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Timestamp: 2019-04-22 14:05:25+00:00

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FindACase | National Trust Insurance Co. v. Heaven Hill Distilleries, Inc.
National Trust Insurance Co. v. Heaven Hill Distilleries, Inc.
HEAVEN HILL DISTILLERIES, INC., Defendant.
Plaintiff National Trust Insurance Company filed this action seeking a declaratory judgment that it has no duty to defend or indemnify Defendant Heaven Hill Distilleries pursuant to six insurance policies National Trust sold to Heaven Hill between 2011 and 2014. The dispute arises from a lawsuit filed in Canadian Federal Court in which Diageo Canada, Inc. alleged that Heaven Hill infringed its registered trademarks. In an opinion issued on June 12, 2017, the Canadian court held that Heaven Hill infringed Diageo's trademarks. The court found, however, that Heaven Hill did not knowingly do so.
Before the Court are three motions: National Trust's motion for clarification of this Court's April 28, 2015 Order (Docket No. 41), Heaven Hill's motion for partial summary judgment (D.N. 44), and Starr Indemnity & Liability Company's motion to intervene as a plaintiff in this action (D.N. 61). National Trust's and Heaven Hill's motions raise two issues: (i) whether the Canadian court's determination that Heaven Hill did not knowingly infringe Diageo's trademarks binds National Trust and (ii) whether National Trust may seek reimbursement of the costs it incurred defending Heaven Hill in the Canadian litigation. For the reasons set forth below, the Court will grant in part and deny in part National Trust's motion, grant in part and deny in part Heaven Hill's motion, and grant Starr's motion.
On June 12, 2017, while these motions were pending, the Canadian Federal Court issued its decision in the underlying lawsuit, concluding that Heaven Hill had infringed Diageo's trademarks. See Diageo Canada Inc. v. Heaven Hill Distilleries, Inc., 2017 F.C. 571 (Can. Ont.). The Canadian court also found that there was insufficient evidence to conclude that Heaven Hill acted knowingly in so infringing. Id. at ¶ 84.
Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “In deciding a motion for summary judgment, the court must view the factual evidence and draw all reasonable inferences in favor of the nonmoving party.” Banks v. Wolfe Cty. Bd. of Educ., 330 F.3d 888, 892 (6th Cir. 2003) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). “While all inferences are drawn in favor of the non-moving party, that party still must present some affirmative evidence supporting its position to defeat an otherwise appropriate motion for summary judgment.” Tucker v. Tennessee, 539 F.3d 526, 531 (6th Cir. 2008).
In its motion for clarification, National Trust argues that the Canadian court's determination regarding Heaven Hill's knowledge should not bar it from litigating that issue in the present action. (D.N. 41) Heaven Hill seeks summary judgment on the same question, arguing that National Trust is so barred. (D.N. 44) The initial difficulty in resolving this dispute results from the parties' reliance on two distinct areas of law in support of their positions. National Trust supports its argument by citing an exception to the doctrine of collateral estoppel. (D.N. 41-1, PageID # 629-43) Relying on contract principles, Heaven Hill argues that regardless of any preclusive effect, National Trust is barred from litigating the knowledge issue under the express terms of the policies. (D.N. 44-1, PageID # 668-85) The Court concludes that National Trust's position is correct and that National Trust is therefore not barred from litigating the knowledge issue.
Heaven Hill argues that “[u]nder the express terms of the Policies, National Trust's duty to indemnify Heaven Hill is determined solely by the nature of the underlying judgment.” (D.N. 44-1, PageID # 659) Because this is a diversity action, Kentucky law governs issues of contract interpretation. Erie v. Tompkins, 304 U.S. 64 (1938); see also Associated Indus. of Ky., Inc. v. U.S. Liab. Ins. Grp., 531 F.3d 462, 465 (6th Cir. 2008) (applying Kentucky law in a diversity action concerning the interpretation of an insurance contract).
