Court Opinion

ID: 9494050
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:27:59.729541+00
Date Added: 2024-06-11T17:56:11.699650
License: Public Domain

SOTOMAYOR, Circuit Judge,
dissenting in part:
I am in agreement with the majority on all matters except the duty to defend. The majority holds that even when an insurance policy exclusion unambiguously denies coverage, an insurer will need to defend a suit whenever it is “uncertain” that this Court would have concluded that the policy exclusion was unambiguous. Ante at 620-23. Because I find no such requirement in New York law, I respectfully dissent from Part II.A. of the majority’s opinion.1
*626This panel has unanimously found that the intellectual property exclusion at issue unambiguously denies indemnification for BMC’s claims against HB USA. Ante at 619-20. We found this exclusionary clause unambiguous despite a district court opinion from this circuit stating contrary views regarding the relevant legal terms because “New York law is clear that the mere existence of a split in judicial authority is not sufficient to create contract ambiguity.” Ante at 619 n. 8. An unambiguous policy exclusion demonstrates the will of the parties to deny coverage of the excluded liabilities. See Morlee Sales Corp. v. Mfrs. Trust Co., 9 N.Y.2d 16, 210 N.Y.S.2d 516, 172 N.E.2d 280, 282 (1961) (“[A] contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language employed.”). Nevertheless, the majority finds that Federal still had a duty to defend HB USA “because it was not certain, at the time plaintiffs sought coverage from the insurer,” that the exclusionary clause “would be deemed by this court to be unambiguous.” Ante at 625. The majority cites no case, and I have found none, in which a court has imposed the duty to defend despite the unambiguous language of an insurance policy excluding coverage.
The majority’s attempt to establish a two-tiered standard for legal clarity — requiring “unambiguous” legal terms to disclaim the duty to indemnify, but requiring unambiguous legal terms that courts will recognize with certainty to disclaim the duty to defend — finds no basis in New York law. New York courts pursue the same inquiry into the objective clarity of policy terms regardless of whether the duty to defend or the duty to indemnify is at stake.
Concerning the duty to indemnify, a policy term is “ambiguous,” as the majority notes, if it is “capable of more than one meaning when viewed objectively by a reasonably intelligent person,” Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp., 818 F.2d 260, 263 (2d Cir.1987), and, conversely, it is unambiguous if “there is no reasonable basis for a difference of opinion” as to its meaning. Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir.1989) (quoting Breed v. Ins. Co. of N. Am., 46 N.Y.2d 351, 413 N.Y.S.2d 352, 385 N.E.2d 1280, 1282 (1978)). In this regard, the majority finds that a contrary view of the law expressed in A Touch of Class Imports, Ltd. v. Aetna Cas. and Sur. Co., 901 F.Supp. 175 (S.D.N.Y.1995), does not create an ambiguity. Ante at 619 n. 8.
Turning to the duty to defend, New York courts have similarly relied on an objective measure of the reasonableness of a policy interpretation to determine coverage. See Cont’l Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 593 N.Y.S.2d 966, 609 N.E.2d 506, 512 (1993) (“To negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is ... subject to no other reasonable interpretation....”); Seaboard Sur. Co., 486 N.Y.S.2d 873, 476 N.E.2d at 275 (“[S]o long as the claims [asserted against the insured] may rationally be said to fall within policy coverage, whatever may later prove to be the limits of the insurer’s responsibility to pay, there is no doubt that it is obligated to defend.”) (internal quotation marks omitted). Accordingly, the duty to defend is affected no more than the duty to indemnify by a contrary finding in A Touch of Class. See Breed, 413 N.Y.S.2d 352, 385 N.E.2d at 1283 (rejecting the proposition that a “‘split’ in Judges and in courts and even [in] the combined judicial and legal experience of those who have reviewed this matter and arrived at different results” is necessarily indicative of an “ambiguous” exclusionary clause).
*627The uniformity in the standards used to judge the clarity of policy terms for both the duties to indemnify and defend is demonstrated by New York cases that determine both duties with reference to whether the policy terms are “ambiguous.” In a suit involving the duty to defend, the New York Court of Appeals found, for example, that “[i]f the language of the policy is doubtful or uncertain in its meaning, any ambiguity must be resolved in favor of the insured against the insurer.” Westview Assocs. v. Guar. Nat’l Ins. Co., 95 N.Y.2d 334, 717 N.Y.S.2d 75, 740 N.E.2d 220, 223 (2000). Other courts interpreting New York law have similarly judged the clarity necessary to establish the scope of coverage under a single legal standard despite the fact that two different legal duties were at issue.2
The majority errs in confusing two types of uncertainty. The first is cognizable under New York law, the second is not. The first concerns the period during which the underlying action is pending when the insurer must defend the insured against any allegations that, if proven, would result in indemnification. This type of uncertainty is a well-established element of New York insurance law and is unquestioned here. The majority attempts to read a second category of “uncertainty” into New York law, however, concerning how a court might rule on the scope of policy terms. No such “uncertainty” is recognized under New York law apart from that arising from an “ambiguous” policy term.
