### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ No. 14

- 1805

D EFENDER S ECURITY C OMPANY , Plaintiff

- Appellant
,

v.

F IRST M ERCURY I NSURANCE C OMPANY , Defendant

- Appellee

.

____________________ Appeal from the United States District Court for the Southern District of Indiana , Indianapolis Division

.

No. 1:13

- cv

- 00 245

— Sarah Evans Barker
, Judge

.

____________________
A RGUED S EPTEMBER 30, 2014

— D ECIDED S EPTEMBER 29, 2015

____________________

Before K ANNE , W ILLIAMS , and H AMILTON , Circuit Judges

. K ANNE , Circuit Judge

. Appellant Defender Security Co mpany (“Defender”) purchased a commercial general liability insurance policy from Appellee First Mercury Insurance Company (“Firs t Mercury”). Defender timely tendered a claim to First Mercury, based on a lawsuit filed against D efender in California state court. First Mercury denied cove rage and refused to defend Defender in that lawsuit

. Defen der filed the instant suit in the Southe rn District of Indiana
,2 No. 14

- 1805

alleging breach of contract and bad faith, and seeking a d eclaratory judgment that First Mercury owed it a duty to d efend. First Mercury filed a motion to dismiss, which the di strict court granted. We affirm.

I. B ACKGROUND On July 25, 2012 , Kami Brown filed a class action co mplaint in California state court (“the Brown suit ”) . In her complaint, she alleged that she contacted Defender by tel ephone in response to its advertisement for a home security system. Brown alleged that, over t he course of several calls in May 2012 , she provided Defender with personal info rmation, including her full name, address, date of birth, and social security number.

She claimed that Defender recorded tho se calls without her permission and without notifying her of the recording

. She further alleged that Defender used “ call recording t ec hnology” that allowed it to “record all of its telephonic co nversations with consum ers” and to “ store these recordings for various business purposes.” Ac cording to Brown, D efender “directed, trained, and instructed” its employees and agents to engage in those recordings. And, Brown alleged, all class members were subjected to similar conduct, because Defender “systematically recorded all inbound and/or ou tbound telephone conversations,” without warning the pa rties that their conversations were being recorded

. These actions, Brown claimed, constituted violations of California Penal Code § 632
, which prohibits the recording of confidential telephone communic ations without the co n-No. 14

- 1805 3

sent of all parties
, and § 632.7
, which does the same for communications made from a cellular or cordless phone. 1

Defender owned a commercial general liability insurance policy (“the Policy”) issued by First Mercury. In a section e nt itled “Insuring Agreement,” t he Policy provided as follows:

a. We [i.e., First Mercury] will pay those sums that the insured [i.e., Defender] becomes legally obliga ted to pay as damages because of “personal injury” or “advertising injury” to which this insurance a pplies. 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 i nsured against any “suit” seeking damages for “pe rsonal injury” or “advertising injury” to which this insurance does not apply. ... b. This insurance applies to (1) “Personal injury” caused by an offense arising out of your business, excluding advertising, pu blishing, broadcasting or telecasting done by you. (2) “Advertising injury” caused by an offe nse co mmitted in the course of advertising your goods, products or ser vices. In a separate definitions section, t he policy defined both

“ advertising injuries” and “ personal injuries ” as t hose “ari sing out of

... [o]ral or written publication of material that v iolates a person’s right of privacy.”

1 Defender removed the suit to federal court. The parties reached a final settlement, approved on March 18, 2014. See Kami Brown v. Defender Sec. Co., No. 2:12CV07319 , 2012 WL 5308964 (C.D. Cal. Mar. 18, 2014).4 No. 14

- 1805

Defender provided First Mercury with timely notice of the Brown suit . It asserted th at the lawsuit fell within the a dvertising injury and personal injury coverage provided by the P olicy . First Mercury denied coverag e and refused to d efend.

Defender then filed this action in the Southern District of Indiana, alleging breach of contract and bad faith, and see king a declaratory judgment that First Mercury owed Defen der a duty to defend in the Brown suit. First Mercury filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. First Mercury argu ed that the Brown suit fell outside the Policy’s coverage , and thus that it had no duty to defend

. The district court granted the motion to dismiss. Defender appeals.

II. A NALYSIS We have diversity jurisdiction over this dispute pursuant to 28 U.S.C. § 1332(a). Defender is an Indiana corporation with its principal place of business in Indiana. First Mercury is an Illinois corporatio n with its principal place of business in Michigan. T he amount in controversy exceeds $75,000.

