GERARD E. LYNCH, Circuit Judge.
This case requires us to revisit the world of "advertising injury" insurance coverage. Defendant-appellant Charter Oak Fire Insurance Company ("Charter") appeals from a judgment of the United States District Court for the Eastern District of New York (Jack B. Weinstein, Judge), holding it liable to plaintiff-appellee CGS Industries, Inc. ("CGS") for its expenses in defending and settling a trademark infringement suit. CGS Indus., Inc. v. Charter Oak Fire Ins. Co., 777 F.Supp.2d 454 (E.D.N.Y.2011). We conclude that the relevant insurance policy did not cover the liability alleged in the trademark action, and that Charter is therefore not liable for the settlement amount. We also conclude, however, that at the time CGS asked Charter to defend the trademark lawsuit, there was sufficient legal uncertainty about the coverage issue to oblige Charter to defend the action. We therefore affirm the district court's ruling insofar as it holds Charter liable for defense costs, but reverse insofar as it holds Charter liable for the settlement. We accordingly vacate the judgment of the district court and remand for further proceedings consistent with this opinion.
On December 23, 2009, Five Four Clothing, Inc. ("Five Four") sued Wal-Mart Stores, Inc. ("Walmart") for trademark infringement based on CGS's use of Five Four's distinctive rear pocket stitching design (the "FF stitching") on jeans that CGS supplied to Walmart, which Walmart then sold.
The Policy, effective from August 31, 2009 to August 31, 2010, provides, in relevant part, that Charter:
Joint App'x 164. The Policy covers "`[a]dvertising injury' caused by an offense committed in the course of advertising your goods, products or services." Id. It defines "advertising injury" as injury arising out of one or more specifically listed offenses, including "[i]nfringement of copyright, title or slogan." Id. at 167. The Policy excludes coverage for advertising injury: (1) "caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ... `advertising injury'"; or (2) "arising out of oral, written or electronic publication of material, if done by or at the direction of the insured with knowledge
On July 13, 2010, CGS sued Charter for breach of its duty to defend. The parties cross-moved for summary judgment.
On June 3, 2011, rather than go to trial to determine the amount of damages, the parties stipulated that damages were $396,342.53, calculated as the $250,000 settlement plus CGS's defense costs in the Underlying Action. In the stipulation, Charter reserved its rights to appeal all issues except the reasonableness of the defense costs and settlement amount. The district court entered judgment for CGS in the amount of $396,342.53 on June 8, 2011.
Charter now appeals the judgment and seeks review of the district court's rulings on the various motions for summary judgment, arguing that it did not have a duty to defend CGS under the policy because: (1) CGS's copying of the FF stitching did not constitute an infringement of "slogan" or "title" within the meaning of the Policy; (2) the Underlying Action did not allege that CGS committed a covered offense in the course of advertising; and (3) the Policy's "knowledge of falsity" and "knowing violation" exclusions precluded coverage for the Underlying Action. In the alternative, Charter argues that it is not liable for the underlying settlement amount as damages for its purported breach of its duty to defend, as it did not have a duty to indemnify. Last, Charter argues that the Policy's exclusion of liability assumed in contract barred coverage for the portion of the underlying settlement that CGS paid to settle Walmart's liability.
The parties do not dispute the material facts underlying the claim, but instead contest only the district court's interpretation of the Policy. "Because interpretation of an insurance agreement is a question of law, we review the district court's construction of the Policy de novo." VAM Check Cashing Corp. v. Fed. Ins. Co., 699 F.3d 727, 729 (2d Cir. 2012).
The parties agree that New York law governs this action. As we explained in Hugo Boss Fashions, Inc. v. Federal Insurance Co., New York law distinguishes between the duty to indemnify and
The duty to defend is broader than the duty to indemnify and an "even stronger presumption in favor of coverage" applies. Hugo Boss, 252 F.3d at 615; see also Hanover Ins. Co. v. Cowan, 172 A.D.2d 490, 568 N.Y.S.2d 115, 116 (2d Dep't 1991). Even where the insurer ultimately has no duty to indemnify due to policy exclusions, it may still be "obligated to defend the insured until the applicability of the exclusions [is] determined." Hugo Boss, 252 F.3d at 615. To avoid the duty to defend, an insurer "must demonstrate that the allegations of an underlying complaint place that pleading solely and entirely within the exclusions of the policy and that the allegations are subject to no other interpretation." Id., quoting Hanover Ins. Co., 568 N.Y.S.2d at 116.
