Blackstone International Ltd. v. Maryland Casualty Co.

MATRICCIANI, J. On May 17, 2011, Maryland Casualty Company and Northern Insurance Company of New York, (collectively, “the Insurers”), brought a complaint for declaratory judgment in the Circuit Court for Baltimore County, against Blackstone International, Ltd., and John R. Black (collectively, “Blackstone”). The complaint asked the circuit court to declare that the parties’ insurance policy did not cover a lawsuit brought against Blackstone by RMG Direct, Inc. (“RMG”), and that the Insurers had no duty to defend Blackstone in that suit. Blackstone counter-claimed for opposite declarations and asked the court to order the Insurers to pay the costs of litigation in the RMG case and in the present case, as well as to indemnify Blackstone for any damages arising from that case. Blackstone moved for partial summary judgment on the duty to defend in the underlying litigation, and the Insurers moved for summary judgment as to both their duty to defend and their duty to indemnify.

The circuit court granted the Insurers’ motion and entered summary judgment in their favor, from which Blackstone timely appealed, bringing the case before this Court. Question Presented Blackstone presents the following question for our review, which we have rephrased to comport with our discussion: I. Did the trial court err when it entered summary judgment in favor of the Insurers on the grounds that the ⁴⁷⁷ underlying claims against Blackstone did not constitute “advertising injuries” under the parties’ insurance agreement? For the reasons that follow, we answer yes, and we therefore reverse the judgment of the Circuit Court for Baltimore County and remand the case for further proceedings. Factual and Procedural History Blackstone designs and manufactures lighting products, including those that mimic natural light, which are known as “full spectrum” lights.

In February 2010, Blackstone was sued by RMG, whose complaint claimed, in part, that the two parties had agreed to a “joint venture to develop plans for the design, marketing and sale of low vision lighting products to retailers.” RMG further alleged that Blackstone had promised to give RMG seven percent of its gross revenues from the sale of these products, and that RMG was to have a “fifty-percent [ ] interest in the newly created brand for the sale of low vision light products.” RMG claimed that its efforts in the joint venture yielded expert evaluations and product testimonials, the “Vision Enhance” brand name, the slogan “to help you see better” and the product’s packaging design and “copy” (the content displayed on the packaging). According to the complaint, Blackstone used and distributed this content in various forms, including its product packaging, a website, a trade publication advertisement, and third-party catalogs, as well as in sales sheets, informational offerings, and marketing presentations to retailers such as Wal-Mart. According to RMG, sales were so successful that Wal-Mart adopted the product into its own private-label line of products. RMG asserted several causes of action in its complaint against Blackstone.

First, RMG claimed that Blackstone breached an oral contract 1 between the parties by failing to pay RMG either its commission or profits from its one-half interest in the parties’ new venture. Second, RMG claimed ⁴⁷⁸ that its detrimental reliance on Blackstone’s promises es-topped Blackstone from withholding those payments. Third, RMG claimed that Blackstone was unjustly enriched because it “continues to retain the benefit conferred upon it by Plaintiff through, in part, its use of concepts, expert evaluations, [the] “Vision Enhance’ brand name[,] and packaging, all of which were developed by [RMG] or with [RMG]’s assistance.” 2 Fourth, RMG claimed intentional misrepresentation of the promises supporting the above claims. Finally, RMG demanded an accounting of Blackstone’s profits.

Blackstone has been insured by the Insurers for commercial general liability since 2001. The parties’ agreement places upon the Insurers the duty to defend Blackstone against any suit seeking damages from an “advertising injury,” which the policy defines as injuries arising out of the use of another’s advertising idea in Blackstone’s advertisement, or out of infringement upon another’s copyright, trade dress, or slogan. 3 The policy’s text excluded, however, injuries arising out of a ⁴⁷⁹ breach of contract, except an implied contract to use another’s advertising idea in Blackstone’s advertisement. 4 Blackstone gave the Insurers notice of RMG’s suit in a timely fashion, but the Insurers denied that RMG’s claims fell within the scope of the policy’s “advertising injury” clause. Blackstone eventually settled with RMG, but only after incurring an alleged $1,056,008.63 in attorney’s fees, which the Insurers refused to pay. The Insurers brought a complaint in the Circuit Court for Baltimore County, seeking a declaratory judgment that they had no duty to defend or indemnify Blackstone.

