State Auto Property v. Travelers Indemnity ( 2003 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
STATE AUTO PROPERTY AND CASUALTY 
INSURANCE COMPANY,
Plaintiff-Appellant,
v.
 No. 02-2069
TRAVELERS INDEMNITY COMPANY OF
AMERICA; FARMINGTON CASUALTY
COMPANY,
Defendants-Appellees.

Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
James C. Fox, Senior District Judge.
(CA-01-73-F)
Argued: May 8, 2003
Decided: September 4, 2003
Before WILKINSON, NIEMEYER, and KING, Circuit Judges.
Vacated and remanded by published opinion. Judge King wrote the
opinion, in which Judge Wilkinson and Judge Niemeyer joined.
COUNSEL
ARGUED: Patricia Pursell Kerner, BAILEY & DIXON, L.L.P.,
Raleigh, North Carolina, for Appellant. Laura Anne Brady,
DRINKER, BIDDLE & REATH, L.L.P., Florham Park, New Jersey,
for Appellees. ON BRIEF: Gavin B. Parsons, BAILEY & DIXON,
2 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
L.L.P., Raleigh, North Carolina, for Appellant. William T. Corbett,
Jr., Mark D. Sheridan, DRINKER, BIDDLE & REATH, L.L.P.,
Florham Park, New Jersey; Mark A. Davis, Douglas W. Hanna,
WOMBLE, CARLYLE, SANDRIDGE & RICE, Raleigh, North Car-
olina, for Appellees.
OPINION
KING, Circuit Judge:
This appeal arises out of an insurance coverage dispute. In 2001,
State Auto Property and Casualty Insurance Company ("State Auto")
sued Travelers Indemnity Company of America and Farmington
Casualty Company (collectively, "Travelers"),1 seeking a declaration
that Travelers was obligated to participate in the defense of Nissan
Computer Corporation ("NCC") in a California civil action. On cross
motions for summary judgment, the district court concluded that
Travelers was not obligated to defend NCC. The court awarded sum-
mary judgment to Travelers, and State Auto appeals. State Auto Prop.
& Cas. Ins. Co. v. Travelers Indem. Co. of Am., CA-01-73-F, Order
(E.D.N.C. Aug. 15, 2002) (the "Order"). For the reasons explained
below, we vacate and remand.
I.
A.
NCC, a North Carolina corporation owned by Mr. Uzi Nissan, is
engaged in the business of computer sales and services. On December
9, 1999, Nissan Motor Company, Ltd., and Nissan North America,
Inc. (collectively, "Nissan"),2 filed suit against NCC in the Central
1
Travelers Indemnity Company of America and Farmington Casualty
Company are affiliated insurance companies owned by the same parent
corporation.
2
Nissan Motor Company is a Japanese automaker. Nissan North Amer-
ica, its subsidiary, markets and distributes Nissan vehicles in the United
States.
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 3
District of California. In its complaint (the "Nissan Complaint"), Nis-
san alleges several causes of action, each asserting NCC’s wrongful
utilization of the NISSAN trademark.3
Nissan contends that NCC, knowing that Nissan owned the NIS-
SAN trademark, nonetheless registered the domain name4
"www.nissan.com" in 1994 and the domain name "www.nissan.net"
in 1996. Nissan Complaint ¶ 20. Nissan further alleges that "a domain
name incorporating a company’s trademark is a valuable asset that
allows potential consumers to communicate with a particular com-
pany." Id. ¶ 17. According to the Nissan Complaint, NCC ultimately
received between 150,000 and 200,000 visits per month to its web-
sites from consumers searching for Nissan. Id. ¶ 20.
In 1999, Nissan learned that NCC was selling advertising space on
its "www.nissan.com" website to automobile and other merchandising
companies. Nissan alleges that, in so doing, NCC "intended to con-
fuse consumers into thinking that these ads and links were . . . some-
how affiliated with Nissan." Id. ¶ 22. According to the Nissan
Complaint, NCC’s efforts at confusion included the utilization of a
logo (bearing the Nissan name) that "closely resemble[d] Nissan’s
logo, including the same highly distinctive typeface." Id. ¶ 23.
With respect to the "www.nissan.net" website, Nissan alleges that
NCC utilized the NISSAN trademark in registering the domain name,
and that NCC designed the website to "maximize confusion and trade
off of Nissan’s identity and goodwill." Id. ¶ 26. According to the Nis-
san Complaint, NCC sought to profit from this confusion by offering
Internet access, hosting, and networking capabilities to visitors of the
"www.nissan.net" website. Id. ¶ 25.
3
The causes of action in the Nissan Complaint include, inter alia,
trademark dilution, trademark infringement, domain name piracy, and
false designation of origin.
