Court Opinion

ID: 4413321
Source: CourtListenerOpinion
Date Created: 2019-07-02 19:00:10.380622+00
Date Added: 2024-06-11T09:27:26.196771
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 18-2084

                     STERNGOLD DENTAL, LLC,

                      Plaintiff, Appellant,

                               v.

                  HDI GLOBAL INSURANCE COMPANY,

                      Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

       [Hon. George A. O'Toole, Jr., U.S. District Judge]

                             Before

                      Howard, Chief Judge,
              Torruella and Selya, Circuit Judges.

     Sean T. O'Leary, with whom O'Leary Murphy, LLC was on brief,
for appellant.
     Joseph K. Scully, with whom Day Pitney LLP was on brief, for
appellee.

                          July 2, 2019
          SELYA,    Circuit    Judge.          This   appeal     gives    us   an

opportunity to sink our teeth into a sophisticated insurance

coverage question:     we must construe the scope of the so-called

intellectual property exclusion (IP exclusion) to the personal and

advertising injury coverage under a standard commercial general

liability policy (the Policy) issued by defendant-appellee HDI

Global Insurance Company (HDI) to plaintiff-appellant Sterngold

Dental, LLC (Sterngold).      Concluding, as we do, that Sterngold's

arguments lack bite, we affirm the district court's dismissal of

Sterngold's action for failure to state a claim upon which relief

can be granted.

I. BACKGROUND

          The     relevant    facts      are     undisputed.            Sterngold

manufactures and sells dental products.          To safeguard its business

operations,     Sterngold    purchased    the     Policy       (which    covered

Sterngold's commercial activities during the calendar year 2016).

          In pertinent part, the Policy obligated HDI to defend

and indemnify Sterngold against claims arising out of "personal

and advertising injury."      Withal, coverage for such injuries was

subject to certain exclusions.           A specific exclusion — the IP

exclusion — pretermitted coverage for personal and advertising

injury "arising out of the infringement of copyright, patent,

trademark, trade secret or other intellectual property rights."

                                  - 2 -
The case at hand turns on the applicability vel non of this

exclusion.

             The circumstances that sparked this litigation can be

succinctly summarized.    In May of 2016, Intra-Lock International,

Inc. (Intra-Lock), a competitor in the market for dental products,

sued Sterngold in the United States District Court for the Southern

District of Florida. Count 3 of its complaint alleged, inter alia,

that Sterngold infringed Intra-Lock's registered OSSEAN trademark

— a trademark denoting a component of its osseointegrative dental

implant coating product — by using nearly identical marks, OSSEO

and OSSEOs, for a nearly identical product.1    Sterngold asked HDI

to defend the suit and provide indemnification pursuant to the

Policy.   HDI refused Sterngold's request, denying coverage under

the Policy.    When Sterngold reiterated its demand for defense and

indemnification, HDI again demurred.

             Sterngold proceeded to settle the Intra-Lock suit.   At

that point, it made a third attempt to engage HDI.       This time

around, Sterngold asserted that the Policy required that HDI

reimburse Sterngold for the settlement amount.     Once again, HDI

turned a deaf ear to Sterngold's entreaties.

     1 Intra-Lock's complaint contained several other counts, but
the controversy here is limited to count 3. Accordingly, we make
no further mention of the other counts set forth in Intra-Lock's
complaint.

                                - 3 -
          Invoking   diversity     jurisdiction,     see     28   U.S.C.

§ 1332(a), Sterngold repaired to the United States District Court

for the District of Massachusetts.        Pertinently, its complaint

against HDI alleged that the latter had breached its duty to defend

and indemnify Sterngold against Intra-Lock's claim.        HDI responded

by moving to dismiss the complaint.      See Fed. R. Civ. P. 12(b)(6).

