Starr Indem. & Liab. Co. v. Miami Chocolates, LLC

Citation: 337 F. Supp. 3d 1216Docket: CASE NO.: 17-CV-23626

Court: District Court, S.D. Florida; August 21, 2018; Federal District Court

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Starr Indemnity Liability Company seeks a declaration that it has no duty to defend or indemnify the MC Defendants—Miami Chocolates, LLC, Charles McDonald, and Judy McDonald—in an underlying lawsuit brought by Peterbrooke Franchising of America, LLC. The underlying suit alleges trademark infringement and other claims against the MC Defendants for continuing to operate a chocolatier shop after their franchise agreement with Peterbrooke was terminated. Specifically, Peterbrooke's claims include trademark infringement under the Lanham Act, false designations of origin, common law trademark infringement, common law unfair competition, and breach of the franchise agreement.

Starr argues that these claims are excluded from coverage under its insurance policy. During a July 2, 2018 hearing, both Peterbrooke and the MC Defendants acknowledged that all claims except for the unfair competition claim (Count IV) are subject to policy exclusions. Subsequently, the court allowed for supplemental briefs regarding Count IV. After reviewing these briefs and the relevant documents, the court concluded that Starr's policy also excludes Count IV. Consequently, the court ruled that Starr has no obligation to defend or indemnify the MC Defendants against any claims in the underlying lawsuit. The determination of Starr's duty centers on the policy's coverage and exclusions alongside the factual allegations made by Peterbrooke. The policy states that Starr will cover damages for "personal and advertising injury" and has a duty to defend the insured against lawsuits for such injuries.

No duty to defend the insured exists for suits seeking damages related to bodily injury, property damage, or personal and advertising injury where the insurance does not apply. The policy excludes business liability coverage for personal and advertising injury resulting from acts known to violate another's rights, breaches of contract (except for implied contracts regarding advertising ideas), and infringement of intellectual property rights, including copyright, patent, trademark, and trade secrets. Notably, the exclusion does not cover the use of another's advertising idea in one's advertisement but does apply to infringement of copyright, trade dress, or slogan in advertisements.

Definitions within the policy clarify that "advertisement" refers to notices aimed at attracting customers, while "personal and advertising injury" includes injuries arising from specified offenses, including the use of another's advertising idea.

Peterbrooke's unfair competition claim against the MC Defendants is based on allegations of unauthorized use of the Peterbrooke Mark after the termination of their franchise agreement. The agreement granted Miami Chocolates a limited license to use the Mark, but this authority ceased upon termination, as outlined in Section 19, which also prohibits misrepresentation as a Peterbrooke franchise and requires immediate removal of Peterbrooke-associated signage. Despite these provisions, the MC Defendants continued to represent themselves publicly as authorized Peterbrooke operators, infringing on the Mark and breaching post-termination obligations. Specifically, Charles and Judy McDonald are accused of continuing to use the Peterbrooke Mark and signage and selling products under that name for several months after the agreement ended.

Defendants used the Peterbrooke Mark and associated items at their former shop without Peterbrooke's permission, leading to public confusion regarding the source and sponsorship of their products. This unauthorized use misleads customers into believing that their products are affiliated with or endorsed by Peterbrooke, thereby exploiting Peterbrooke's goodwill and reputation. Peterbrooke alleges that this conduct constitutes common law unfair competition. Both Peterbrooke and the MC Defendants argue that this claim is covered under Starr's insurance policy, distinct from four other claims.

In determining Starr's duty to defend the MC Defendants, the court applies a standard where an insurer must defend unless all claims are outside the policy's coverage or a policy exclusion applies to all claims. The court evaluates the plain language of the insurance policy, interpreting any ambiguous terms liberally in favor of the insured. It is established that the question of whether Starr must defend the MC Defendants is a legal issue suitable for summary judgment, given that the parties agree on this matter.

