JOHN R. TUNHEIM, District Judge.
This insurance coverage dispute is before the Court after reversal and remand by the Eighth Circuit. AMCO Ins. Co. v. Inspired Techs., Inc., 648 F.3d 875 (8
AMCO and ITI now bring cross-motions for summary judgment. AMCO argues that it is entitled to summary judgment because all of the allegations in the underlying complaint fall within one of the exclusions of the insurance policy. ITI contends that it is entitled to summary judgment because AMCO breached its duty to defend ITI. The Court will grant summary judgment to AMCO because it finds that all allegations in the underlying complaint that fall outside the "knowledge of falsity" exclusion — the only provision that the Eighth Circuit addressed — fall within one of the other policy exclusions and, therefore, that AMCO had no duty to defend ITI.
AMCO issued ITI a comprehensive general liability insurance policy (the "Policy"),
On April 16, 2008, 3M filed a lawsuit against ITI alleging that ITI violated federal unfair competition laws under the Lanham Act, 15 U.S.C. § 1125(a) and state unfair competition laws under the Minnesota Uniform Deceptive Trade Practices Act ("MDTPA"), Minn. Stat. § 325D.44. (Petersen Aff., Ex. D, 3M Compl. ¶1.) 3M claimed that "ITI's advertising purporting to depict results from use of 3M Tape is false, misleading, and deceptive" in several different ways. (Id. ¶¶ 12-13.) The first two factual allegations described ITI's use of an "Actual Photo" of 3M Tape in marketing brochures and product packaging for Frog Tape:
(Id. ¶ 12(a)-(b).) The next three factual allegations attacked ITI's testing and demonstration of 3M Tape in video, internet, and comparative advertising for Frog Tape:
(Id. ¶ 12(c)-(e).) 3M also asserted that "ITI's product packaging and comparative advertising campaign are false and misleading in other respects as well, in that ITI has made other claims about the companies' tapes that are incorrect and unsubstantiated." (Id. ¶ 13.) In response to an interrogatory asking it to "Describe all facts supporting your allegation in paragraph 13 of your Complaint," 3M answered:
(Peterson Aff., Ex. T, 3M's Answer to Interrog. 14.) Interrogatory 19 requested 3M to "Describe in all possible detail the basis for your claim that ITI's advertisements or demonstration resulted on consumer confusion or were intended to deceive." (Peterson Aff., Ex. U, 3M's Answer to Interrog. 19.) 3M answered:
(Id.)
On December 16, 2008, ITI settled the 3M litigation. The Court's previous action addressed whether AMCO was responsible for paying Winthrop & Weinstine's attorney's fees. ITI now argues that because AMCO breached its duty to defend it must reimburse ITI for the costs and fees ITI incurrent in defending itself in both the 3M litigation
Summary judgment is appropriate where there are no genuine issues of material fact and the moving party can demonstrate that it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A fact is material if it might affect the outcome of the suit, and a dispute is genuine if the evidence is such that it could lead a reasonable jury to return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A court considering a motion for summary judgment must view the facts in the light most favorable to the non-moving party and give that party the benefit of all reasonable inferences that can be drawn from those facts. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Because the Eighth Circuit only considered the applicability of the "knowledge of falsity" exclusion and the remaining claims in the underlying complaint fall within the other exclusions, the Court will grant AMCO's motion for summary judgment and deny ITI's motion. The Court will first address the Eighth Circuit's opinion and then examine the other policy exclusions.
The Eighth Circuit agreed with this Court that the "knowledge of falsity" exclusion applied to the doctoring of the "purported `actual photos' of 3M tape" (paragraphs 12(a) and (b) of 3M's complaint). AMCO II, 648 F.3d at 882.
AMCO is only entitled to summary judgment if an exclusion applies to each claim in the underlying complaint. AMCO II, 648 F.3d at 881 ("If any part [of the cause of action] is arguably within the scope of coverage, the insurer should defend, reserving its right to contest coverage based on facts developed at trial on the merits.") (quoting Farmers and Merchs. State Bank v. St. Paul Fire & Marine Ins. Co., 242 N.W.2d 840, 843 (Minn. 1976)). The Minnesota Supreme Court has held that if "the policy contains an exclusion clause," the burden is on the insurer "to prove the applicability of the exclusion. . . ." SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305, 313 (Minn. 1995), overruled on other grounds by Bahr v. Boise Cascade Corp., 766 N.W.2d 910, 919 (Minn. 2009). "Exclusions are narrowly interpreted against the insurer." Id. at 314.
The "knowledge of falsity" exclusion excludes from coverage "Personal or Advertising injury"
(Peterson Aff., Ex. A.)