We review de novo a district court’s grant of dismissal u nder Rule 12(b)(6). Citadel Grp. Ltd. v

. Was h . Reg’ l Med . Ct r

. , 692 F.3d 580, 591 (7th Cir. 2012). Both parties agree that Ind iana law governs

. A. Duty to Defend In order to establish that an insurer has a duty to defend, the insured bears the initial burden of establishing that a claim is covered by his policy. If such a showing is made, the burden then sh ifts to the insurer to prove that an exclusionNo. 14

- 1805 5

applies. Aearo Corp. v. Am. Int’l Specialty Lines, Ins. Co.
, 676 F. Supp. 2d 738, 744 (S.D. Ind. 2009) (applying Indiana law)

. The outcome of this case turns on the interpretation of one word: “publication ”

. Defender’s Policy re quire s that, in order to qualify for coverage under the personal injury and advertising provisions, the subject i njury must arise from

“ oral or written publication of material that violates a pe rson’s right of privacy” (emphasis added). So in order to e stablish coverage, Defender must show that publication was alleged or at least argued by Brown

. The Policy itself does not defin e that term , so we must determine the term’s mea ning, in the context of the Policy. Defender argues that in ord er to constitute publication
, the subject material need not be communicated to any third party. Neither the Brown complaint nor Defender’s complaint alleges that Defender communicated the recordings or their contents to any third party. Neither do they all ege that any employee, agent, or representative accessed or listened to the recordings after they were made. According to Defender, publication was achieved when the subject material was transmitted to Defender’s recording device. In other words, Defender argues, it “published” the information it received from Brown when it “transmitted” that material into the r ecording device. First Mercury argues , on the other hand, that the definition of “ publication ” is not as expansive as D efender suggests.

We first c onsider the plain meaning of the term “public ation”

. Black’s Law Dictionary provides the following defin itions: (1) “[g]enerally, the act of declaring or announcing to the public;” and in the defamation context, (2) “the comm unication of defamatory words t o someone other than the6 No. 14

- 1805

person defamed.” Black's Law Dictionary 1264

– 65 (10th ed. 2014)

. Webster’s Third New International Dictionary defines publication as “communication (as of news or information) to the public; public announcement.” Webster’s Third New International Dic tionary, 1836 (1993) . And t he Oxford English dictionary defines it as follows:
1.a. The action of making something publicly known; public notification or announcement; an i nstance of this.

1.b. Law. Notification or communication to a third party or to a limited number of people regarded as representative of the public; an instance of this.

... 3. The action or fact of making a thing public or common property.
OED Online ( Oxford University Press, June 2015 )

. All of tho se definitions share a commonality: they d escribe the release of information by the party holding it. This comports with a common

- sense understanding , and the
common usage, of the term publication. After all, it derives from the word “public,” or “exposed to general view.” We bster’s Third New International Dic tionary, 1836 (1993). In this case, none of the information obtained by Defender was communicated to any individual o r entity. While it was ca ptured by the recording device, that device was wholly mai ntained by Defender. And, as we described above, Defender offered no information to suggest that any individual ever accessed the recordings. Yet, Defender argues that the transmission of the info rmation to the recorder constitutes publication , despite the fact that the information was never accessed or shared

. Su p-No. 14

- 1805 7

pose, hypothetically, that Defender had a different policy r egarding its incoming customer calls. Imagine that, instead of recording the calls, a Defender sales associate would speak to the customer and take copious notes. He would then place those notes in a paper file, in a filing cabinet. Would that constitute publication? I n both cases, the information has been received by Defender; it has been transmitted to a sto rage medium ; and it has been stored in a manner that enables future access.

We see no meaningful distinction between the hypothe tical paper notes and the actual audio recor ding

. (The only obvious disti nction is that the recording is stored in an oral form, whereas the notes would be stored in written form.) If under Defender’s definition, the recording constitutes publ ication, so must the notes. In our view, t his hypothetical illu strates that Defender’s suggested definition of publication would encompass a wide variety of acts that would strain (at best) any common understanding or usage of the term pu blication.
And Indiana courts have, in the defamation context, a pplied the common usage definition of “ publication ”

. In Bals v. Verduzco, the Indiana Supreme Court stated that “[i]n an action for defamation, the plaintiff must show that the d efamatory matter was ‘published,’ that is, communicated to a third person or persons.” 600 N.E.2d 1353, 1354 (Ind. 19 92). So, under Indiana defamation law, “publication” requires communication to a third party.
First Mercury relies heavily on Doe v. Methodist Hospital as establishing that, as a matter of law, publication must co nsist of communication to a third party. 6 90 N.E.2d 681 (Ind.8 No. 14