4
A domain name is an electronic address that directs Internet users to
a website. See 15 U.S.C. § 1127.
4 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
B.
During the three-year period from July of 1993 until December of
1996, NCC was insured under an insurance policy issued by State
Auto (the "State Auto Policy"). For the next three years, from Decem-
ber of 1996 until December of 1999, NCC was insured under four
policies issued by Travelers (collectively, the "Travelers Policy").5
The Travelers Policy provides coverage6 for any "‘[a]dvertising
injury’ caused by an offense committed in the course of advertising
[NCC’s] goods, products or services." J.A. 77. It defines "advertising
injury" to include, among other things, harm caused by NCC’s
"[m]isappropriation of advertising ideas or style of doing business."
Id. at 84.7
The Travelers Policy contains several provisions that limit Travel-
ers’s duty to provide coverage to NCC. Three of those provisions are
relevant to the present controversy. First, the Travelers Policy
excludes coverage for any advertising injury "[a]rising out of oral or
written publication of material, if done by or at the direction of the
‘insured’ with knowledge of its falsity" (the "Falsity Exclusion"). Id.
at 78. Second, it excludes coverage for advertising injuries arising out
of an "offense committed by an ‘insured’ whose business is advertis-
ing" (the "Business of Advertising Exclusion"). Id. Finally, the Trav-
elers Policy provides that NCC must, "as soon as practicable," notify
Travelers "of an ‘occurrence’ or an offense which may result in a
claim" (the "Notice Provision"). Id. at 81.
5
In December of 1996, NCC was named as an insured on an insurance
policy issued by Travelers to The Internet Center, Incorporated, an affili-
ate of NCC. That policy was renewed in May of 1997, and Travelers
thereafter issued two successive one-year policies to NCC, effective from
December of 1997 until December of 1999. The provisions of these poli-
cies are identical in all material respects.
6
In using the term "coverage," we refer both to the duty of an insurer
to defend and to its duty to indemnify.
7
The State Auto Policy is identical in all material respects to the Trav-
elers Policy. Most notably, the State Auto Policy and the Travelers Pol-
icy each define "advertising injury" as the "[m]isappropriation of
advertising ideas or style of doing business."
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 5
C.
The Nissan Complaint was filed on December 9, 1999. Four days
later, on December 13, 1999, NCC notified Travelers thereof. Travel-
ers then refused to defend NCC, maintaining that the Travelers Policy
did not provide coverage for the claims asserted in the Nissan Com-
plaint. State Auto, by contrast, agreed to defend NCC on the Nissan
Complaint, though it did so under a reservation of rights.8
In January of 2001, State Auto filed this declaratory judgment
action in the Eastern District of North Carolina, invoking the court’s
diversity jurisdiction and seeking a declaration that Travelers is obli-
gated to participate in NCC’s defense. State Auto contends that the
Nissan Complaint alleges an "advertising injury," as that term is
defined in the Travelers Policy, and that Travelers is thus contractu-
ally bound to defend NCC.
At the close of discovery, State Auto and Travelers filed cross
motions for summary judgment. After briefing on the motions, the
district court ruled in favor of Travelers, concluding that the Nissan
Complaint did not allege an "advertising injury," and that, in any
event, Nissan’s alleged injuries were not the result of NCC’s adver-
tisement of NCC’s own goods, products, or services, as required
under the Travelers Policy. Order at 15. Accordingly, the court denied
State Auto’s motion for summary judgment and awarded summary
judgment to Travelers. Id. State Auto thereafter filed a motion to alter
or amend the judgment, which was denied. State Auto Prop. & Cas.
Ins. Co. v. Travelers Indem. Co. of Am., CA-01-73-F, Order
(E.D.N.C. Oct. 9, 2002). State Auto has appealed, and we possess
jurisdiction pursuant to 28 U.S.C. § 1291.
II.
We review de novo a district court’s award of summary judgment.
See Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1127-28 (4th Cir.
8
When an insurer defends its insured under a "reservation of rights,"
the insurer is generally reserving its right to discontinue the defense or
to deny indemnification if it is later determined that the insurer is not
obligated to provide coverage.
6 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
1987). At the summary judgment stage, we construe the underlying
facts in the light most favorable to the non-moving party. Lone Star
Steakhouse & Saloon, Inc. v. Alpha of Va., Inc., 43 F.3d 922, 928 (4th
Cir. 1995). We may uphold an award of summary judgment only "if
the pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is no genu-
ine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." Fed. R. Civ. P. 56(c).
III.
