Frog, Switch & Mfg. Co. v. Travelers Ins. Co.

Frog, Switch & Mfg. Co. v. Travelers Ins. Co.

Opinion

 [***1288]   [*744] OPINION OF THE COURT

BECKER, Chief Judge.

This case requires us to interpret two insurance policies to determine whether the insurers had a duty to defend the insured against a lawsuit brought by a competitor for theft of trade secrets, unfair competition, and reverse passing off. The policies covered claims against the insured for "advertising injury." The definition of "advertising injury" in standard business insurance policies has troubled and in some cases [**2]  confounded courts for years. This case involves allegations that the insured stole various ideas and then advertised the results of that theft; the [***1289]  question is whether the advertising converts the theft into "advertising injury." We conclude that it does not, and that, by the plain terms of the policies, the insurers had no duty to defend against such claims. We also rule that the insured cannot maintain actions for bad-faith denial of coverage against them. We therefore affirm the District Court's order granting summary judgment to the principal insurer, Travelers Indemnity Co. (named as "Travelers Insurance Co." in the caption) ("Travelers"), and its Fed. R. Civ. P. 12(b)(6) order dismissing the insured's complaint against the excess carrier, United States Fire Insurance Co. ("USFIC").

I. Facts and Procedural History

Plaintiff is The Frog, Switch & Manufacturing Co. ("Frog"), a manufacturer of industrial products. Defendants are Travelers and USFIC, which issued insurance policies to Frog that are identically worded in relevant part. Travelers issued a basic policy with an advertising injury limit of $ 1,000,000, and USFIC issued an excess policy that covered claims that exceeded [**3]  the retained limit. Under the policies, the insurance companies agreed to pay sums that Frog became legally obligated to pay as damages for "advertising injury" "caused by an offense committed in the course of advertising your goods, products, and services." "Advertising injury" was defined as, inter alia, "injury that arises out of your advertising activity as a result of: . . . (3) misappropriation of advertising ideas or style of doing business." The policies further provided that the insurance companies had the right and duty to defend against any suit seeking damages covered by their policies.

On July 17, 1995, a Frog competitor, ESCO, filed suit against Frog and one of Frog's employees, John Olds. ESCO alleged that, in January 1995, it had acquired a dipper bucket product line from  [*745]  Amsco Cast Products, Inc. ("Amsco"), including Amsco's trade name, trademarks, and copyrights. The complaint (hereinafter "the underlying complaint") maintained that, prior to ESCO's acquisition of Amsco, Olds--who had been Amsco's chief engineer for the dipper bucket product line--misappropriated from Amsco trade secrets and confidential business information, including drawings and prints related [**4]  to the dipper bucket product line and delivered that information to his new employer, Frog.

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