In paragraphs 12(a) and (b) of 3M's Complaint, 3M claimed that ITI manipulated photographs "in order to depict 3M tape in an unfavorable way" and "in a manner that is contrary to its typical use and effectiveness." The Court concluded that such conduct could only occur "with knowledge of its falsity" because 3M asserted that manipulation of the photos "could only occur through intent to deceive." AMCO I, 692 F. Supp. 2d at 1065 (quoting 3M's Answer to Interrog. 19.) Similarly, some of the conduct alleged in paragraph 13 of 3M's Complaint also falls within the knowledge of falsity exclusion. 3M alleged that at least some of ITI's "Actual Photos" were "manipulated images" (Answer to Interrog. 14(a)); the Court found 3M alleged that manipulation of these photographs could only have occurred with knowledge of their falsity. See id. Indeed, the Eighth Circuit noted that "doctoring purported `actual photos' of 3M Tape [is] conduct which most naturally implies intent." AMCO II, 648 F.3d at 882.
However, not all of the claims alleged by 3M fall within the "knowledge of falsity" exclusion. See id. The Court will next address the applicability of the other exclusions to claims that 3M alleged violated the Lanham Act.
Under the "defects or errors in testing" exclusion, AMCO has no duty to defend suits arising from
(Policy at 12-13.)
The claims in paragraph 12(c) to (e) of 3M's complaint attacked ITI's testing and demonstration of 3M Tape in video, internet, and comparative advertising for Frog Tape. In paragraph 12(c) 3M asserted that ITI's advertisements "do not accurately depict 3M Tape under . . . any test protocol sufficiently reliable or scientific to support ITI's claims." That is, 3M argued that either ITI's test was defective or their interpretation of that test was defective. In paragraph 12(d), 3M contended that the statements in ITI's advertising were "false and misleading because in fact the same pressure is not applied to all depicted tapes" again claiming that ITI's test or reliance on their test was erroneous. In paragraph 12(e) 3M stated that "ITI test conditions are not sufficiently reliable or comparable." Because in each of these claims, 3M alleged an "error, omission, defect or deficiency" in ITI's testing (Policy at 12), the claims fall within the "defects or errors in testing" exclusion of the policy.
In paragraph 13, 3M asserted that "ITI has made other claims about the companies' tapes that are incorrect and unsubstantiated." (3M Compl. ¶ 13.) When asked to describe the allegations that supported this claim, 3M pointed to evaluations that were "not representative" (3M's Answer to Interrog. 14(a)), and to tests including sideby-side comparisons (id. 14(c)) and residue-measurement (id. 14(d-e)) that 3M alleged produced erroneous results. Finally, 3M asserted that the "tape widths that ITI claims . . . are overstated and thus false and misleading." (Id. 14(f).) An unintentional
In sum, the Court concludes that each of 3M's claims that does not fall within the "knowledge of falsity" exclusion falls within the "defects or errors in testing" exclusion. See also AMCO I, 692 F. Supp. 2d at 1067-68.
Some of 3M's claims also fall within the "failure to conform" exclusion. The exclusion eliminates a duty to defend arising from the "failure of goods, products, or services to conform with any statement of quality or performance made in your `advertisement.'" (Policy at 10.)
In its Answer to Interrogatory 14, 3M alleged:
(3M's Answer to Interrog. 14.) Each of these allegations arises "out of the failure of [ITI's] goods, products or services to conform with" a "statement of quality or performance" made in its advertisements — conduct that is explicitly excluded by the "failure to conform" exclusion of the Policy. (Policy at 10.)
The Court concludes that all of the allegations found in 3M's complaint that do not fall within the "knowledge of falsity" exclusion fall within the "defects or errors in testing" exclusion and the "failure to conform" exclusion.
ITI argues that it is entitled to summary judgment because the Eighth Circuit found that AMCO had a duty to defend and because AMCO breached its duty. The Eighth Circuit, however, did not find that AMCO had a duty to defend. The Eighth Circuit panel merely concluded that 3M had alleged at least one claim that fell outside the "knowledge of falsity" exclusion, and it remanded the case for further proceedings consistent with its opinion. AMCO II, 648 F.3d at 883. Because the Court has already determined based on the applicability of other exclusions that AMCO has no duty to defend (see Part II, supra), it will deny ITI's motion for summary judgment.
Based on the foregoing, and all the files, records, and proceedings herein,
1. AMCO Insurance Company's Motion for Summary Judgment [Docket No. 70] is
2. Inspired Technologies, Inc.'s Motion for Summary Judgment [Docket No. 86] is
This insurance, including any duty we have to defend "suits" does not apply to:
(Peterson Aff., Mar. 30, 2009, Ex. A at 10, 12-13, Docket No. 23.)
Only the first of these issues appears to have been argued or briefed in front of the Eighth Circuit panel. In AMCO II, the Circuit Court stated,
AMCO II, 648 F.3d at 880. The opinion makes no mention of either party noting the applicability of any exclusion other than the "knowledge of falsity" exclusion.
In the briefing, although AMCO noted that the "district court also found that AMCO had no duty to defend the last three counts because coverage for these was excluded by the Policy's `deficiency of testing' exclusion," in the following sentence it stated, "
