Court Opinion

ID: 4190625
Source: CourtListenerOpinion
Date Created: 2017-07-28 18:01:07.46569+00
Date Added: 2024-06-11T14:39:42.944946
License: Public Domain

Case: 15-20104      Document: 00514092806         Page: 1    Date Filed: 07/28/2017

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT

                                                                       United States Court of Appeals

                                      No. 15-20104
                                                                                Fifth Circuit

                                                                              FILED
                                                                          July 28, 2017

URETEK (USA), INCORPORATED,                                              Lyle W. Cayce
                                                                              Clerk
              Plaintiff–Appellant,

v.

CONTINENTAL CASUALTY COMPANY,

              Defendant–Appellee.

                   Appeal from the United States District Court
                        for the Southern District of Texas
                             USDC No. 4:13-CV-3746

Before OWEN, GRAVES, and HIGGINSON, Circuit Judges.
PER CURIAM:*
       In this insurance coverage dispute, Uretek (USA), Inc. (Uretek) sought a
defense from Continental Casualty Co. (Continental), its commercial general
liability insurer, in connection with a counterclaim filed by a rival. Continental
declined to defend the suit and Uretek sued, seeking a declaratory judgment,
damages for breach of contract, and punitive damages. The district court
entered summary judgment for Continental, concluding that none of

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 15-20104           Document: 00514092806        Page: 2    Date Filed: 07/28/2017

                                         No. 15-20104
allegations in the counterclaim came within the policy’s “personal and
advertising injury” coverage. For the reasons that follow, we reverse and
remand for further proceedings.
                                                I
         Uretek is a roadway maintenance and repair company insured by a
commercial general liability policy issued by Continental. The policy includes
provisions that required Continental to defend Uretek against suits seeking
damages for “personal and advertising injury.”
         The policy provides that personal and advertising injury is “injury . . .
arising out of one or more” of seven specified “offenses.”                   Only two are
potentially relevant here: “Oral or written publication, in any manner, of
material that slanders or libels a person or organization or disparages a
person’s or organization’s goods, products or services” and “[t]he use of
another’s advertising idea in [Uretek’s] ‘advertisement.’” An exclusion in the
policy provides that there is no coverage if the injury is caused “with the
knowledge that the act would violate the rights of another and would inflict
‘personal and advertising injury,’” or where it arises from the publication of
material “with knowledge of its falsity.”
         Uretek sued its competitor, Applied Polymerics, Inc. (Applied), for patent
infringement. Applied asserted a counterclaim against Uretek, and Uretek
demanded that Continental defend it against Applied’s claims in that
counterclaim.
         The parties agree that Texas state law applies to this coverage dispute.
In Texas, the scope of an insurer’s duty to defend an insured is determined by
the “eight-corners rule.” 1 “Under that rule, courts look to the facts alleged

         1   Test Masters Educ. Servs., Inc. v. State Farm Lloyds, 791 F.3d 561, 564 (5th Cir.
2015).
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within the four corners of the . . . pleadings, measure them against the
language within the four corners of the insurance policy, and determine if the
facts alleged present a matter that could potentially be covered by the
insurance policy.” 2
       It is the underlying factual allegations of the complaint—not its legal
theories—that guide the inquiry, 3 and those allegations are considered
“without regard to their truth or falsity.” 4 Courts give factual allegations in
the pleadings “a liberal interpretation” 5 and “may draw inferences” from the
pleadings in favor of coverage. 6 At the same time, they must not “read facts
into the pleadings,” “look outside the pleadings,” or “‘imagine factual scenarios
which might trigger coverage.’” 7 “[T]he general rule is that the insurer is
obligated to defend if there is, potentially, a case under the complaint within
the coverage of the policy.” 8 If a complaint “includes even one covered claim,
the insurer must defend the entire suit.” 9               “Whether an insurer owes its
insured a duty to defend is a question of law,” 10 and the district court’s
determination of state law is subject to de novo review. 11

       2  Id. (quoting Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 33 (Tex. 2014)).
       3  Id.
        4 Id. (quoting Ewing, 420 S.W.3d at 33).
        5 Nat’l Union Fire Ins. Co. of Pittsburgh v. Merchants Fast Motor Lines, Inc., 939