In keeping with these principles, we now turn to Charter's various arguments.
Charter argues that it had no duty to defend, still less to indemnify, CGS because the FF stitching is neither a "title" nor a "slogan" used in advertising, and that therefore the Underlying Action did not allege a covered "[i]nfringement of ... title or slogan."
We first consider whether the FF stitching could be considered a "slogan." Our decision in Hugo Boss provides the framework for analysis, and indeed gives authoritative guidance as to the meaning of the term.
"[W]e begin with the terms of the [Policy] itself to see if the intent of the parties can be gleaned without resort to extrinsic evidence." Hugo Boss, 252 F.3d at 617. Here, as in Hugo Boss, the Policy fails to define "slogan" or to provide criteria for distinguishing slogans from non-slogans. Thus, the language of the Policy itself "is of no aid to us in deciding whether [the FF stitching] qualifies as a ... slogan within the meaning of the contract" of insurance. Id. (internal quotation marks omitted).
Next, we ask whether a body of law or an established custom fills in the gaps left by the drafters. We concluded in Hugo Boss that New York state law did not provide significant insight into the meaning of "slogan," or any clear way to distinguish between slogans and non-slogans. That is still the case; the parties cite, and we have found, no New York case law subsequent to Hugo Boss that provides further guidance on this issue. Nor is there an established industry usage that gives meaning to the term "slogan." Id. at 618.
As we did in Hugo Boss, however, we may still find a policy term unambiguous where we can determine that it has a clear meaning in federal law.
To hold that the stitching design on a jeans pocket is a "slogan" would stretch that definition beyond recognition, as the design is clearly not a "phrase." In Hugo Boss we rejected the notion that "the trademarked name of a brand, product, or company" constituted a trademarked slogan, and found it "clear that a `slogan' must be something[ ] other than the house mark or product mark itself." 252 F.3d at 619 (emphases omitted). It follows that the FF stitching, which is also not a "phrase" and which in effect is a "house mark or product mark," is not a slogan either. "In light of this federal authority confirming this definition ... and given the presumption that, unless they expressly indicate otherwise, contracting parties will be deemed to have incorporated into their agreements usages of key terms that are well-established in the case law or industry, we find no ambiguity
Although we found the mark at issue in Hugo Boss so unambiguously not a slogan to defeat the duty to indemnify, in that case we also concluded that, because "under New York law, the insurer's duty to furnish a defense is broader than its obligation to indemnify," id. at 620 (internal quotation marks and citation omitted), sufficient uncertainty still remained about "whether [the meaning of] the term [`trademarked slogan'] was clear enough to avoid contra proferentem," id. at 622, to impose on the insurer a duty to defend the action.
We next consider whether the FF stitching could be considered a "title."
The vast majority of federal cases are clear that in this context — that is, in a list that includes "copyright" and "slogan," but conspicuously does not include coverage of infringement of "trademarks" — "title" means the name or appellation of a product, and does not cover design elements such as pocket stitching that may serve as a trademark designating the origin of the product. See, e.g., Houbigant, Inc. v. Fed. Ins. Co., 374 F.3d 192, 200 (3d Cir.2004) (defining "trademarked title as any name, appellation, epithet, or word used to identify and distinguish the trademark holder's goods from those manufactured or sold by others"); A Touch of Class Imports, Ltd. v. Aetna Cas. & Sur. Co., 901 F.Supp. 175, 176-77 (S.D.N.Y. 1995) (noting that "title" is "a name or appellation" such as "Big Mac," "Chap Stick," and "Cheerios," and does not include trademarks such as the design of a package or location of a patch on a pair of jeans).