Sterngold objected, but the district court granted HDI's motion,

holding that, under the Policy, HDI had no duty either to defend

or indemnify Sterngold in the Intra-Lock suit.             See Sterngold

Dental, LLC v. HDI Global Ins. Co., No. 17-11735, 2018 WL 4696744,

at *4 (D. Mass. Sept. 29, 2018).    This timely appeal followed.

II. ANALYSIS

          We review a district court's dismissal for failure to

state a claim de novo.    See Artuso v. Vertex Pharm., Inc., 637
F.3d 1, 5 (1st Cir. 2011).   "In conducting that review, we accept

as true all well-pleaded facts set forth in the complaint and draw

all reasonable inferences therefrom in the pleader's favor."         Id.

"When . . . a complaint's factual allegations are expressly linked

to — and admittedly dependent upon — a document (the authenticity

of which is not challenged), that document effectively merges into

the pleadings and the trial court can review it in deciding a

motion to dismiss under Rule 12(b)(6)."      Beddall v. State St. Bank

& Tr. Co., 137 F.3d 12, 17 (1st Cir. 1998).        Here, the Policy is

such a document.

                                 - 4 -
                 Since this case arises in diversity jurisdiction,2 state

law supplies the substantive rules of decision.             See Erie R.R. Co.

v. Tompkins, 304 U.S. 64, 78 (1938). This includes "rules relating

to interpretation of [an] insurance policy."               Eaton v. Penn-Am.

Ins. Co., 626 F.3d 113, 114 (1st Cir. 2010).                It is undisputed

that,       in   the   circumstances   of   this   case,   Massachusetts   law

controls.

                 In Massachusetts, an insurer's duty to defend arises

when the facts — in the complaint and known to the insurer —

generally demonstrate a possibility that the liability claim falls

within the scope of the insurance policy.            See B&T Masonry Constr.

Co. v. Pub. Serv. Mut. Ins. Co., 382 F.3d 36, 39 (1st Cir. 2004).

It follows that an inquiring court, tasked with assessing whether

an insurer is duty-bound to its insured, should compare the

allegations of the triggering complaint against the insured to the

provisions of the insurance policy.            See Deutsche Bank Nat'l Ass'n

v. First Am. Title Ins. Co., 991 N.E.2d 638, 641 (Mass. 2013);

Billings v. Commerce Ins. Co., 936 N.E.2d 408, 414 (Mass. 2010).

        2
        HDI originally challenged the propriety of diversity
jurisdiction, asserting that Sterngold had not identified the
citizenship of its members.        See, e.g., ConnectU, LLC v.
Zuckerberg, 522 F.3d 82, 87 (1st Cir. 2008) (recognizing that, for
purposes of diversity jurisdiction, "citizenship of a limited
liability company is to be determined by the citizenship of its
members" (citing Pramco, LLC ex rel. CFSC Consort., LLC v. San
Juan Bay Marina, Inc., 435 F.3d 51, 54-55 (1st Cir. 2006))).
Sterngold augmented the record in a later filing, though, and no
jurisdictional question remains.

                                       - 5 -
The bar is not high, and the insured must be given the benefit of

any reasonable doubt.      See Sanders v. Phoenix Ins. Co., 843 F.3d
37, 43 (1st Cir. 2016) (explaining that, under Massachusetts law,

"[i]f   th[e]   analysis   yields   two     reasonable   (but   conflicting)

interpretations . . . the insured must be given the benefit of the

[more favorable] interpretation").

           An insurer's duty to indemnify the insured is narrower

than its duty to defend.     See id. at 46.      The scope of the duty to

indemnify hinges on whether the judgment — or in this case, the

settlement — is for a covered claim.           See Massamont Ins. Agency,

Inc. v. Utica Mut. Ins. Co., 489 F.3d 71, 73 (1st Cir. 2007).            It

follows, then, that if there is "no duty to defend . . . the

insurer does not have a duty to indemnify."          Sanders, 843 F.3d at

46 (quoting Bagley v. Monticello Ins. Co., 720 N.E.2d 813, 817

(Mass. 1999)).