S.W.2d 139, 141 (Tex. 1997) (per curiam).
        6 Gore Design Completions v. Hartford Fire Ins. Co., 538 F.3d 365, 369 (5th Cir. 2008)

(quoting Gen. Star. Indem. Co. v. Gulf Coast Marine Assocs., 252 S.W.2d 450, 456 (Tex. App.—
Houston [14th Dist.] 2008, pet. denied)).
        7 St. Paul Ins. Co. v. Tex. Dep’t of Transp., 999 S.W.2d 881, 885 (Tex. App.—Austin

1999, pet. denied) (quoting Merchants Fast Motor Lines, 939 S.W.2d at 142).
        8 Id. at 884 (quoting Merchants Fast Motor Lines, 939 S.W.2d at 141).
        9 Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 380 (Tex. 2012).
        10 Koenig v. First Am. Title Ins. Co., 209 S.W.3d 870, 873 (Tex. App.—Houston [14th

Dist.] 2006, no pet.).
        11 Anco Insulations, Inc. v. Nat’l Union Fire Ins. Co., 787 F.3d 276, 281 (5th Cir. 2015)

(per curiam).
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                                     No. 15-20104
       Any ambiguities in a policy are resolved in favor of the insured. Texas
follows the well-established rule that “[t]erms in insurance policies that are
subject to more than one reasonable construction are interpreted in favor of
coverage.” 12
       Continental’s duty to defend extended to suits against Uretek seeking
damages for an “injury . . . arising out of . . . [the] [o]ral or written publication,
in any manner, of material that . . . disparages a person’s or organization’s
goods, products or services.” The term disparage is not a technical or industry-
specific term, and so we are guided by its “plain, ordinary, and generally
accepted meaning”; a suit need not incorporate each “element[] of the business
tort of disparagement” to be covered by the policy. 13 So defined, to disparage
is “‘to lower in rank or reputation; degrade’ or ‘speak slightingly about.’” 14
       Uretek maintains that the injuries Applied asserted in its counterclaim
arise out of disparagement and therefore come within Uretek’s policy’s
coverage for suits alleging personal or advertising injury. Uretek argues that
Applied alleged that Uretek made statements to Allied’s customers or potential
customers that Allied could not undertake to work on various projects without
infringing on Uretek’s patent and that carried the necessary implication that
Allied had no right to undertake this work.
       The district court reasoned that “[i]f Applied had alleged that Uretek told
customers that Applied had infringed the ‘831 Patent, the Court would agree
that the alleged communication constituted ‘disparage[ment]’ under the Policy
and triggered CCC’s duty to defend.” The district court concluded, however,

       12 Gilbert Tex. Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 133
(Tex. 2010).
       13 KLN Steel Prods. Co. v. CNA Ins. Cos., 278 S.W.3d 429, 438 (Tex. App.—San Antonio

2008, pet. denied).
       14 Id. (emphasis removed) (quoting MERRIAM–WEBSTER'S COLLEGIATE DICTIONARY

360 (11th ed. 2003)).
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                                  No. 15-20104
that Allied had not alleged that Uretek told customers that Applied had
infringed the ‘831 patent. With great respect, we disagree with the district
court and conclude that Allied’s counterclaim did include such allegations.
       In   Allied’s   counterclaim,   in       paragraph   6   under   the   heading
“Background,” Applied asserted that Uretek had
      engaged in a pattern or practice of misrepresenting the scope of
      the ‘831 patent in a concerted effort to intimidate and coerce
      [Uretek’s] competitors into refraining from proper and lawful
      bidding on, and to intimidate contracting bodies in the selection
      and award of bids for, construction projects for which the scope of
      work does not involve processes covered by the ‘831 Patent.

