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WINKLEVOSS CONSULTANTS, INC. v. FEDERAL INS. CO.

July 22, 1998

WINKLEVOSS CONSULTANTS, INC. and HOWARD WINKLEVOSS, Plaintiffs,
v.
FEDERAL INSURANCE CO., Defendant.



The opinion of the court was delivered by: CASTILLO

MEMORANDUM OPINION AND ORDER

 Today we issue our third opinion in this insurance coverage dispute in an attempt to bring an end to this piecemeal litigation. Earlier this year, this Court ruled that defendant Federal Insurance Company had no duty to defend plaintiff Winklevoss Consultants under insurance policy provisions for "advertising injury" against a lawsuit entitled Lynchval Systems, Inc. v. Chicago Consulting Actuaries et al. That ruling was limited, at Winklevoss' insistence, to the original complaint filed in the Lynchval suit. Because the allegations in that complaint claimed injury arising solely out conduct that had no connection to advertising or a covered advertising injury offense, we held that the complaint held no potential for coverage, negating any duty to defend. *fn1" See Winklevoss Consultants, Inc. v. Federal Ins. Co., 991 F. Supp. 1024 (N.D. Ill. 1998) (" Winklevoss II "). Before the Court are the parties cross-motions for partial summary judgment on whether the new claims and allegations in Lynchval's Second Amended Substitute Complaint ("SASC") trigger a duty to defend. Federal is currently defending the SASC under a reservation of rights.

 The cross-motions before us are premised on both parties' cross-claims. Federal has filed a five-count amended counterclaim requesting that it be relieved from its current defense duties, insisting that any defense-triggering allegations that may once have inhabited the SASC have since been dismissed. Counts I and II request a declaratory judgment that Federal owes no defense obligations under the CGL and Umbrella policies that it issued to Winklevoss. Count III seeks a declaratory judgment that Federal may withdraw its current defense. Count IV asks for reimbursement of defense costs to date based on lack of coverage, and Count V asks for reimbursement due to the alleged unreasonableness of the fees to date. Winklevoss has responded with its own amended two-count counterclaim. *fn2" Count I seeks a declaratory judgment that Federal has a duty to defend Winklevoss against the SASC, and that this duty relates back to the Lynchval suit's inception. Count II requests a declaratory judgment that Federal breached its insurance contracts by refusing to defend Winklevoss from the beginning of the Lynchval litigation.

 We hold that the SASC does trigger defense obligations under both the CGL and Umbrella policies' provisions for advertising injury, but that this duty was not triggered until the SASC was tendered to Federal in January 1996. As such, the parties' motions are granted in part and denied in part, as detailed in this opinion.

 LEGAL STANDARDS AND ANALYSIS

 The facts in this case were described at length in Winklevoss II, 991 F. Supp. at 1026-30; we refer to them here only as necessary to analyze the claims before us. Likewise, the standards for summary judgment, which is proper when no genuine issue of material facts exists and the moving party is entitled to judgment as a matter of law, were outlined in our earlier opinion, see id. at 1029, and are well-established. We thus move on to the issue at hand: do the allegations in the SASC trigger a duty to defend under the CGL and Umbrella policies' provisions for advertising injury?

 The Seventh Circuit recently reiterated the standards for determining whether an insurance company has a duty to defend under Illinois law *fn3" :

 
To determine whether the insurance company owes its insured a defense, the court must simply compare the allegations of the underlying complaint against the insured to the pertinent provisions of the insurance policy. If the complaint against the insured alleges facts that fall or potentially fall within the coverage of the policy, then the insurance company is bound to supply a defense. If, on the other hand, it is clear from the face of the underlying complaint that the allegations do not even potentially fall within the scope of the policy, then the insured must mount its own defense. Of course, the court must construe the complaint against the insured liberally, and any doubts as to the insurer's duty must be resolved in favor of the insured. Moreover, the possibility that not all of the injuries complained of in the complaint may be covered does not obviate the duty to defend; so long as at least some injuries potentially fall within the scope of the policy, the insurer must defend the insured.

 Roman Catholic Diocese of Springfield v. Maryland Cas. Co., 139 F.3d 561, 565 (7th Cir. 1998) (citations omitted) [hereinafter RCD ]. *fn4" Applying these standards, we find that the SASC, construed liberally in Winklevoss' favor, alleges facts that "potentially" fall within the CGL and Umbrella policies' advertising injury provisions.

 I. The SASC's Allegations Satisfy the Requisites for Advertising Injury

 Both policies (effective April 5, 1994 - April 5, 1995) pledge to defend suits claiming "advertising injury," *fn5" defined as:

 
injury arising solely out of one or more of the following offenses committed in the course of advertising your goods, products or services:
 
1. oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
 
2. oral or written publication of material that violates a person's right of privacy;
 
3. misappropriation of advertising ideas or style of doing business; or
 
4. infringement of copyrighted advertising materials, ...

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