- 1805

1997). We do not agree with First Mercury’s reading of Met hodist

. In that case

, the Indiana Supreme Court considered whether Indiana law recognized a cause of action for the “privacy tort” of public disclosure of private facts. Among

t he elements of that tort, according to the Second Restat ement, is the requirement that a person must give “ publicity” to the private fact at issue. Id. at 692. Following is the rel evant passage from the court’s analysis:
A key issue contested in the brief s is whether “publicity” requires disclosure to the general pu blic or whether more isolated disclosures are also a ctionable. According to the Second Restatement, “publicity” in disclosure law is not the same as “publication” in defamation law. “Publication ” can consist of communication to just one individual . In co ntrast, “publicity” requires communication of the i nformation “ to the public at large, or to so many persons that the matter must be regarded as su bstantially certain to become one of public knowl edge. ”

Id. (emphasis added) (quoting Restatement (Second) of Torts § 652(D) cmt. a). So the question facing the Methodist court was whether “publicity,” as an element of the tort, required the broad di ssemination of information. Or, alternatively, could d isclosure

to just one individual suffice? The court looked to a related term, “publication,” in the context of defamation law as a guide: and in that context, Indiana law established that pu blication could be achieved by disclosure to just one person.No. 14

- 1805 9

That was the extent of the court’s foray into “publication.” So Methodist does not render this an open

- and

- shut case. But, as we concluded above, Defender’s suggested defin ition of the term is expansive, and it draws in many activities that cannot be commonly understood as publication. And in the defamation context, Indiana law requires that the defa matory material be communicated to a third party to be a ctionable. As such, we cannot draw the conclusion that publ ication include s the mere recording and storage of info rmation when that information is not also communicated to another party or entity. Defender argues in the alternative that, even if public ation does not include transmission to a recording device, the term “publication” is ambiguous. Therefore , “it is to be co nstrued strictly against the insurer and in favor of its i nsured,” triggering First Mercury’s duty to defend.
Under Indiana law, a “failure to define terms in an insu rance policy does not necessarily make it ambiguous.” Am. Family Life Assuranc e Co. v. Russell, 700 N.E.2d 1174, 1177 (Ind. Ct. App. 1998) (citation omitted). And “[a] n ambiguity does not exist simply because a controversy exists between the parties, each favoring an interpretation contrary to the other. ” Newnam Mfg., Inc. v. Transc on. Ins. Co. , 871 N.E.2d 396, 401 (Ind. Ct. App. 2007) (citations omitted)

. Rather, “an ambiguity exists where the provision is susceptible to more than one reasonable interpretation.” Russell, 700 N.E.2d at
1177

. Where there is ambiguity, “ insurance polic ies are to be construed strictly against the insurer. ” Newnam, 871 N.E.2d at 401 ( citation omitted ).10 No. 14

- 1805

Here, the parties each favor a specific interpretation of the term “publication.” Defender argues that the term publ ication is susceptible to its definition , and it points to a dec ision of the United States District Court of the Southern Di strict of Ohio as supporting its view. In that case, under sim ilar facts, the district court concluded that publication o ccur red at the moment that the conversati on was dissemina ted to the recording device. See Encore Receivable Mgm t ., Inc. v. Ace Prop. and Cas. Ins. Co., No. 1:12

- cv

- 297, 2013 WL 3354571
, at *9 ( S.D. Oh . Jul. 3, 2013 ), vacated on May 19, 2014.

But , as noted, Encore was vacated while on appeal. Id. D efender cites to no other cases that establish its view of publ ication

. For the reasons we described above, including Ind iana’s definition of publication in the defamation context, we conclude that the term publication was not susceptible to Defender’s i nterpretation. It was not ambiguous as used in the Policy. B. Dismissal at the Pleading Stage Defender argues that the district court erred by “prem aturely” granting First Mercury’s motion to dismiss. It co ntends that First Mercury had a duty to investigate the unde rlying Brown claims before refusing to defend, and that it had not adequately investigated those claims at the time that it filed its 12(b)(6) motion. First Mercury argues that it had no duty to investigate the underlying facts, because it was clear from the face of the P olicy and the Brown complaint that D efender’s claims were not covered by the Policy.

W e “determine [ an ] insurer’s duty to defend from the a llegations contained within the complaint and from those facts known or ascertai nable by the insurer after reasonableNo. 14

- 1805 11

investigation. ” Newnam , 871 N.E.2d at 401 (citations omi tted). But, “[i] f the pleadings reveal that a claim is clearly e xcluded under the policy, then no defense is required.” Id. at 401 (emphasis added) (cita tion omitted). Or, “when the u nderlying 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

. ” Monroe 677 N.E.2d at 623 (emphasis in original) ( citing Cincinnati Ins. Co. v. Mallon , 409 N.E.2d 1100 , 1105 (Ind. Ct. App. 19 8 0))

. Defender’ s claim is this: if Defender were permitted to move past the pleading stage into discovery, it could “likely show” that the recordings were “communicated to others withi n the organization.” A nd therefore , the recordings would meet the “publica tion ” requirement imposed by the Policy. The first problem with Defender’s argument is that it didn’t need discovery to uncover whether the recordings had been communicated to others within its organization. Defender possessed that information from the outset

— it was Defender’s information , within its access and control. But at no point did Defender allege that any individual accessed the

r ecordings

— not in its complaint, its opposition to summary judgment, or its briefs to this court.