Beginning with the first category of uncertainty, it is undisputed that unproven allegations may trigger the duty to defend. This is because “[t]he duty to defend is measured against the allegations of pleadings but the duty to pay is determined by the actual basis for the insured’s liability....” Servidone Constr. Corp. v. Sec. Ins. Co. of Hartford, 64 N.Y.2d 419, 488 *628N.Y.S.2d 139, 477 N.E.2d 441, 444 (1985). Thus, even if the insurer is convinced that any allegations that would bring the claim within the policy’s coverage are without merit, the insurer must continue to assume that the plaintiff can prove facts supporting these allegations that “fall within the risk covered by the policy.” Sturges Mfg. Co. v. Utica Mut. Ins. Co., 37 N.Y.2d 69, 371 N.Y.S.2d 444, 332 N.E.2d 319, 321 (1975) (internal quotation marks omitted); see also Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 486 N.Y.S.2d 873, 476 N.E.2d 272, 275 (1984) (“[T]he duty of the insurer to defend the insured rests solely on whether the complaint alleges any facts or grounds which bring the action within the protection purchased.”). Until this assumption is disproved, the ability of an insurer to avoid indemnification is not “certain,” and the duty to defend continues to attach. The oft-repeated maxim that “the insurer’s duty to furnish a defense is broader than its obligation to indemnify,” Seaboard Sur. Co., 486 N.Y.S.2d 873, 476 N.E.2d at 275, remains true because what a plaintiff alleges is often broader than what it can prove.3
Doubt as to what the insurance policy means is a different issue. When, as here, the policy contains a legal term, i.e. “trademarked slogans,” the determination of whether this term was unambiguous at the time the parties signed the policy does not require a final determination of liability. Moreover, a decision that the policy term is “unambiguous” does not prospectively clarify what had been unclear, but merely retrospectively ascertains that the law was unambiguous at the time that the policy was signed. In order to determine its duties under a policy, insurers are, as a matter of course, called upon to survey the relevant law and scrutinize the language of the policy to judge whether its terms are unambiguous. Insurers may err in their judgment concerning the unambiguity of a policy term but are given strong incentives to decide these questions correctly. If they do not, they can be forced to defend a costly coverage action or, if the finding of unambiguity was so far off the mark that “no reasonable [insurance] carrier would, under the given facts, be expected to assert it,” Sukup v. State, 19 N.Y.2d 519, 281 N.Y.S.2d 28, 227 N.E.2d 842, 844 (1967), insurers can face even greater liabilities for breaching their duty of good faith.
All of this assumes that we entrust insurers with the initial decision concerning whether policy terms are unambiguous. In the case of a policy that uses a legal term of art, this inquiry requires a determination of whether that term of art is unambiguous. The rule that the majority correctly takes from the New York Court of Appeals “that the mere existence of a split in judicial authority is not sufficient to create contract ambiguity,” ante at 619 n. 8, is not meant to be applied only by courts, but also by insurers and anyone else who seeks to determine what the law is. The irony is that the majority agrees with Federal’s assessment that, at the time the parties entered into this policy, the term “trademarked slogan” did not include a house mark like “Boss” because, as we *629explain, trademark law employs the term “trademarked slogan” to refer to a word or phrase used to advertise a house or product mark.4 This elemental observation regarding trademark terminology was no less clear to Federal in interpreting HB USA’s coverage as it was to this Court in deciding this case. And yet, the majority wants to deny Federal the opportunity to reach the same conclusion we have reached. It is difficult to understand why we should discourage Federal or any other insurer from making such determinations that are, in any case, subject to review and even sanction if erroneous.
I expect that considerable difficulties await those who try to respond to the majority’s invitation to predict when it is “uncertain” that this Court, or any court, will recognize an unambiguous policy provision for what it is. Some may find it hard, as I do, to comprehend how it could ever be “uncertain” that this Court would recognize that an unambiguous policy exclusion is, in fact, unambiguous. For others who take up the task of defining “certainty” apart from and beyond the high standard of unambiguity, the majority offers no guidance. Followed to its logical limits, the only “certainty” as to New York law would come from the New York Court of Appeals ruling on the meaning of the same legal term within the context of the precise facts at issue, an unlikely prospect. For purposes of the duty to defend, this would effectively render the unambiguity of a policy’s exclusionary clause a nullity until such time as the New York Court of Appeal decides an identical case.5
I find no support for this expansion of the duty to defend and, therefore, respectfully dissent from the majority’s affir-mance of the district court’s grant of partial summary judgment to HB USA on the duty to defend and corresponding award of damages.