Uretek did so, Applied alleged, “despite having information and knowledge
that [the] ‘831 patent [was] not valid or enforceable.
      Then, more specifically, Applied’s counterclaim recounts that it had
entered into a contract with the Virginia Department of Transportation
(VDOT) to perform work on Interstate 664.             In paragraph 14 of Count I,
Applied alleged that Uretek “falsely misrepresented to general contractors,
VDOT, and other roadway-owning government authorities that the VDOT
contract for I-664 . . . and/or other contracts let for bid are covered by the ‘831
patent.”    This is an allegation that Uretek told VDOT, who was Allied’s
customer, and others, that Allied had infringed the ‘831 patent with regard to
the contract between Allied and VDOT for work on Interstate 664.
       Allied also asserted that these misrepresentations by Uretek “deceived
or had a tendency to deceive a substantial segment of Applied’s roadway-
owning government authority customers, general contractor customers, and
potential customers” and that Allied received fewer contracts for pavement
lifting work. The second count in Allied’s counterclaim against Uretek alleged

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                                       No. 15-20104
violations of the Sherman Act, 15 and it made reference to the VDOT contract.
Uretek, the counterclaim alleged, inhibited competition by representing to
government agencies and others that certain pavement lifting work—including
work performed under the VDOT contract—fell within the scope of Uretek’s
‘831 patent. The third count of Applied’s counterclaim alleged a violation of
North Carolina unfair competition law. 16 This count alleged that Applied was
injured by Uretek’s “illegal and anti-competitive acts.”
       A statement to a competitor’s customer that the competitor is
undertaking work that it has no legal right to undertake disparages that
competitor and the services it offers by clear implication. 17                Resolving all
reasonable disputes about the term disparage in favor of the insured and
interpreting the complaint liberally, as we must, we conclude that the term is
sufficiently broad to include Applied’s allegations. It follows that the suit
against Uretek alleged a “personal and advertising injury” and thus fell within
the scope of Continental’s duty to defend.
       Continental’s reliance on KLN Steel Products Co. v. CNA Insurance
Cos. 18 on this point is misplaced. In KLN Steel, KLN was sued by a competitor
for manipulating the bidding process to supply beds to a Navy training
facility. 19 The factual allegations, as relevant here, were that KLN falsely
“overstated its status as the designer and developer of the . . . bed” in

       15 See 15 U.S.C. § 2.
       16 See N.C. GEN. STAT. § 75-1.1.
       17 See Amerisure Ins. Co. v. Laserage Tech. Corp., 2 F. Supp. 2d 296, 304 (W.D.N.Y.

1998) (concluding “wrongfully asserting that a competitor’s product infringes patents clearly
defames the competitor and disparages his product”); Atl. Mut. Ins. Co. v. J. Lamb, Inc., 123
Cal. Rptr 2d 256, 269 (Cal. Ct. App. 2002) (finding allegations of patent infringement “clearly
allege a disparagement of both [the competitor] as well as its products”); see also Hartford
Cas. Ins. Co. v. Swift Distribution, Inc., 326 P.3d 253, 263-64 (Cal. 2014) (finding duty to
defend when the underlying suit alleges statements that “specifically refer to and derogate a
competitor’s product or business by clear implication”).
       18 278 S.W.3d 429 (Tex. App.—San Antonio 2008, pet. denied).
       19 Id. at 433-34.

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                                   No. 15-20104
conversations with contracting officers. 20 KLN argued that a “liberal reading”
of those allegations is that “KLN belittled or disparaged [its competitor’s] beds
by representing that [the competitor’s] beds were not original designs.” 21 A
Texas court of appeals concluded KLN’s insurer had no duty to defend the suit
under a policy similar to the one at issue here because “the complaint does not
allege that KLN disparaged or published any negative remarks about the
[competitor’s] bed or [the competitor].” 22
      KLN Steel is distinguishable from the present case.             Unlike the
allegations at issue in KLN Steel, at least one of Uretek’s alleged
misrepresentations was directed at a particular potential customer in
reference to a particular project that a competitor was undertaking. It thus
impugned a particular competitor and its services by necessary implication.
The statement imputed to KLN, on the other hand, lacks that degree of
specificity; the suit claimed that KLN had “overstated its status as the designer
and developer of the . . . bed” in discussions with the contracting authority. 23
In addition, the differing nature and magnitude of the statements alleged—
one asserting it was the only company legally entitled to conduct certain work,
the other merely claiming that it was the first to develop a certain product—
argues against the mechanical application of KLN Steel here. The holding of
that case is simply not broad enough to determine the result in ours.
      Finally, Continental urges us to affirm the district court on the alternate
basis that its policies “limit disparagement coverage to liability for ‘injury’
arising out of a covered disparagement offense,” and the suit against Uretek,
it claims, alleged no such injury. To the extent that Continental assumes that