           As a general matter, it is the insured's burden to show

that the insuring agreements — that is, the overall coverage

provisions of a policy — apply in a given situation.            See Vt. Mut.

Ins. Co. v. Zamsky, 732 F.3d 37, 41 (1st Cir. 2013) (construing

Massachusetts law).    Once such a showing is made, the burden then

shifts to the insurer, which has the opportunity to show that some

exclusion places the claim outside the scope of coverage.            See id.

Should questions surface as to the meaning of the terms in the

policy, we apply conventional rules of contract interpretation to

                                    - 6 -
elucidate the meaning of the questioned terms.                  See Sanders, 843
F.3d at 42.

             Against this backdrop, the case at hand presents a

straightforward question about the meaning and effect of the IP

exclusion.        Sterngold's     claim     is    that   Intra-Lock's    complaint

asserted an advertising injury within the scope of the coverage

afforded by the Policy.           As such, Sterngold insists that HDI was

obligated    to    defend    it    in     the    Intra-Lock    suit    and    furnish

indemnification for any resulting damages (including the eventual

settlement).      HDI rejoins that, even if the injury alleged falls

within the general language of the insuring agreements, the injury

was squarely within the crosshairs of the IP exclusion and, thus,

was excluded from coverage.

             We set the stage.       In pertinent part, the Policy affords

coverage for "sums that the insured becomes legally obligated to

pay as damages because of 'personal and advertising injury.'"                    The

Policy defines "personal and advertising injury" to include the

use   of    "another's      advertising         idea"    or   "[i]nfringing     upon

another's      copyright,         trade     dress        or   slogan     in     [an]

'advertisement.'"      The Policy further provides that publication on

the internet may constitute an advertisement.                   Sterngold argues

that the Intra-Lock complaint alleged a covered advertising injury

— principally, the use of Intra-Lock's advertising idea through

                                        - 7 -
the inclusion of the OSSEO and OSSEOs trademarks in Sterngold's

online advertising.

           The phrase "advertising idea," as used in the Policy, is

somewhat nebulous — but it is not without limits.                  The Supreme

Judicial Court of Massachusetts recently offered some helpful

clarification:     "[i]f the insured took an idea for soliciting

business or an idea about advertising, then the claim" constitutes

an advertising injury for the use of another's advertising idea.

Holyoke Mut. Ins. Co. v. Vibram USA, Inc., 106 N.E.3d 573, 579

(Mass. 2018) (alteration in original) (quoting Auto Sox USA Inc.

v. Zurich N. Am., 88 P.3d 1008, 1011 (Wash. Ct. App. 2004)).                But

if the underlying complaint merely alleges "that the insured

wrongfully took a . . . product and tried to sell that product,"

such an action would not constitute an injury stemming from

another's advertising idea.        Id. (alteration in original) (quoting

Auto Sox USA, 88 P.3d at 1011).

           In its suit against Sterngold, Intra-Lock alleged that

it "acquired value, name and brand recognition, and goodwill in

the   OSSEAN    mark   as    a   result   of    continual    and    substantial

advertising."    Thus, Sterngold's use of "confusingly similar marks

OSSEO and OSSEOs with osseointegrative dental implant coatings in

internet advertising . . . [was] likely to cause confusion,

mistake, and deceive third parties" with respect to an imagined

affiliation    between      Intra-Lock    and   Sterngold.         Given   these

                                     - 8 -
allegations, Sterngold contends that the sums it paid in settlement

were for its appropriation of Intra-Lock's advertising idea and,

therefore, fell within the coverage of the Policy.

          It is not clear to us that Intra-Lock's allegations

concerning the OSSEO and OSSEOs marks can be said to embody an

"advertising idea."     On the one hand, Intra-Lock's OSSEAN mark

could be considered an "idea for soliciting business."        Vibram,
106 N.E.3d at 579 (quoting Auto Sox USA, 88 P.3d at 1011).      On the

other hand, the mark could be thought to convey no idea but,

rather, to serve as a reference to the product itself.