Blackstone counterclaimed for the opposite declaration and attorney’s fees in both the underlying litigation and the instant suit. Blackstone moved for partial summary judgment on the issue of the Insurers’ duty to defend, and the Insurers moved for summary judgment on both their duty to defend and to indemnify Blackstone. The circuit court found for the Insurers and entered summary judgment in their favor. 5 Blackstone then filed a timely appeal, bringing the case before this Court. ⁴⁸⁰ Discussion Standard of Review This case comes to us on disposition by summary judgment under Maryland Rule 5—201(f). We therefore review the trial court’s ruling de novo and examine the record independently to determine whether there exists any genuine issue of material fact and whether the moving party was entitled to judgment as a matter of law.

Walk v. Hartford Cas. Ins. Co., 382 Md. 1, 14 , 852 A.2d 98 (2004) (citation omitted). In doing so, we must review the record in the light most favorable to the non-moving party and construe against the moving party any reasonable inferences which may be drawn from the facts.

Id. Because a policy of insurance is a contract, we construe it according to contract principles. Walk, 382 Md. at 14-15 , 852 A.2d 98 (citation omitted). Unless there is an indication that the parties intended to use words in the policy in a technical sense, the terms of the contract are accorded their customary, ordinary, and accepted meanings.

Id. If the terms are unambiguous, a court has no alternative but to enforce them. Dutta v. State Farm Ins. Co., 363 Md. 540, 556-57 , 769 A.2d 948 (2001) (citing Kendall v. Nationwide Ins.

Co., 348 Md. 157, 171 , 702 A.2d 767 (1997)). Maryland does not follow the rule that insurance policies should, as a matter of course, be construed against the insurer. Dutta, 363 Md. at 556 , 769 A.2d 948 . “Nevertheless, under general principles of contract construction, if an insurance policy is ambiguous, it will be construed liberally in favor of the insured and against the insurer as drafter of the instrument.” Id. at 556-57, 769 A.2d 948 (citing Empire Fire & Marine Ins. Co. v. Liberty Mut.

Ins. Co., 117 Md.App. 72, 97-98 , 699 A.2d 482 (1997)) (emphasis in original). I. The Insurers’ duty to defend Blackstone in the underlying litigation depended on the character of RMG’s claims: ⁴⁸¹ If the plaintiffs in the [ ] suits allege a claim covered by the policy, the insurer has a duty to defend. Even if a [] plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy.

Brohawn v. Transamerica Ins. Co., 276 Md. 396, 407-08 , 347 A.2d 842 (1975) (emphasis added), cited in Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 102-03 , 651 A.2d 859 (1995). Further, an insurer is obligated to defend all claims, notwithstanding alternative allegations outside the policy’s coverage, until all potentially covered claims are resolved.

Utica Mut. Ins. Co. v. Miller, 130 Md.App. 373, 383 , 746 A.2d 935 (2000) (citations omitted). The parties stipulate that Blackstone had performed all prerequisites to coverage, and that the case resolves to whether RMG’s complaint triggered the Insurers’ contractual duty to defend.