State Auto contends that the Nissan Complaint alleges an "advertis-
ing injury," as that term is defined in the Travelers Policy, and that
Travelers is thus obligated to participate in NCC’s defense. Travelers,
by contrast, maintains that the Nissan Complaint fails to allege an
"advertising injury." In the alternative, Travelers contends that the
Falsity Exclusion and the Business of Advertising Exclusion apply,
and that it is thus not obligated to provide coverage. Moreover, Trav-
elers asserts that NCC failed to comply with the Notice Provision, and
that it thereby forfeited its right to a defense. In order to determine
whether Travelers is obligated to participate in NCC’s defense, we
first review some basic principles of North Carolina insurance law.
A.
An insurance policy is a contract, and its provisions govern the
rights and duties of the parties thereto. Fid. Bankers Life Ins. Co. v.
Dortch, 348 S.E.2d 794, 796 (N.C. 1986). Pursuant to North Carolina
law, the interpretation of an insurance policy is a question of law that
is appropriate for resolution on summary judgment. See generally
Royal Ins. Co. of Am. v. Cato Corp., 481 S.E.2d 383 (N.C. Ct. App.
1997). Further, provisions in a policy "which extend coverage to the
insured must be construed liberally so as to afford coverage whenever
possible by reasonable construction." N.C. Farm Bureau Mut. Ins. Co.
v. Stox, 412 S.E.2d 318, 321 (N.C. 1992).
Any ambiguity as to the meaning of a policy term "must be
resolved in favor of the policyholder, or the beneficiary, and against
the company." Wachovia Bank & Trust Co. v. Westchester Fire Ins.
Co., 172 S.E.2d 518, 522 (N.C. 1970). An ambiguity exists where
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 7
"the language of the policy is fairly and reasonably susceptible to
either of the constructions for which the parties contend." Waste
Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374, 379
(N.C. 1986). A "difference of judicial opinion regarding proper con-
struction of policy language is some evidence" that a policy provision
is ambiguous. Brown v. Lumbermens Mut. Cas. Co., 390 S.E.2d 150,
153 (N.C. 1990); see also Maddox v. Colonial Life & Acc. Ins. Co.,
280 S.E. 2d 907, 910 (N.C. 1981) ("We feel the fact that the courts
of other jurisdictions have reached conflicting interpretations empha-
sizes the ambiguity inherent in the [policy provision]."). Where a term
is not defined in an insurance policy, the court "must define the term
in a manner consistent with the context in which it is used and the
meaning accorded it in ordinary speech." Id. at 909. Where a policy
term has more than one meaning, and "the context does not indicate
clearly the one intended, it is to be given the meaning most favorable
to the policyholder." Wachovia, 172 S.E.2d at 522.
Generally, an insurer’s duty to defend the insured is broader than
its duty to indemnify. Waste Mgmt., 340 S.E.2d at 377. In particular,
the duty to defend "is ordinarily measured by the facts alleged in the
pleadings; its duty to pay is measured by the facts ultimately deter-
mined at trial." Id. Importantly, in assessing an insurer’s duty to
defend, "the ultimate focus . . . is on the facts that are pled, not how
the claims are characterized." Holz-Her U.S., Inc. v. U.S. Fid. &
Guar. Co., 539 S.E.2d 348, 350 (N.C. Ct. App. 2000). Moreover,
where a complaint alleges multiple claims and injuries, some of
which are covered and some of which are not, an insurer is obligated
to defend its insured against all claims made in the lawsuit. Wa. Hous.
Auth. v. N.C. Hous. Auth. Risk Retention Pool, 502 S.E.2d 626, 629
(N.C. Ct. App. 1998).
B.
As noted above, the Travelers Policy defines "advertising injury"
to include the "[m]isappropriation of advertising ideas or style of
doing business." Further, it provides coverage only for those advertis-
ing injuries "caused by an offense committed in the course of adver-
tising [NCC’s] goods, products or services." Accordingly, in
assessing whether Travelers is obligated to defend NCC, we must
determine (1) whether any injury alleged in the Nissan Complaint
8 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
constitutes an "advertising injury" as that phrase is defined by the
Travelers Policy; and (2) whether Nissan’s injuries occurred in the
course of NCC’s advertisement of its own goods, products, or ser-
vices. We address each of these questions in turn.
1.
In assessing whether any of Nissan’s injuries constitutes an "adver-
tising injury" under the Travelers Policy, we must determine whether
the Nissan Complaint alleges the "misappropriation of advertising
ideas or style of doing business."9 Travelers maintains that the term
"misappropriation," as used in the Travelers Policy, refers only to the
common law tort of misappropriation, which does not protect against
injuries resulting from the wrongful use of a trademark. Indepen-
dently, Travelers contends that a trademark is neither an advertising
idea nor a style of doing business. Given these contentions, we must,
in assessing whether the Nissan Complaint alleges the "misappropria-
tion of advertising ideas or style of doing business," make two inqui-
ries: (1) whether "misappropriation" under the Travelers Policy is
limited to common law misappropriation, or whether it encompasses
any claim related to the wrongful use of a trademark; and (2) whether
a trademark can constitute an advertising idea or a style of doing busi-
ness.
a.