          Here, however, we need not decide the question of whether

Intra-Lock's   OSSEAN   mark,   as   described   in   its   complaint,

constituted an "advertising idea."      Rather than drill down into

this muddy terrain, we simply assume, favorably to Sterngold, that

Intra-Lock's complaint advanced a claim for an advertising injury.

          Even with this favorable assumption in place, Sterngold

does not find safe passage.     The most formidable obstacle that

blocks its way is the IP exclusion, which provides that:

          This insurance does not apply to: . . .
          "Personal and advertising injury" arising out
          of the infringement of copyright, patent,
          trademark, trade secret or other intellectual
          property rights. Under this exclusion, such
          other intellectual property rights do not
          include the use of another's advertising idea
          in your "advertisement".

                                - 9 -
             However, this exclusion does not apply to
             infringement, in your "advertisement", of
             copyright, trade dress or slogan.

The question for us to resolve, therefore, reduces to whether the

advertising injury alleged in Intra-Lock's complaint arose out of

the claimed infringement of Intra-Lock's trademark.

             Under Massachusetts law, "arising out of" indicates a

wide range of causation.       See Brazas Sporting Arms, Inc. v. Am.

Empire Surplus Lines Ins. Co., 220 F.3d 1, 7 (1st Cir. 2000);

Rischitelli v. Safety Ins. Co., 671 N.E.2d 1243, 1245 (Mass. 1996).

The phrase "is generally understood to mean 'originating from,'

'growing    out   of,'   'flowing   from,'   'incident     to,'   or   'having

connection with.'" Brazas Sporting Arms, 220 F.3d at 7 (collecting

cases).     Seen through this prism, the IP exclusion is squarely on

point. As we explain below, the claim that Sterngold says is based

on an advertising idea is alleged to have arisen out of the

infringement of Intra-Lock's trademark.

             To begin, Intra-Lock's complaint labeled its claim as

one   for   the   "Infringement     of   [its]   OSSEAN   Trademark."     The

complaint then asserted that, by means of its described conduct,

Sterngold "willfully infringed upon and diluted [Intra-Lock's]

trademark OSSEAN."        Although part of the concern expressed by

Intra-Lock involved the content of Sterngold's online advertising,

the online advertising was of concern because of how that activity

impacted the uniqueness and strength of Intra-Lock's OSSEAN mark.

                                    - 10 -
Given the gravamen of Intra-Lock's claim, the IP exclusion fits

like a glove.        Consequently, the conclusion is irresistible that

HDI owed no duty either to defend or indemnify Sterngold with

respect to Intra-Lock's claim.

              To    be   sure,   the     concept    of     an    advertising        injury

sometimes may overlap with the concept of trademark infringement.

Cf. State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co. of

Am., 343 F.3d 249, 258 (4th Cir. 2003) (noting that "a trademark

plays an important role in advertising a company's products").

But   the    very    fact   that   the    Policy        contains      an   IP    exclusion

encompassing trademark infringement claims signals an awareness of

this relationship.          And where, as here, the alleged advertising

injury arises from a trademark infringement claim, that injury is

manifestly excluded from coverage.

              Sterngold     fights     tooth      and    nail    to    undermine         this

conclusion.        Even so, Sterngold does not point to any ambiguity in

the policy language pertaining to trademark infringement claims.

Cf.     Certain     Interested     Underwriters          at     Lloyd's,        London    v.

Stolberg, 680 F.3d 61, 66 (1st Cir. 2012) ("An ambiguity must be

real.       A policy provision will not be deemed ambiguous simply

because the parties quibble over its meaning.").                           Instead, its

argument rests on the premise that the facts alleged by Intra-Lock

amount to a covered claim.           To this end, it places great weight on

the second sentence of the IP exclusion, which instructs that "such

                                         - 11 -
other intellectual property rights do not include the use of

another's advertising idea in your 'advertisement.'"                Given that

the advertising injury stems from Sterngold's use of Intra-Lock's

advertising idea, Sterngold's thesis runs, the claim asserted

nestles within the scope of coverage under the Policy.

