisement," we reverse the judgment of the Court of Appeals that held to the contrary and remand this case to the trial court for further proceedings not inconsistent with this opinion.

I. FACTS AND PROCEDURAL HISTORY

Defendant Pro-Seal Service Group, Inc., is a Michigan corporation that sells and repairs mechanical seals used in oil production facilities in Alaska. Pro-Seal has a CGL policy and an umbrella insurance policy with plaintiff Citizens Insurance. Pro-Seal's major competitor for mechanical seal sales in the Alaskan market is defendant Flowserve Corporation, a New York corporation that manufactures, sells, and refurbishes mechanical seals. The dispute between Flowserve and Pro-Seal began in June 2003, when a Flowserve employee discovered that two Flowserve mechanical seals that had been repaired by Pro-Seal were being shipped to a customer in the original Flowserve container, with the name "Pro-Seal" affixed to the outside of the container. Flowserve brought a suit against Pro-Seal in the United States District Court for the District of Alaska, claiming that Pro-Seal created confusion in the marketplace by imitating or infringing trademarks or product marks, and by using trade secrets, blueprints, engineering drawings, packaging materials, and sales practices that misrepresented Pro-Seal seals as being Flowserve seals.² Pro-Seal requested that plaintiff defend it in the Flowserve action pursuant to both insurance policies. Plaintiff concluded that the nature of the allegations in the Flowserve complaint were beyond the scope of either policy and, therefore, refused to defend Pro-Seal. Plaintiff filed the instant action seeking a declaration that plaintiff was not required to defend Pro-Seal under either policy.

The trial court granted plaintiff's motion for summary disposition, introducing its analysis by noting that if a contract is plain and unambiguous, it must be enforced according to its terms. Burkhardt v. Bailey, 260 Mich.App. 636, 656, 680 N.W.2d 453 (2004). According to the terms of the instant insurance contract, coverage is excluded for advertising injuries that are "knowingly made." The trial court concluded that coverage did not exist for the conduct asserted in the Flowserve lawsuit because it "alleges an intentional course of conduct involving fraud, deceit, and counterfeit parts being sold as genuine."

On appeal, the Court of Appeals vacated the judgment of the trial court in a published opinion, holding that plaintiff was required to represent defendant Pro-Seal because Flowserve's allegations fell within the definition of an "advertising injury" under the CGL policy. 268 Mich.App. 542, 710 N.W.2d 547 (2005). The Court of Appeals undertook its analysis by noting that the protection of trade dress is intended to "secure to the owner of the mark the goodwill of his business and to protect the ability of consumers to distinguish among competing producers." Id. at 550-551, 710 N.W.2d 547, quoting Two Pesos, supra at 774, 112 S.Ct. 2753 quoting Park'N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 198, 105 S.Ct. 658, 83 L.Ed.2d 582 (1985). Because the underlying complaint alleged that Pro-Seal's conduct confused and misled customers into believing that Pro-Seal seals were Flowserve seals, the ability of customers to "distinguish between competing producers" was implicated. On that basis, the Court of Appeals held that Flowserve's complaint alleged a trade dress infringement. The Court of Appeals also held that the alleged trade dress infringement occurred in an "advertisement" because "allegations of trademark and trade dress infringement inherently involve advertising activity. In other words, there can be no trademark/trade dress infringement without advertising having occurred." Id. at 551-552, 710 N.W.2d 547 quoting Poof Toy Products, Inc. v. United States Fidelity & Guaranty Co., 891 F.Supp. 1228, 1235-1236 (E.D.Mich., 1995).

Leave to appeal was sought in this Court and, after directing the parties to address certain issues,³ we heard oral argument on whether to grant the plaintiff's application for leave to appeal or take other peremptory action permitted by MCR 7.302(G)(1). 474 Mich. 1112, 712 N.W.2d 157 (2006).

II. STANDARD OF REVIEW

We review de novo the grant or denial of a motion for summary disposition. Kreiner v. Fischer, 471 Mich. 109, 129, 683 N.W.2d 611 (2004). This case requires that we consider whether defendant's alleged conduct took place in an "advertisement" as that term in defined in the insurance policy. The construction and interpretation of the language in an insurance contract is a question of law that this Court reviews de novo. Klapp v. United Ins. Group Agency, Inc., 468 Mich. 459, 463, 663 N.W.2d 447 (2003).

III. ANALYSIS

The terms of the CGL policy provide that plaintiff "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." The CGL policy defines a "personal and advertising injury" as follows:

14. "Personal and advertising injury" means injury, including consequential "bodily injury", arising out of one or more of the following offenses:

* * *

(f) The use of another's advertising idea in your "advertisement"; or

(g) Infringing upon another's copyright, trade dress or slogan in your "advertisement."

The umbrella policy defines an "advertising injury" as follows:

A. Advertising Injury means injury caused by one or more of the following offenses committed during the policy period in the course of advertising your goods, products or services:

1. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services.

2. Oral or written publication of material that violates a person's right or [sic] privacy.

3. Misappropriation of advertising ideas or style of doing business; or

4. Infringement of copyright, title or slogan.

The term "advertisement" is defined in the CGL policy as⁴

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 or supporters.

"[I]n reviewing an insurance policy dispute we must look to the language of the insurance policy and interpret the terms therein in accordance with Michigan's well-established principles of contract construction." Henderson v. State Farm Fire & Cas. Co., 460 Mich. 348, 353-354, 596 N.W.2d 190 (1999). In Henderson, this Court described those principles as follows:

First, an insurance contract must be enforced in accordance with its terms. A court must not hold an insurance company liable for a risk that it did not assume. Second, a court should not create ambiguity in an insurance policy where the terms of the contract are clear and precise. Thus, the terms of a contract must be enforced as written where there is no ambiguity.

While we construe the contract in favor of the insured if an ambiguity is found, this does not mean that the plain meaning of a word or phrase should be perverted, or that a word or phrase, the meaning of which is specific and well recognized, should be given some alien construction merely for the purpose of benefiting an insured. The fact that a policy does not define a relevant term does not render the policy ambiguous. Rather, reviewing courts must interpret the terms of the contract in accordance with their commonly used meanings. Indeed, we do not ascribe ambiguity to words simply because dictionary publishers are obliged to define words differently to avoid possible plagiarism. [Id. at 354, 596 N.W.2d 190 (citations omitted).]

The Court of Appeals erred in this case by failing to enforce the terms of the CGL policy as written.⁵ While the Court of Appeals noted that the CGL policy defined the term "advertisement," it ultimately rejected that definition in favor of a different definition articulated by the United States District Court in Poof Toy, supra at 1235-1236. In Poof Toy, the United States District Court held that

allegations of trademark and trade dress infringement inherently involve advertising activity. In other words, there can be no trademark/trade dress infringement without advertising having occurred. This conclusion results from a required element in every trademark/trade dress case, that the mark or dress is likely to cause confusion to the consumer or deceive the consumer as to the origin or manufacturer of the goods. See 15 U.S.C. § 1125(a). To have ...