The common law tort of misappropriation provides a remedy for
the appropriation of "some item or creation of the plaintiff which is
9
In 1986, the Insurance Services Office (the "ISO"), a national insur-
ance policy drafting organization, amended the definition of "advertising
injury" that it employed in its standard commercial general liability pol-
icy. See 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair
Competition § 33:5 (4th ed. 2003). The ISO’s amended definition of "ad-
vertising injury" covers those injuries arising from the
"[m]isappropriation of advertising ideas or style of doing business." Id.
As noted, this definition is used in the Travelers Policy and its meaning
is at issue in this proceeding. The language suggested by the ISO is
widely used, and several courts have had occasion to interpret the "mis-
appropriation" clause as it appears in the Travelers Policy.
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 9
not protected by . . . trademark law." J. Thomas McCarthy, McCar-
thy’s Desk Encyclopedia of Intellectual Property 206 (1991). Thus,
common law misappropriation does not provide any remedy for an
injury related to trademark infringement. Travelers contends that the
Travelers Policy implicitly adopted the common law definition of
misappropriation. Travelers therefore asserts that, because the Nissan
Complaint relates solely to NCC’s wrongful use of the NISSAN
trademark, Nissan is not suing for "misappropriation," as that term is
defined in the Travelers Policy. State Auto maintains, on the other
hand, that "misappropriation" refers to any wrongful acquisition of
property.
Although North Carolina has not had occasion to construe the term
"misappropriation" in this context, it has broadly interpreted a similar
phrase ("unfair competition") in the insurance context — refusing to
limit that phrase to its common law definition. See Henderson v. U.S.
Fid. & Guar. Co., 488 S.E.2d 234, 240 (N.C. 1997). In its Henderson
decision, the Supreme Court of North Carolina decided that the term
"unfair competition," as used in a commercial insurance policy,
encompasses statutory claims of unfair and deceptive trade practices,
as well as the tort of common law unfair competition. The court
observed that "a person reading the term ‘unfair competition’ as a cat-
egory of ‘advertising injury’ within an insurance policy would not
necessarily understand the term to be limited to a common law defini-
tion." Id. at 238-39 (internal quotation marks omitted). In the court’s
view, there was "no valid reason to exclude conduct described in the
statute simply because it might not be regarded as unfair competition
in a common law sense." Id. at 239. In light of the Henderson deci-
sion, the Supreme Court of North Carolina is unlikely to construe the
term "misappropriation," as used in the Travelers Policy, to be limited
to the common law definition.
Furthermore, the majority of those courts which have interpreted
the term "misappropriation," in this context, conclude that misrepre-
sentation refers to wrongful acquisition generally, rather than to com-
mon law misappropriation only. Cf. Ernest Martin, Jr. et al.,
Insurance Coverage for the New Breed of Internet-Related Trade-
mark Infringement Claims, 54 SMU L. Rev. 1973, 1994 (2001)
("[T]he vast majority [of courts] have concluded that trademark
infringement falls within the meaning of [‘misappropriation of adver-
10 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
tising ideas or style of doing business’]."). For example, the Eleventh
Circuit was "unconvinced by [the insurer’s] argument that ‘misappro-
priation’ covers only injuries actionable under the common law tort
of ‘misappropriation.’" Hyman v. Nationwide Mut. Fire Ins. Co., 304
F.3d 1179, 1189 (11th Cir. 2002). The court reasoned that there was
"no indication in the policy that the phrase was intended to be so lim-
ited," and that "the ordinary meaning of the term misappropriation
encompasses a wider spectrum of harms." Id. Similarly, in Adolfo
House Distributing Corp. v. Travelers Property & Casualty Insurance
Co., 165 F. Supp. 2d 1332 (S.D. Fla. 2001), the court reasoned that,
even assuming that "misappropriation" could refer solely to common
law misappropriation, it was "at least equally reasonable" to conclude
that the term referred more generally to wrongful acquisition. Id. at
1340 n.3. Accordingly, the court decided that the term must be given
"the interpretation which provide[d] the most coverage." Id.; Cat
Internet Servs., Inc. v. Providence Washington Ins. Co., 333 F.3d 138,
142 (3d Cir. 2003) (holding that policy covering "misappropriation of
advertising ideas" entitled insured to coverage for trademark infringe-
ment claim); Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co., 61
F. Supp. 2d 611, 617 (S.D. Tex. 1999) (same); Am. Employers’ Ins.
Co. v. Delorme Publ’g Co., Inc., 39 F. Supp. 2d 64, 76-77 (D. Me.