            But   reality   has    sharp   teeth,    and   a   straightforward

reading    of     the    language     punctures      Sterngold's        proposed

construction.       The first sentence of the IP exclusion lists a

series of IP-related claims, including trademark infringement.

Each specifically articulated claim is separated from the next by

a comma.      The list concludes with the catchall phrase "or other

intellectual property rights."         This syntax, combined with the use

of the disjunctive "or," clearly differentiates the listed IP-

related    claims   from    the    catchall   phrase     "other    intellectual

property rights."       Here, moreover, the catchall phrase is repeated

in the second sentence of the exclusion.            It is only in connection

with this phrase — not in connection with the listed IP-related

claims — that the "use of another's advertising idea" is excepted

from the reach of the exclusion.              Just as "[e]very word in an

insurance contract must be presumed to have been employed with a

purpose," Bos. Gas Co. v. Century Indem. Co., 910 N.E.2d 290, 304-

05   (Mass.     2009)   (quoting     Allmerica    Fin.     Corp.   v.   Certain

Underwriters at Lloyds, London, 871 N.E.2d 418, 425 (Mass. 2007)),

                                     - 12 -
so too every item of punctuation in the contract likewise must be

presumed to have been employed with a purpose.

          The short of it is that even if a trademark infringement

claim involves an injury stemming from the use of an advertising

idea, the catchall phrase "other intellectual property rights"

will not encompass the claim.     Any other reading would render

nugatory the plain language contained in the first sentence of the

IP exclusion.   That path is not open to us.   See Alicea v. Machete

Music, 744 F.3d 773, 785 (1st Cir. 2014) (explaining that a

contract must be read in its entirety and must be construed "to

give reasonable effect to each of its provisions" (quoting J.A.

Sullivan Corp. v. Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986)));

Lexington Ins. Co. v. Gen. Accid. Ins. Co. of Am., 338 F.3d 42, 48

(1st Cir. 2003) ("In construing insurance contracts, courts have

no warrant either to convolute the straightforward meaning of

policy language or to endow the words with a gloss that is belied

by the language itself."); see also Allstate Ins. Co. v. Airport

Mini Mall, LLC, 265 F. Supp. 3d 1356, 1372 (N.D. Ga. 2017)

(construing IP exclusion and holding that "to give effect to each

provision . . . coverage for 'advertising injury' does not apply"

to trademark infringement claims); High 5 Sportwear, Inc. v. H5G,

LLC, 237 F. Supp. 3d 674, 685 (S.D. Ohio 2017) (similar).3

     3 Contrary to Sterngold's importunings, our reading of the IP
exclusion is not in tension with Vibram. See 106 N.E.3d at 580-

                              - 13 -
          Sterngold has a fallback position.            It argues that its

deployment of the OSSEO and OSSEOs marks in internet advertising

was covered under the Policy because the marks were actually

slogans and, thus, came within the built-in exception to the IP

exclusion (captured in the last sentence of that exclusion).

Building on this porous foundation, Sterngold suggests that even

if the advertising injury arose from a trademark infringement

claim, the carve-out for slogan infringement validated its quest

for coverage.    We think not.

          Of    course,   the   exclusion    to   the   exclusion   has   the

potential to salvage some claims.          Cf. High Point Design, LLC v.

LM Ins. Co., 911 F.3d 89, 94 (2d Cir. 2018) (observing that the

"secondary exclusion from the primary exclusion . . . make[s] clear

that the primary exclusion does not exclude coverage for trade

dress infringement in an advertisement").               But a "slogan is

certainly not by definition a trademark."          MicroStrategy, Inc. v.

Motorola, Inc., 245 F.3d 335, 342 (4th Cir. 2001).           And here, the

slogan infringement carve-out does not apply because Intra-Lock

never pressed anything resembling a slogan infringement claim.