      20 Id. at 439.
      21 Id. at 438.
      22 Id. at 439.
      23 Id. at 433-34.

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                                       No. 15-20104
the underlying suit must meet the pleading requirements for the tort of
business disparagement, it is mistaken. As we have noted above, the term
disparage in the policy must be interpreted in accordance with its ordinary
meaning and not understood as a reference to a particular cause of action. 24
The suit’s allegations that “[Uretek’s] deceptions . . . influenced decisions to
have work performed and award contracts that Applied would have been
awarded but for [Uretek’s] false representations” are adequate to meet the
requirement that the suit allege an “injury” arising from “disparagement.”
                                             II
       Continental contends that even if Uretek establishes that the underlying
suit falls within the policy’s “personal and advertising injury” coverage, two of
the policy’s exclusions apply. The first exclusion at issue precludes coverage if
an injury is caused “with the knowledge that the act would violate the rights
of another and would inflict personal and advertising injury”; the second
precludes coverage if the personal or advertising injury in question arises from
the oral or written publication of material “with knowledge of its falsity.”
       Under Texas law, the insurer bears the burden of proving the
applicability of any policy exclusions. 25 “Exclusions are narrowly construed,
and all reasonable inferences must be drawn in the insured’s favor.” 26 To
prevail, the insurer generally must demonstrate that all of the claims against
the insured “allege[] facts that exclude coverage” under the policy. 27 When at

       24 See id. at 438.
       25 Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 553 (5th Cir. 2004).
       26 Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 370 (5th Cir.

2008) (citing Gen. Star Indem. Co. v. Gulf Coast Marine Assocs., Inc., 252 S.W.3d 450, 458-59
(Tex. App.—Houston [14th Dist.] 2008, pet. denied)).
       27 Burlington Ins. Co. v. Superior Nationwide Logistics, Ltd., 783 F. Supp. 2d 958, 965

(S.D. Tex. 2010) (citing Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82–83
(Tex. 1997) (per curiam)), aff’d, 427 F. App’x 299 (5th Cir. 2011) (per curiam).
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                                      No. 15-20104
least one cause of action falls within the policy coverage and outside the
exclusions, the insurer “must defend the entire suit.” 28
       On the facts of this case, we conclude that neither exclusion applies
because the complaint alleged both intentional and merely negligent conduct.
While it is certainly true that allegations of intentional conduct figure
prominently in Applied’s complaint, the complaint also alleges that Uretek
merely “knew or should have known” that certain representations about the
scope of its patent were false. The allegations concerning the I-664 contract
that Applied was performing for VDOT illustrate this point. The complaint
alleges that Uretek “had [an] opportunity” to inspect the contract terms and
the work being performed on the VDOT contract and therefore “knew or should
have known that the VDOT Contract and the work being performed by Applied
did not infringe any of the claims of [Uretek’s] [p]atent.” It is thus clear that
Applied could establish Uretek’s liability under the Lanham Act—which does
not require intentional conduct—by showing that Uretek made false
statements about the I-664 project negligently or recklessly. 29                  Because
Applied could prevail under the factual allegations of the complaint by proving
even an unintentional misrepresentation by Uretek, this case falls outside the
policy’s exclusions for knowing violation of another’s rights and for statements
made with knowledge of their falsity.

       28  Am. Home Assur. Co. v. United Space Alliance, LLC, 378 F.3d 482, 488 (5th Cir.
2004) (quoting Stumph v. Dallas Fire Ins. Co., 34 S.W.3d 722, 728 (Tex. App.—Austin 2000,
no pet.)).
        29 See Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489, 495 (5th Cir. 2000)

(listing of elements of Lanham Act claim without any reference to defendant’s intent); 5 J.
THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 27:24 (4th ed.)
(same).
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                                 No. 15-20104
                                 *     *       *
     For the foregoing reasons, the district court’s entry of summary
judgment for Continental is REVERSED and the case is REMANDED for
further proceedings.

                                      10