1999) ("Delorme") (interpreting "misappropriation" in this context to
refer to "wrongfully ‘tak[ing] or mak[ing] use of without authority or
right’" (quoting Webster’s New Collegiate Dictionary 98, 758 (9th ed.
1987)).
Finally, the term "misappropriation" is necessarily ambiguous:
Although it could refer specifically to the common law tort of misap-
propriation, it also could refer more generally to the wrongful acquisi-
tion of property.10 Significantly, the courts in other jurisdictions are
unable to agree on how to interpret the term "misappropriation." Com-
pare Hyman, 304 F.3d at 1189, with Advance Watch Co., Ltd. v. Kem-
per Nat’l Ins. Co., 99 F.3d 795, 802 (6th Cir. 1996). And perhaps
most compelling, the insurance companies involved in this coverage
dispute disagree on the interpretation to be accorded the term "misap-
10
Had Travelers intended to "limit its exposure for ‘misappropriation’
to suits arising under the common law tort of misappropriation, it was
incumbent upon it to do so unambiguously." Adolfo, 165 F. Supp. 2d at
1340 (interpreting policy provision identical to that in Travelers Policy).
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 11
propriation" in this context. Although the State Auto Policy and the
Travelers Policy define "advertising injury" identically, State Auto
acknowledges that it is obligated to defend NCC against the Nissan
Complaint, while Travelers takes the contrary position. Under North
Carolina law, such an ambiguity must be "resolved in favor of the
policyholder." Wachovia, 172 S.E.2d at 522.11
In sum, we conclude, for several reasons, that the term "misappro-
priation" in the Travelers Policy refers generally to the wrongful
acquisition of property. First, and most importantly, the Supreme
Court of North Carolina has indicated that it would adopt this view.
See Henderson, 488 S.E.2d at 240. Second, most of the courts inter-
preting the term "misappropriation" in the "advertising injury" context
have interpreted the term as we do here. Finally, the ambiguity in the
term "misappropriation" must be interpreted in favor of coverage.
b.
We must next decide whether the NISSAN trademark can be con-
strued either as an advertising idea or as a style of doing business.
This is the next step in our inquiry because, as noted above, the Trav-
elers Policy provides coverage only for the misappropriation of "ad-
vertising ideas" or "style of doing business." In these circumstances,
the Nissan Complaint alleges the wrongful use by NCC of the NIS-
SAN trademark. Thus, if Travelers is to be obliged to defend NCC,
the NISSAN trademark must qualify as an advertising idea or a style
of doing business.
A trademark serves at least four distinct functions: (1) it identifies
and distinguishes a seller’s goods; (2) it indicates that all goods bear-
11
We recognize and reject the minority view that trademark claims do
not involve "misappropriation." See Advance Watch Co., Ltd. v. Kemper
Nat’l Ins. Co., 99 F.3d 795, 802 (6th Cir. 1996); Callas Enters. v. Travel-
ers Indem. Co. of Am., 193 F.3d 952, 957 (8th Cir. 1999); Nationwide
Mut. Ins. Co. v. Mortensen, 222 F. Supp. 2d 173, 185 (D. Conn. 2002).
The Sixth Circuit’s holding in Advance Watch, limiting "misappropria-
tion" to its common law definition, has been sharply criticized by other
courts. See Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d
742, 747 (3d Cir. 1999).
12 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
ing the mark derive from the same source; (3) it signifies that all
goods bearing the mark are of the same quality; and (4) it serves as
a prime instrument in the advertisement and sale of the seller’s goods.
1 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Compe-
tition § 3:2 (4th ed. 2003). Accordingly, a trademark plays an impor-
tant role in advertising a company’s products. Thus, at the very least,
a trademark has the potential to be an advertising idea. See, e.g., Cat
Internet Servs., 333 F.3d at 138 (concluding that trademarks can qual-
ify as "advertising ideas or style of doing business"); Frog, Switch &
Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 749 (3d Cir. 1999)
("A trademark can be seen as an ‘advertising idea’: It is a way of
marking goods so that they will be identified with a particular
source."); Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins.