In the present case, all claims remained viable until Blackstone and RMG reached a settlement. Therefore, Blackstone is entitled to have the Insurers reimburse all of its defense costs if they had a duty to defend at least one count of RMG’s complaint. The Insurers argue that they had no duty to defend because the RMG complaint alleged neither the use of RMG’s advertising ideas in Blackstone’s advertisement, nor a qualifying “advertising injury.” We address each contention, in turn. 6 A. Use of RMG’s Advertising Ideas in Blackstone’s Advertisements The Insurers argue that the trial court rightly denied Blackstone’s motion for summary judgment because RMG’s ⁴⁸² claims nowhere described use of its advertising ideas in Blackstone’s “advertisements.” The parties’ agreement defines “advertisements” as “a notice that is broadcast or published to the general public or specific market segments about [Blackstone’s] goods, products or services for the purpose of attracting customers or supporters ... including] material placed on the Internet or on similar electronic means of communication[.]” According to Blackstone, RMG complained of injuries from several types of advertising: 1) a product website; 2) product packaging and instructions; 3) advertisement in a trade publication and third-party catalogs; and 4) sales sheets, informational offerings, and marketing presentations to large retailers, including Wal-Mart. First, the Insurers argue that the evidence of a Blackstone website using RMG’s advertising “is contested,” and that testimony from the RMG suit “casts doubt on whether this image was ever used to solicit customers.” But “an insurer may not use extrinsic evidence to contest coverage under an insurance policy if the tort suit complaint establishes a potentiality of coverage,” Aetna Cas. & Sur.

Co. v. Cochran, 337 Md. 98, 107 , 651 A.2d 859 (1995), and an allegation that is “contested” or in “doubt” is nonetheless sufficient to show its potential truth, see 7416 Baltimore Ave. Corp. v. Penn-Am. Ins. Co., 83 Md.App. 692, 699-700 , 577 A.2d 398 (1990).

Therefore, the factual allegations in RMG’s complaint sufficed to show that the website was a potential advertisement that triggered the Insurers’ duty to defend. Second, the Insurers cite several cases to argue that Blackstone’s product packaging is not an “advertisement.” These cases, however, hold that a product itself is not advertising. See, e.g., Krueger Int'l, Inc. v. Fed. Ins. Co., 647 F.Supp.2d 1024, 1035 (E.D.Wis.2009) (citing Westport Reinsurance Management, LLC v. St. Paul Fire & Marine Ins.

Co., 80 Fed.Appx. 277, 279 (3d Cir.2003); Green Mach. Corp. v. Zurich-American Ins. Group, 313 F.3d 837, 841 (3d Cir.2002); Accessories Biz, Inc. v. Linda and Jay Keane, Inc., 533 F.Supp.2d 381, 388 (S.D.N.Y.2008); Hosel & Anderson, Inc. v. ZV II, ⁴⁸³ Inc., 2001 WL 392229 , ² (S.D.N.Y.2001)). But these cases are inapposite because RMG’s allegations did not depend on the product itself being advertising, but rather the ideas shown on the packaging in which Blackstone’s products was shipped and displayed.

The Insurers contend that even if Blackstone’s product packaging was designed to “attract customers or supporters,” it did so on an individual basis as a “solicitation,” rather than as “a notice that is broadcast or published to the general public or specific market segments” (per the insurance agreement’s definition of “advertisement”). This argument, however, overemphasizes the customer’s immediate perception and ignores the fact that Blackstone distributed advertising ideas on standardized packaging, with the evident intent to reach and attract a wide audience of shoppers at the product’s point of sale. This brings Blackstone’s alleged conduct within at least one of the ordinary meanings ascribed to “publish,” i.e., “to disseminate to the public” or “to produce or release for distribution.” 7 “Publish,” Merriam-Webster.com (Merriam-Webster 2014), http://www.merriam-webster.com/dictionary/ publish. Moreover, the Insurers’ definition of “advertisement” would turn any content viewed by isolated customers into an individual solicitation, which would create the absurd result of turning a wide array of advertisements—on television, in magazines, and on the internet—into “personal solicitations.” We therefore conclude that Blackstone’s product packaging could be an “advertisement” under the present insurance agreement. 8 ⁴⁸⁴ Third, the Insurers argue that “an advertisement procured by RMG” and “catalog placement by RMG” cannot be “Blackstone’s” advertisements.