The court must determine the insurer's duty to defend based solely on the allegations in the underlying complaint, as established in Philadelphia Indem. Ins. Co. v. Yachtman's Inn Condo Ass'n, Inc. and further supported by State Farm. The insurer is obligated to defend if the allegations suggest coverage under the policy, irrespective of the lawsuit's merits. Conversely, if the allegations do not indicate coverage, the insurer is not required to defend, regardless of the potential outcome of the lawsuit. Peterbrooke and the MC Defendants' request for the court to consider findings from an interim order in the underlying suit is rejected, as the order is not a final judgment and is currently under reconsideration. The court emphasizes adherence to the principle that only the facts as stated in the complaint are relevant for determining the duty to defend. This principle is reinforced by case law, including Nat'l Union Fire Ins. Co. v. Lenox Liquors, Inc., where the Florida Supreme Court ruled that the insurer had no duty to defend based on the allegations in the original complaint. Additionally, in Evanston Ins. Co. v. Berlanga, the court similarly limited its analysis to the allegations in the complaint, ignoring any subsequent judgments. Thus, the court reaffirms that the insurer's duty to defend hinges solely on the allegations within the complaint, not on external findings or actual facts.

Evanston's duty to defend is based solely on the allegations in the Underlying Action, as established by prior case law. The Eleventh Circuit, following Florida's general rule, asserts that an insurer's duty is determined exclusively from the allegations in the complaint, without regard to the actual facts, the insured's version of events, or defenses. The merits of the underlying suit do not influence the duty to defend. 

For Starr to determine its duty to defend the MC Defendants, it will assess only the Policy and the underlying complaint. The Policy offers Business Liability Coverage for damages due to "personal and advertising injury." To qualify for coverage, the underlying complaint must allege facts that constitute such an injury. 

The Policy defines an advertisement as a public notice aimed at attracting customers, while a personal and advertising injury arises from using another's advertising idea in one's advertisement. Although "advertising idea" is not specifically defined, the Eleventh Circuit interprets it broadly as any concept linked to product promotion. 

The Court finds that Peterbrooke's unfair competition claim fits within the Policy’s definition of a covered personal and advertising injury. Specifically, Peterbrooke accuses Miami Chocolates and its owners of misrepresenting their affiliation with Peterbrooke and misusing its trade secrets and branding materials post-termination of their agreement.

The MC Defendants continued to represent themselves to the public as operating a legitimate Peterbrooke Chocolatier Shop after the termination of their Agreement, using the Peterbrooke Mark and associated signage. This post-termination usage misled customers and unfairly exploited Peterbrooke's goodwill and reputation, leading to claims of unfair competition by Peterbrooke. The allegations focus on the MC Defendants' advertisement practices, which resulted in personal and advertising injuries due to their use of Peterbrooke's brand materials.

Despite coverage for personal and advertising injuries under Starr's Policy, certain exclusions apply to Peterbrooke's unfair competition claim. The Infringement Exclusion, which concerns injuries arising from the infringement of intellectual property rights, is particularly pertinent. The Florida Supreme Court interprets "arising out of" as indicating a broader causal connection than "caused by." Consequently, Peterbrooke's claims, while potentially broader than a direct trademark infringement claim, are fundamentally linked to the MC Defendants' post-termination actions related to the Peterbrooke Mark. Thus, the Court finds that the Infringement Exclusion applies, as Peterbrooke's claims stem from the same conduct that constitutes trademark infringement, causing confusion about the source and sponsorship of the Defendants' products.

Misleading customers through unfair competition undermines Peterbrooke's goodwill, as established in the underlying complaint, which alleges trademark infringement by the MC Defendants. Counts I, II, III, and V of the complaint incorporate these allegations, all of which are barred by the Infringement Exclusion in Starr's policy, as they relate to intellectual property infringements. Consequently, Starr has no duty to defend or indemnify the MC Defendants, as indicated by legal precedents confirming that the absence of a duty to defend inherently negates a duty to indemnify.

Additionally, the Breach Exclusion in the policy covers advertising injuries stemming from breach of contract, including allegations connected to the MC Defendants’ post-termination use of the Peterbrooke Mark, violating the terms of the Agreement. All claims, including unfair competition, arise from this breach, thus invoking the Breach Exclusion.

Lastly, while the policy includes an Intentional Violation of Rights Exclusion for actions taken knowingly to infringe on others' rights, its applicability is unnecessary to address since the previous exclusions already negate Starr's duty to defend. The court concludes that despite the possibility of coverage for Peterbrooke's claims, the applicable exclusions prevent any obligation for Starr to defend or indemnify the MC Defendants. The court grants Starr’s Motion for Summary Judgment and denies Peterbrooke’s Motion for Summary Judgment, acknowledging that Starr defended the MC Defendants while reserving the right to challenge its duty under the policy.