Group, 59 Cal. Rptr. 2d 36, 44 (Cal. Ct. App. 1996) ("[O]ne of the
basic functions of a trademark is to advertise the product or services
of the registrant." (emphasis in original)).12
In this situation, we have a quintessential example of a trademark
functioning to advertise a company’s products. The NISSAN mark
promotes Nissan’s vehicles to the public. As the Nissan Complaint
states, Nissan "vigorously advertised, promoted and developed its
NISSAN trademark — routinely spending hundreds of millions of
dollars each year." Nissan Complaint ¶ 11. As a result of Nissan’s
"high-profile promotion of the NISSAN mark, the mark has become
instantly recognizable throughout the United States and the world as
a symbol of high-quality automobiles." Id. ¶ 12. Thus, the NISSAN
trademark is an advertising idea and, as a consequence, the injuries
alleged in the Nissan Complaint fall within the Travelers Policy’s def-
inition of an "advertising injury."13
12
We do not accept the view that a trademark is merely a label or an
identifier, rather than an advertising idea or a "style of doing business."
See, e.g., Sport Supply Group v. Columbia Cas. Co., 335 F.3d 453, 463
(5th Cir. 2003) (concluding that trademark at issue "serves primarily to
identify and distinguish" plaintiff’s products, and is not "a ‘marketing
device[ ] designed to induce the public to patronize’ establishments" with
plaintiff’s products (emphasis and alterations in original)). A trademark,
by identifying and distinguishing the trademark holder’s products, pro-
motes those products to the public. See Frog, Switch, 193 F.3d at 749.
13
The "advertising injury" definition in the Travelers Policy also
includes injuries arising from the "[i]nfringement of copyright, title or
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 13
2.
Having determined that the injuries Nissan alleged constitute
advertising injuries, our next inquiry is whether those injuries were
caused by an offense committed "in the course of advertising [NCC’s]
goods, products or services," as the Travelers Policy requires. On this
point, Travelers contends that, because the allegations in the Nissan
Complaint relate to NCC’s utilization of the NISSAN trademark in
NCC’s registration of domain names, and because domain names are
simply website addresses, Nissan’s injuries did not occur in the
course of NCC’s advertising. Further, Travelers maintains that, even
assuming that the offenses alleged were committed in the course of
advertising, the advertising was not of NCC’s own goods, products,
or services, but rather the goods, products, or services of other compa-
nies.
a.
Travelers first contends that Nissan’s injuries did not occur in the
course of advertising. The term "advertising" normally refers to
"‘[a]ny oral, written, or graphic statement made by the seller in any
manner in connection with the solicitation of business.’" Elan Pharm.
Research Corp. v. Employers Ins. of Wausau, 144 F.3d 1372, 1377
(11th Cir. 1998) (quoting Black’s Law Dictionary 54 (6th ed. 1990)).
Travelers asserts, and the district court agreed, that because the inju-
ries suffered by Nissan relate solely to NCC’s use of the
"www.nissan.com" and "www.nissan.net" domain names, and
because a domain name is "nothing more than an ‘address’ or a loca-
tor for accessing a web site," NCC’s injurious conduct did not itself
constitute "advertising." Order at 11. As explained below, we disagree
with the court’s conclusion that Nissan’s injuries did not occur in the
course of advertising.
First, although the primary thrust of the Nissan Complaint relates
to NCC’s use of the NISSAN trademark in NCC’s domain names,
slogan." J.A. 84. State Auto contends that Nissan’s injuries also arose
from the "[i]nfringement of . . . title." Because we conclude that coverage
exists under the "misappropriation of advertising ideas or style of doing
business" clause of the Travelers Policy, we need not reach the "infringe-
ment of . . . title" issue.
14 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
Nissan also challenges NCC’s use of the trademark in its logo on the
"www.nissan.com" website. Nissan Complaint ¶ 23. The logo easily
qualifies as a graphic statement and, because it was on the
"www.nissan.com" website, where NCC was soliciting business for
itself and for others, it was utilized "in connection with the solicita-
tion of business." Elan, 144 F.3d at 1377. As a result, any injuries that
Nissan suffered by virtue of NCC’s use of the logo on the
"www.nissan.com" website were injuries that occurred "in the course
of advertising."
Even if the Nissan Complaint had been limited to challenging
NCC’s registration of domain names, we would nevertheless con-
clude that Nissan’s injuries occurred in the course of NCC’s advertis-
ing. The phrase "in the course of" extends coverage beyond those
injuries that resulted from NCC’s actual advertisements. The use of
a domain name to lead consumers to advertisements on NCC’s web-
sites is clearly an act that occurs "in the course of" advertising. Here,
the Nissan Complaint alleged that NCC infringed the NISSAN trade-
mark when it used the domain names "www.nissan.com" and
"www.nissan.net," and that NCC then employed the offending web-
sites for advertisement purposes. Nissan Complaint ¶¶ 20, 22, 25. As
such, the injuries complained of by Nissan occurred "in the course of"
NCC’s advertising.14
b.