And fourth, the Insurers argue that the marketing presentations Blackstone made to Wal-Mart and other large retailers were not advertisements and that they were also merely individual solicitations. We need not, however, decide these issues, because the alleged website and packaging constituted advertisements that were—at least potentially—“Blackstone’s.” 9 Finally, the Insurers argue that even if Blackstone used advertising ideas in its “advertisements,” those ideas were Blackstone’s and not “another’s” under the insurance policy. Specifically, the Insurers argue that Blackstone owned all disputed advertising ideas 10 by virtue of its joint venture with RMG. But this joint venture, along with the agreement purporting to assign Blackstone all property rights, 11 was only ⁴⁸⁵ alleged, in some of the complaint’s counts, and RMG’s claim of unjust enrichment did not rely on a binding joint venture agreement, or on any joint venture at all.

Furthermore, a plain reading of the contractual language does not support the Insurers’ argument over “ownership” because the possessive case can indicate not only ownership, but also origin. “Possessive,” Dictionary.com Unabridged (Random House, Inc. 2013) (“indicating possession, ownership, origin, etc.” (emphasis added)), http://dictionary.reference.com/ browse/Possessive. Thus, even if Blackstone owned some or all rights to the disputed advertising ideas, those ideas could nevertheless be described as “another’s” because of their origin at RMG. For these reasons, we conclude that RMG’s complaint alleged that Blackstone used RMG’s advertising ideas in its advertisements. This leaves us to consider whether Blackstone’s advertisements gave rise to any covered “advertising injury.” B. “Advertising Injury” The Insurers argue that RMG’s claims did not allege any “advertising injury” to defend against.

Specifically, they contend that “the principle [sic] purpose of a liability policy [is] to protect insureds from their own tortious, negligent conduct ” (emphasis added) and not the harms alleged in RMG’s complaint. Continuing, the Insurers contend that “the gravamen” of RMG’s complaint “is not damages caused by Blackstone’s advertisements but rather damages caused by Blackstone’s failure to abide by an agreement to pay RMG commissions,” and that the complaint is “replete” with references to that agreement for commissions. Thus, the Insurers conclude that “Blackstone would have the Court transform Policy coverage from a protection against tortious, negligent conduct into a protection against failures to comply with contractual agreements for the payment of commissions.” ⁴⁸⁶ There are two flaws in the Insurers’ general argument. First, the policy’s duty to defend is not determined by the “gravamen of the complaint;” rather, Maryland Law imposes a duty to defend if there exists even a single claim that could potentially be covered, Utica Mut., 130 Md.App. at 383 , 746 A.2d 935 .

And although we may look to the “gravamen” of particular causes of action to determine whether they could be construed in favor of the insured as covered claims, we must nonetheless consider each one individually, according to the insurance policy’s language. Montgomery Cnty. Bd. of Educ. v. Horace Mann Ins. Co., 383 Md. 527, 547-48 , 860 A.2d 909 (2004).

Second, although we have every reason to believe the Insurers’ proffer that they intended their policy to cover only Blackstone’s “tortious, negligent conduct,” the policy does not do so by defining “advertising injury” that way. The policy contains express exclusions that have that effect, 12 but the Insurers deliberately waived them at trial, writing in a proposed statement of undisputed fact that their defense does “not rel[y] on the breach of contract exclusion,” which they deemed “irrelevant” to the instant case. Later, at the hearing on the parties’ cross-motions for summary judgment, the Insurers addressed the policy’s exclusions in greater detail: ... [I]t’s clear on the face of the second amended complaint that the allegations don’t come within the policy coverages. But even if Blackstone could get over that hurdle, then we do look down to the exceptions, I’m sorry, the exclusions.

And there are two relevant exclusions in this case. The first is that the policy does not provide coverage for advertising injury caused at or direction, at or, by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict personal or advertising injury. So if we assume here that [RMG] ⁴⁸⁷ didn’t transfer the rights, then what we get to is did [RMG] say regardless of who owned the rights I’m going to use them? And the exclusion would become applicable.

Secondly, and although Maryland Casualty didn’t put this in the litigation and, and there’s a very clear reason why Maryland Casualty didn’t put it in the litigation at this point. There’s a contract exclusion. Again, with respect to the shifting of burdens of proof, we think that Your Honor can rule as a