While the definition of title is clear enough to bar Charter's duty to indemnify CGS, our inquiry does not end there. If there was any residual uncertainty as to whether a court would find "title" unambiguous, then Charter still had a duty to defend, independent of the duty to indemnify. See Hugo Boss, 252 F.3d at 620-21. The duty to defend is broader than the duty to indemnify, and insurers may refuse to defend only "cases in which the policy is so clear that there is no uncertainty in fact or law." Id. at 620.
As noted above, in Hugo Boss, we held that even though a prior district court decision advancing a competing interpretation of "slogan" did not render the term ambiguous in the face of overwhelming consensus among courts, it did "render[ ] uncertain the question of whether the courts would deem the term ... to be unambiguous." Id. at 620-21 & n. 11 (emphasis omitted). We face a similar situation here: while the vast majority of federal cases unambiguously define "title" to mean a word or phrase, a handful define title in a way that could arguably include a design or symbol similar to the pocket
While the reasoning of these cases is faulty, as title and trademark are not coextensive, under the Hugo Boss framework these cases created enough legal uncertainty around the meaning of "title" to "give[ ] rise to (an at least temporary) duty to defend ... until the uncertainty surrounding the term was resolved." Hugo Boss, 252 F.3d at 622. Although in our view there is not sufficient ambiguity to invoke the contra proferentem presumption that would trigger a duty to indemnify, there was nonetheless, at the time of the filing of the Underlying Action, sufficient uncertainty about the scope of coverage to trigger Charter's duty to defend. Its failure to defend therefore breached the Policy. To the extent Charter believed that the Underlying Action did not allege an infringement of title and was therefore not covered by the Policy, its remedy was to begin to defend CGS and immediately seek a declaratory judgment as to the meaning of "title." See Hugo Boss, 252 F.3d at 622-23.
Wholly apart from the issue regarding infringement of slogan or title, the Policy covers only "`[a]dvertising injury' caused by an offense committed in the course of advertising." Joint App'x 164. Charter next argues that the Underlying Action was not covered by the Policy because Five Four did not allege that its injury stemmed from CGS advertising the jeans.
In determining whether an insurer is obliged to defend a lawsuit against the insured, we examine the allegations in the complaint filed in that lawsuit. "If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be." Century 21, Inc. v. Diamond State Ins. Co., 442 F.3d 79, 83 (2d Cir.2006) (internal quotation marks omitted). Otherwise stated, "[w]here allegations
The Underlying Action's various amended complaints consistently alleged "wrongful acts, including advertising." Joint App'x 353, 374, 391, 443. While Charter argues that any allegations of advertising referred only to Walmart's actions, the last complaint filed, the Third Amended Complaint ("TAC"), alleged that defendants — which included both Walmart and CGS — advertised the jeans. Id. at 447-48. It is hardly a "strained, implausible" or "tortured and unreasonable" reading of the TAC to read it to allege advertising injury by CGS. Century 21, 442 F.3d at 82 (internal quotation marks omitted). If Charter believed that Five Four did not intend to allege advertising by CGS or that CGS did not advertise the jeans, Charter should have begun to defend and immediately sought a bill of particulars to resolve any ambiguity in the pleadings. See Hugo Boss, 252 F.3d at 622 (noting that "New York law permits the insurance company to extricate itself early by demanding a bill of particulars," and that "the duty to defend lasts only until the factual ambiguity is resolved in favor of the insurer").
Charter further argues that even if it initially had a duty to defend, that duty terminated once CGS and Walmart's discovery responses demonstrated that they had never advertised the jeans. Charter is correct that the duty to defend exists only "until it is determined with certainty that the policy does not provide coverage." Id. at 620 (emphasis in original). However, Charter did not so argue below. Instead, it cited these discovery responses, incorrectly, as a reason why it had never had a duty to defend at all. Further, the stipulation with respect to damages entered by the parties below leaves open no reasonable basis on which to argue that the district court ruled on or rejected any claim about the size of the defense costs or whether the obligation to defend cut off at some particular point. Given the stipulation and Charter's failure to make this argument properly below, any argument that Charter's duty to defend terminated at some point during the course of the Underlying Action has been waived.