Because the Nissan Complaint alleges injuries that were caused by
an offense committed in the course of advertising, we must next
assess whether the advertising was of NCC’s own goods, products, or
services, as required for coverage under the Travelers Policy. The dis-
trict court premised its summary judgment ruling in favor of Travel-
14
Several courts have viewed claims for trademark infringement as
necessarily involving an insured’s advertising activities. See Delorme, 39
F. Supp. 2d at 74; see also Hyman, 304 F.3d at 1194 n.11 (observing that
"[s]everal courts have found that ‘trademark and trade dress infringement
inherently involve advertising activity’"). We need not decide, however,
whether a claim against an insured for trademark infringement will
always involve the insured’s advertising activities. It is sufficient that, in
this case, the Nissan Complaint challenged NCC’s advertising activities.
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 15
ers, in part, on its determination that the Nissan Complaint fails to
allege that NCC’s infringing conduct occurred during the course of
advertising its own goods, products, or services. The court concluded
that Nissan "complains of NCC’s conduct in relation to its selling
advertisements for someone else’s goods, products or services." Order
at 11-12 (emphasis in original).
Although a significant portion of the allegations in the Nissan
Complaint relate to advertisements on the "www.nissan.com" website
for "automobile and other merchandising companies," Nissan Com-
plaint ¶ 22, Nissan also alleges injuries that relate to NCC’s advertise-
ment of its own services, namely its offering of "Internet access,
hosting, and networking capabilities" to visitors of its
"www.nissan.net" website. Id. ¶ 25 ("Seeking to profit from this con-
fusion, NCC purports to offer Internet access, hosting, and network-
ing capabilities to visitors [to the www.nissan.net website]."); see also
id. ¶ 29 ("It is therefore apparent that, in registering the domain names
‘nissan.com’ and ‘nissan.net,’ and using them in connection with ad
links to car and other merchandising websites, or to offer Internet ser-
vices, NCC falsely represented and warranted to [Network Solutions,
Inc.] that it had the right to register these domain names." (emphasis
added)). Accordingly, the Nissan Complaint alleges that Nissan’s
injuries arose, at least in part, from NCC’s advertisement of NCC’s
own goods, products, and services.
C.
Travelers next contends that, even if the injuries alleged in the Nis-
san Complaint fall within the definition of "advertising injury" in the
Travelers Policy, and even if those injuries occurred in the course of
NCC’s advertisement of its own goods, products, and services, we
should affirm the award of summary judgment because of the Falsity
Exclusion, the Business of Advertising Exclusion, and NCC’s failure
to comply with the Notice Provision. We address each of these con-
tentions in turn.
1.
Travelers first asserts that, under the Falsity Exclusion, it is not
obligated to defend NCC in the suit brought by Nissan. Pursuant to
16 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
the Travelers Policy, NCC is not entitled to coverage for an "advertis-
ing injury . . . [a]rising out of oral or written publication of material,
if done by or at the direction of the ‘insured’ with knowledge of its
falsity." J.A. 78. Travelers maintains that each cause of action in the
Nissan Complaint alleges that NCC acted intentionally and willfully
in misleading consumers, and that the Falsity Exclusion therefore
applies.
Because the Travelers Policy fails to define the policy term "fal-
sity," we "must define the term in a manner consistent with the con-
text in which it is used and the meaning accorded in ordinary speech."
Maddox, 280 S.E.2d at 909. As the Eleventh Circuit observed in
assessing a similar contention, the term "false" is generally under-
stood to mean "‘untrue’ or failing to correspond to a set of known
facts." Hyman, 304 F.3d at 1195. There is no allegation in the
Nissan Complaint that the advertisements contained on the
"www.nissan.com" and "www.nissan.net" websites were "untrue."
Nor is there anything "untrue" about the domain names themselves.
Rather, Nissan contends that the website gave a false impression or
misled visitors to believe that its contents were sponsored by Nissan.
As the Eleventh Circuit observed, although "a court could construe
the term ‘false’ to encompass conduct or statements arguably giving
rise to a false or misleading impression, . . . [s]uch a definition . . .
is significantly broader than one including only direct assertions of
untrue facts, and [it is] no more plausible." Id. at 1196. Because North
Carolina law directs us to construe ambiguous policy provisions in
favor of coverage, we cannot read the Falsity Exclusion so broadly as
to encompass allegedly misleading conduct. Accordingly, it does not
apply in this situation.15
2.