Defender contends that it could not have raised those a llegations at the pleading stage, because “ attaching evidence at the 12(b)(6) stage to send the Court on a fact

- finding mi ssion would have been inappropriate.” Defender, however, misunderstan d s the pleading requirements imposed by the Federal Rules of Civil Procedure

. See Fed. R. Civ. P. 8
, 12(b)(6)

. To survive dismissal, the complaint must give enough factu al information to "state a claim to relief that is12 No. 14

- 1805

plausible on its face

. " Bell Atl. Corp. v. Twombly , 550 U.S. 544,
5 47 (2007). But “allegations in the form of legal conclusions are insufficient.” McReynolds v. Merrill Lynch & Co.
, 694 F.3d
873 , 885 (7th Cir. 2012) (citing Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009)). As are “[t] hreadbare recitals of the elements of a cause of action, supported by mere conclu sory statements.” Adams v. City of Indianapolis , 742 F.3d 720, 728 (7th Cir. 2014) (quoting Iqbal
, 556 U.S. at 678). Defender is incorrect in contending that it was procedu rally precluded from providing any facts at the pleading stage to allege that the recordings were communicated to third parties. Defender ’s complaint did not plausibly allege why the Policy provided coverage under the circumstances Defender faced. Nor did it detail why First Mercury’s refusal to defend constituted a breach of its duty to defend. The complaint merely stated that such a duty existed, and that “[ t]he grounds set forth by FMIC for denying coverage are unfounded, groundless, and made in bad faith in an effort to delay and deny making payment under the policy.” But “a llegations in the form of legal conclusions are insufficient” to
survive dismissal , and by that standard Defen der’s co mplaint was already on weak ground

. McReynolds
, 694 F.3d at 885.

Defender could have alleged facts supporting its arg ument that the policy provided it coverage (even under First Mercury’s narrower definition of “publication”) , and ther efore impose d a duty to defend on First Mercury. That would have required some allegation about publicati on (i.e., to a third party) of the recordings at issue

. We agree with D efender that it was not required to attach affidavits in support of its factual allegations

. But if it needed to establish certainNo. 14

- 1805 13

facts as grounds for relief, it should have alleged those facts in its complaint or at least asserted them in opposing dismi ssal in the district court

. After all, nothing prevents a plaintiff opposing dismissal from e laborating on the complaint or even attaching materials to an opposition brief illustrating the facts the plaintiff expects to be able to prove. See Runnion v. Girl Scouts of Greater Chi. and Nw. Ind.
, 786 F.3d 510 , 528 n.8 (7th Cir. 2015) (citing Geinosky v. City of Chicago , 675 F.3d 743, 745 n.1 (7th Cir. 2012)

. Of course, Defender did not have to
prove the facts at the motion to dismiss stage, but it did have

to plead them or at least bring them to the district court’s a ttention in opposing the motion to dismiss

. As we have already concluded, “a plaintiff must provide only enough detail to give the defendant fair notice of what the claim is and the grounds upon which it rests, and, through his allegations, show that it is plausible, rather than merely s peculative, that he is entitled to relief. ” Reger Dev., LLC v. Nat'l City Bank , 592 F.3d 759, 763

– 64 (7th Cir. 2010) (internal quotes omitted) (citing Tamayo v. Blagojevich, 526 F.3d 1074, 1081, 1083 (7th Cir. 2008))
, as amended (Dec. 16, 2010)

. If
, to est ablish coverage under the Policy
, Defender eventually needed to prove that publication occurred, it should have pled sufficient facts to make that showing, or elaborated in its opposition brief on the facts it intended to
prove

. But Defender did neither. Defender’s argument here is in essence an attempt to “argue in the alternative” on appeal without having presen ted the alternative argument below. In the district court, D efender put all of its eggs in the “publication

- means

recording” basket. It did not r aise the alternative argument that even if First Mercury’s narrower definition of “public a-14 No. 14

- 1805

tion” prevailed, Defender satisfied the narrower definition because it communicated the recordings to third parties. D efender could have alleged that fact in its plea dings

— after all, if Defender did communicate the recordings to others, then it knew or should have known that fact. But Defender did not allege it. Nor did it make the argument in its opposition to the motion to dismiss, or move to amend the complaint. The district court committed no error by not considering an argument Defender never made
, based on facts it did not a llege.

III. C ONCLUSION For the foregoing reasons, we AFFIRM the district court’s grant of First Mercury’s motion to dismiss the Defender

com plaint.