Heaven Hill argues that based on the provisions cited above, “National Trust's duty to indemnify Heaven Hill is triggered and becomes fixed when Heaven Hill becomes ‘legally obligated to pay damages' on account of conduct that constitutes a ‘personal and advertising injury' that is covered by the Policies.” (D.N. 44-1, PageID # 659) In other words, Heaven Hill claims that upon a determination by the Canadian court that Heaven Hill did not act knowingly, Heaven Hill became liable for a “personal and advertising injury” (i.e., a judgment against Heaven Hill for negligent infringement of trade dress) that falls within the policies' coverage.
This is a strained reading of the policies' terms, however. Under Heaven Hill's reading, the exclusionary phrase “to which this insurance applies” is linked to any underlying judgment against Heaven Hill. But “a limiting clause or phrase . . . should ordinarily be read as modifying only the noun or phrase that it immediately follows.” See Lockhart v. United States, 136 S.Ct. 958, 963 (2016) (citing Barnhart v. Thomas, 540 U.S. 20, 26 (2003)). Thus, the exclusionary phrase “to which this insurance applies” modifies the phrase “personal and advertising injury, ” which exclusively refers to Heaven Hill's conduct (i.e., type of damage) rather than any underlying judgment. Indeed, the policies define “personal and advertising injury” to include “injury . . . arising out of . . . infringing upon another's . . . trade dress.” (D.N. 1-2, PageID # 117 (emphasis added)) The exclusionary phrase is therefore linked to the underlying conduct or type of damage giving rise to the judgment, rather than the judgment itself.
This interpretation is in line with how courts have interpreted similar exclusionary phrases. The Kentucky Supreme Court has noted that “[t]he qualifying phrase, ‘to which this insurance applies' underscores the basic notion that the premium paid by the insured does not buy coverage for all property damage but only for that type of damage provided for in the policy.” Kemper Nat'l Ins. Cos. v. Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 876 (Ky. 2002) (emphasis added)); see also City of Sandusky, Ohio v. Coregis Ins. Co., 192 F. App'x 355, 360 (6th Cir. 2006) (finding that under principles of Ohio contract interpretation, the phrase “to which this insurance applies” “does not include sums payable only because of the success of claims that were plainly not otherwise covered by the insurance policy”); Mid-Continent Cas. Co. v. Petroleum Sols., Inc., No. CV 4:09-0422, 2016 WL 5539895, at *23 (S.D. Tex. Sept. 29, 2016) (finding that the phrase “property damage to which this insurance applies” referred not to whether liability was found in the underlying judgment but whether the damage was caused by an occurrence in the coverage territory).
Accordingly, there must be a determination of whether Heaven Hill's conduct falls within the policies' coverage. The question here is whether a finding in underlying litigation that bears on this determination binds the insurer in subsequent proceedings. When presented with policy language similar to the language at issue here, courts have consistently determined the preclusive effect of findings made in underlying litigation using principles of collateral estoppel rather than contract interpretation. See, e.g., Allstate Ins. Co. v. Blount, 491 F.3d 903, 910 (8th Cir. 2007) (analyzing the preclusive effects of an underlying criminal action in determining whether the “criminal act exclusion” of an insurance policy was triggered); Berry Plastics Corp. v. Ill. Nat'l Ins. Co., 244 F.Supp.3d 839 (S.D. Ind. 2017) (analyzing the preclusive effect of a jury finding regarding damages in an underlying action to determine whether the insurer could challenge whether the damages were covered “property damages”); Eckstein v. Cincinnati Ins. Co., 469 F.Supp.2d 444 (W.D. Ky. 2007) (addressing whether collateral estoppel barred an insurer from litigating certain issues in light of findings made in an underlying action); Nationwide Mut. Fire. Ins. Co. v. Stanley, 403 F.Supp.2d 638, 644 (E.D. Tenn. 2005) (analyzing the preclusive effects on an underlying criminal action in determining whether the “intent exclusion” of an insurance policy was triggered).

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