Travelers next contends that it has no duty to defend NCC against
the Nissan Complaint because NCC’s "business is advertising," and
15
Indeed, it "is questionable in the first instance . . . whether [the Fal-
sity Exclusion] applies to all advertising injuries, or only to libel, slander,
and invasion of privacy; it has been suggested that this exclusion is more
logically relevant to the latter." Adolfo, 165 F. Supp. 2d at 1341 (inter-
preting identical provision of commercial insurance policy).
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 17
the Business of Advertising Exclusion therefore applies. The Business
of Advertising Exclusion provides that the Travelers Policy does not
cover advertising injuries arising out of an "offense committed by an
‘insured’ whose business is advertising." J.A. 78. According to Trav-
elers, the Business of Advertising Exclusion applies "to those
insureds, like NCC, that engage in any type of advertising for others
as a revenue-generating business." Appellee’s Br. at 56 (emphasis in
original). We disagree.
The Business of Advertising Exclusion applies to those insureds,
and only to those insureds, whose principal or primary business is
advertising. The "phrasing ‘insureds whose business is . . .’ clearly
contemplates that the insured is more than just, in part, engaged in"
advertising. Delorme, 39 F. Supp. 2d at 81 (interpreting, under Maine
law, similar insurance policy provision). By the same token, however,
we do not view the Business of Advertising Exclusion as limited to
those insureds whose sole business is advertising. As the Delorme
court recognized, "[m]ost, if not all, businesses are engaged in multi-
ple areas of business even if they primarily practice in one area." Id.Instead, the logical interpretation is that the Business of Advertising
exclusion "applies to insureds whose primary, essential, chief or prin-
cipal business" is advertising. Id. Although NCC sold advertising
space on its websites, its principal business was computer sales and
services. Accordingly, the Business of Advertising Exclusion does not
excuse Travelers from its obligation to defend NCC.
3.
Finally, Travelers maintains that it is not obligated to defend NCC
against the Nissan Complaint because NCC failed to comply with the
Notice Provision in the Travelers Policy. Pursuant to the Travelers
Policy, NCC is required to notify Travelers "as soon as practicable of
an ‘occurrence’ or an offense which may result in a claim." J.A. 81.
Although Travelers acknowledges that NCC gave notice within days
of the filing of the Nissan Complaint, it contends that NCC should
have provided notice to Nissan four years earlier in 1995.
In particular, Travelers contends that a July 11, 1995 letter (the
"Nissan Letter") from Nissan to NCC regarding NCC’s registration of
18 STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO.
the domain name "www.nissan.com" could "result in a claim."16
Appellee’s Br. at 59. In the Nissan Letter, Nissan advised NCC of its
concern that NCC had "chosen to use ‘NISSAN’ as part of [NCC’s]
domain name on the Internet." The Nissan Letter also requested "ad-
ditional information about [NCC’s] business and the manner in which
[its] domain name [was] used."
North Carolina applies a three-part test to determine whether an
insurer may be relieved of its obligation to defend and indemnify its
insured due to tardy notice of a claim. See Great Am. Ins. Co. v. C.G.
Tate Constr. Co., 340 S.E.2d 743, 746-47 (N.C. 1986). First, an
insurer must demonstrate that the notice provided by its insured was
untimely. Id. at 746. Second, if the insurer shows that notice was
untimely, the insured must then demonstrate that the delay was "occa-
sioned in good faith." Id. at 747. Finally, if the insured is found to
have acted in good faith, the insurer’s contractual duties will nonethe-
less be discharged if the insurer can show that it was prejudiced by
the delay in notification. Id. at 746.
In this instance, NCC provided notice of the Nissan Complaint to
Travelers. The 1995 Nissan Letter neither threatened NCC with a
lawsuit nor asserted that NCC’s registration of the "www.nissan.com"
domain name was wrongful. Instead, it merely sought information
regarding NCC’s business and its use of the "www.nissan.com"
domain name. In these circumstances, the Nissan Letter did not give
notice to NCC of a possible claim, and NCC was not obliged to notify
Travelers thereof. And, as Travelers acknowledges, NCC notified
Travelers of the Nissan Complaint within days of its filing. In so
doing, NCC provided Travelers with proper notice under the Travel-
ers Policy.17 We therefore reject the contention that NCC failed to
comply with the Notice Provision.
16
The Nissan Letter related solely to the "www.nissan.com" domain
name. It was not until 1996 that NCC registered the "www.nissan.net"
domain name.
17
State Auto also contends that the district court erred in denying its
motion to alter or amend the judgment. Because we vacate the summary
judgment award to Travelers, this issue is moot.
STATE AUTO PROPERTY v. TRAVELERS INDEMNITY CO. 19
IV.
Pursuant to the foregoing, we vacate the summary judgment award
to Travelers, and we remand for such further proceedings as may be
appropriate.
VACATED AND REMANDED