. In view of the panel's failure to agree on the status of New York law on this issue, I would have certified this question to the New York Court of Appeals.

. See, e.g., McCostis v. Home Ins. Co. of Ind., 31 F.3d 110, 112-13 (2d Cir.1994) (applying New York law) (vacating judgment that insurer had no duty to defend after finding insurance policy exclusion was "ambiguous”); United Nat’l Ins. Co. v. Waterfront N.Y. Realty Corp., 994 F.2d 105, 107 (2d Cir.1993) (applying New York law) (relieving insurer of duty to defend and duty to indemnify finding that "[t]he primary question presented is whether the assault and battery exclusion is ambiguous” and that "[a]n ambiguity is present only where each of the competing interpretations is objectively reasonable”); Bd. of Managers of Yardarm Condo. II v. Fed. Ins. Co., 247 A.D.2d 499, 669 N.Y.S.2d 332, 333 (2d Dep't 1998) (relieving insurer of duty to defend and duty to indemnify after determining insurance contract terms were unambiguous); Hartford Ins. Co. of the Midwest v. Halt, 223 A.D.2d 204, 646 N.Y.S.2d 589, 594 (4th Dep’t 1996) (relieving insurer of duty to defend and duty to indemnify finding, despite split in judicial authority, that "where the provisions of an insurance contract are clear and unambiguous, they must be enforced as written”); Direct Travel v. Aetna Cas. and Sur. Co., 214 A.D.2d 484, 625 N.Y.S.2d 221, 222 (1st Dep't 1995) (relieving insurer of duty to defend and duty to indemnify finding "[t]here was no ambiguity in the declarations page of the primary policy with respect to professional liability coverage”); Pergament Distribs., Inc. v. Old Republic Ins. Co., 128 A.D.2d 760, 513 N.Y.S.2d 467, 468 (2d Dep’t 1987) (relieving insurer of duty to defend and duty to indemnify explaining that "[ajlthough it is true that any ambiguity in an insurance contract must be resolved in favor of the insured, the court should not strain itself to find an ambiguity where words have a definite and precise meaning”); Bianco v. Travelers Ins. Co., 99 A.D.2d 629, 472 N.Y.S.2d 184, 185 (3d Dep't 1984) ("Since the exclusion is clear and unambiguous, and since the meaning of its wording, as understood in the plain, ordinary, and popular sense, applies to the undisputed facts of this case ... defendant has no duty to defend.”); J.G.A. Constr. Co. v. Charter Oak Fire Ins. Co., 66 A.D.2d 315, 414 N.Y.S.2d 385, 387 (4th Dep't 1979) (relieving insurer of duty to defend and duty to indemnify finding that "if the policy is ambiguous, the ambiguities (particularly those found in an exclusionary clause) are construed against the insurer”).

. In this regard, the majority misstates my position as advocating a decision on whether the policy is unambiguous "without regard to a factual setting.” Ante at 622 n. 14. All of these issues arise only upon the filing of a complaint against the insured. The insurer then lays the complaint, alleging certain facts and making various legal claims, alongside the policy to determine whether these claims fall within the coverage of (he policy. This is no less true for a "never seen before” set of facts that a complaint may allege. See ante at 622 n. 14. To decide whether it must defend the action, the insurer will, in all cases, assume that the facts are true and proceed to determine whether the policy unambiguously excludes coverage for the claims alleged.

. Additional evidence that trademark law rejects Hugo Boss's bi-polar categorization of trademarks into slogans and non-slogans is found in the precedents of this Circuit. Under established trademark nomenclature, dual meaning words or phrases are known as “descriptive,” or "suggestive” trademarks, and protectable house or product names without a dual meaning are described as "arbitrary” or "fanciful.” See Genesee Brewing Co. v. Stroh Brewing Co., 124 F.3d 137, 142-43 (2d Cir.1997). The notion that these distinctions could be captured by reference to the slogan/non-slogan distinction is completely foreign to the manner in which our law identifies trademarks and affords them protection.
The law of this Court would also reject Hugo Boss's grouping of “Nike,” "McDonald’s,” and "Ford” into a single category of trademarks that do not “convey! ] a meaning.” In contrast to the "fanciful” trademark "Nike,” we have found that trademark protection is extended to "descriptive” surnamed house marks such as "McDonald's” or "Ford” on the basis of their distinctiveness and secondary meaning. See Pirone v. Mac-Millan, Inc., 894 F.2d 579, 583 (2d Cir.1990).

. The majority correctly states that an insurer's responsibility to defend an action can be determined before the underlying claim is resolved by means of a declaratory judgment. Ante at 622. Nevertheless, the fact that this novel duty of "certainty” may be resolved by means of a separate legal action will be of little comfort to those who must assume the costs of this additional litigation in order to determine whether they are free of an obligation found nowhere in New York law.