Charter next argues that the Underlying Action fell within the Policy's "knowing violation" exclusion, as it was "explicitly premise[d] ... on intentional copying." Appellant's Reply Br. 21. The policy excluded coverage for any "advertising injury" either committed by or at the direction of the insured "with the knowledge that the act would" inflict advertising injury, or arising out of the publication of material, if done by the insured "with knowledge of its falsity." Joint App'x 164. Charter argues that this "knowing violation" exclusion meant that it did not have to defend the Underlying Action, which alleged "willful" infringement.
An insurer may refuse to defend "only if it could be concluded as a matter of law that there is no possible factual or legal basis on which [the insurer] might eventually be held to be obligated to indemnify [the insured] under any provision of the insurance policy." Servidone Constr. Corp. v. Sec. Ins. Co. of Hartford, 64 N.Y.2d 419, 424, 488 N.Y.S.2d 139, 477 N.E.2d 441 (1985) (internal quotation marks omitted). "If the allegations of the complaint are even potentially within the language of the insurance policy, there is a duty to defend." Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 443, 749 N.Y.S.2d 456, 779 N.E.2d 167
Despite the boilerplate allegation of willful misconduct, Five Four's Lanham Act section 43(a) claim did not require it to prove that CGS intended to infringe on its trademark, as such a claim does "not require proof of intent to deceive." Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 189 (2d Cir.1980). Our inquiry ends there: as at least one of the claims in the Underlying Action did not require intent, Charter was required to defend the entire action.
As noted above, the complaint in the Underlying Action alleged a potentially unintentional infringement of title in the course of advertising that triggered Charter's duty to defend the entire action. Charter's breach of that duty, however, does not entail an obligation to pay the settlement amount in the absence of a duty to indemnify. "The narrower duty to indemnify arises only if the claim for which the insured has been judged liable lies within the policy's coverage." Allianz Ins. Co. v. Lerner, 416 F.3d 109, 115 (2d Cir. 2005). In Servidone Construction, the New York Court of Appeals held that "an insurer's breach of [its] duty to defend does not create coverage and that, even in cases of negotiated settlements, there can be no duty to indemnify unless there is first a covered loss." 64 N.Y.2d at 423, 488 N.Y.S.2d 139, 477 N.E.2d 441; see also Stellar Mech. Servs. of N.Y., Inc. v. Merch. Ins. of N.H., 74 A.D.3d 948, 903 N.Y.S.2d 471, 476 (2d Dep't 2010); Hotel des Artistes, Inc. v. Gen. Accident Ins. Co. of Am., 9 A.D.3d 181, 775 N.Y.S.2d 262, 271 (1st Dep't 2004) ("[I]t is impermissible for a court to enlarge[ ] the bargained-for coverage as a penalty for breach of the duty to defend." (alteration in original) (internal quotation marks omitted)). As noted above, while the uncertainty around the meaning of "title" gave rise to a duty to defend, there was not sufficient ambiguity to give rise to a duty to indemnify, and Charter is therefore not liable for CGS's settlement.
CGS's original policy with Charter contained a broader definition of "advertising injury," which included, inter alia, coverage for trade dress infringement. That provision, however, was eliminated by an endorsement to the policy, which the parties refer to as the "Web Xtend Endorsement." On appeal, CGS raises a new argument, not raised or addressed below, that the Web Xtend Endorsement did not effectively amend the Policy.
Although the argument was not raised below, we exercise our discretion to address it, to spare the district court from having to consider such a frivolous argument on remand. The Web Xtend Endorsement unambiguously stated that the previous advertising injury language was "deleted and replaced by the following," and included a header stating in all caps and bold:
"[I]t is settled that in construing an endorsement to an insurance policy, the endorsement and the policy must be read together, and the words of the policy remain in full force and effect except as altered by the words of the endorsement." County of Columbia v. Cont'l Ins. Co., 83 N.Y.2d 618, 628, 612 N.Y.S.2d 345, 634 N.E.2d 946 (1994). Here, the endorsement unambiguously altered the original Policy, which therefore no longer governs the scope of CGS's coverage.
For the foregoing reasons, the judgment of the District Court is hereby VACATED and the case is REMANDED for further proceedings consistent with this opinion.