Indeed, its complaint did not so much as mention the word "slogan."

81. There, the court examined whether an advertising idea could
flow from a concept not protected by a trademark. See id. at 581.
That is not the issue here.

                                  - 14 -
Nor   would        any     language     in     the        complaint     support    the

characterization of OSSEAN as something other than a trademark.

            We     add,     moreover,    that        in    reading     the   secondary

exclusion — as in reading insurance policies generally — undefined

words should be given their ordinary meaning.                         See Easthampton

Congregational Church v. Church Mut. Ins. Co., 916 F.3d 86, 92

(1st Cir. 2019); Fed. Ins. Co. v. Raytheon Co., 426 F.3d 491, 498-

99 (1st Cir. 2005); see also Mass. Insurers Insolv. Fund v. Premier

Ins. Co. of Mass., 787 N.E.2d 550, 553 (Mass. 2003) (observing

that "unambiguous language of an insurance exclusionary clause

must be given its usual and ordinary meaning").                          A slogan is

typically defined as "a phrase expressing the aims or nature of an

enterprise . . . [and/or] a catch phrase used in advertising or

promotion."      CMM Cable Rep, Inc. v. Ocean Coast Props., Inc., 97
F.3d 1504, 1520 (1st Cir. 1996) (alteration in original) (quoting

Webster's     II     New    Riverside        Univ.    Dictionary        (1988));   see

Cincinnati Ins. Co. v. Zen Design Grp., Ltd., 329 F.3d 546, 556

(6th Cir. 2003) (defining slogan as "distinctive cry, phrase, or

motto" (quoting Random House Unabridged Dictionary 1800 (2d ed.

1993))).    Sterngold has pointed to nothing that would bring the

OSSEAN mark within the four corners of these definitions.

            To cinch the matter, nothing in the record suggests that

Intra-Lock ever used OSSEAN as a slogan.                       Instead, Intra-Lock

claimed that the mark was "distinctive and famous within the

                                        - 15 -
meaning of [the trademark statute]." At bottom, Intra-Lock's claim

was that OSSEAN is a "source-identifier," Bos. Duck Tours, LP v.

Super Duck Tours, LLC, 531 F.3d 1, 12 (1st Cir. 2008), of its

proprietary product, not a slogan.4 Because Intra-Lock's complaint

did not allege, nor even "roughly sketch[] a claim," Billings, 936
N.E.2d at 414, for slogan infringement, the secondary exclusion

upon which Sterngold relies is inapposite.

             "It is said that all good things come to an end," State

Police Ass'n of Mass. v. Comm'r of Internal Revenue, 125 F.3d 1,

3 (1st Cir. 1997), and at the finish line, we reach the same result

as the court below.       To the extent that Intra-Lock's complaint can

be   said    to   have   alleged   an   advertising   injury,   that   injury

unquestionably arose out of Intra-Lock's trademark infringement

claim.      The Policy makes it luminously clear that such an injury

is excluded from the scope of coverage.           Nor can Sterngold seek

refuge in the slogan infringement carve-out because Intra-Lock

plainly did not assert a slogan infringement claim.             Accordingly,

HDI had no duty to defend or indemnify Sterngold with respect to

Intra-Lock's claim.

      4We do not gainsay that, in some circumstances, a trademark
may do double duty as a slogan. See, e.g., L.L. Bean, Inc. v.
Drake Publishers, Inc., 811 F.2d 26, 28 (1st Cir. 1987). In other
circumstances, though, a trademark is simply a trademark and cannot
by any stretch of even the most fertile imagination be viewed as
a slogan. See, e.g., MicroStrategy, 245 F.3d at 342. This case
is of the latter stripe.

                                    - 16 -
III. CONCLUSION

            We need go no further. For the reasons elucidated above,

the judgment of the district court is

Affirmed.

                               - 17 -