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WESTERN AMERICAN INS. CO. v. MOONLIGHT DESIGN

January 31, 2000

WESTERN AMERICAN INSURANCE COMPANY, PLAINTIFF,
V.
MOONLIGHT DESIGN, INC., DEFENDANT.



The opinion of the court was delivered by: Moran, Senior District Judge.

MEMORANDUM AND ORDER

Plaintiff West American Insurance Company (West American) seeks to resolve whether it had a duty to defend defendant Moonlight Design, Inc. (Moonlight), its insured, in a copyright infringement lawsuit filed in New York. Both plaintiff and defendant have moved for a judgment on the pleadings. We hold that a duty to defend existed under the insurance policy and therefore deny plaintiff's motion and grant defendant's cross-motion.

BACKGROUND

Since 1986, Moonlight has been in the business of distributing bridal dresses. It has the dresses manufactured in Taiwan and then markets and distributes them in the United States. In March 1998, Moonlight was sued in federal court in New York by one of its competitors, Eve of Milady and Milady Bridals, Inc. (Milady). Milady is a New York corporation that, like Moonlight, distributed bridal dresses out of offices and showrooms located in New York City. In its lawsuit against Moonlight (the "Milady lawsuit"), Milady alleged that Moonlight infringed Milady's copyrights of bridal dress designs and falsely represented and designated the origin of those designs.*fn1

Upon receiving the complaint in the Milady lawsuit, Moonlight contacted its insurer, West American. Moonlight's insurance agreement with West American (the agreement) provides coverage for certain business liabilities. In relevant part, the agreement states that West American

will pay those sums that [Moonlight] becomes legally obligated to pay as damages because of "bodily injury," "property damage," "personal injury" or "advertising injury" to which this insurance applies. [West American] will have the right and duty to defend any "suit" seeking those damages. [West American] may at [its] discretion investigate any "occurrence" and settle any claim or "suit" that may result.

The agreement provides that it applies to any "`[a]dvertising injury' caused by an offense committed in the course of advertising your goods, products or services," and further defines the term "advertising injury" as an injury arising out of one or more of the following offenses:

a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organizations goods, products or services;
b. Oral or written publication of material that violates a person's right of privacy;
c. Misappropriation of advertising ideas or style of doing business; or

d. Infringement of copyright, title or slogan.

As provided by the agreement, Moonlight tendered the defense of the Milady lawsuit to West American. Moonlight notified West American that the Milady lawsuit alleged an "advertising injury" against Moonlight and therefore was covered by the agreement. Upon reviewing the complaint West American decided that it was not obligated to defend Moonlight. West American claimed that the Milady lawsuit did not allege an advertising injury "caused by an offense committed in the course of advertising" and therefore did not fall within the auspices of the agreement. West American agreed to pay defense costs, however, subject to a reservation of rights.

West American thereafter filed this action, seeking a judgment declaring that it was not obligated to defend Moonlight in the Milady lawsuit.*fn2 In order to resolve the issue, West American moved for a judgment on the pleadings and Moonlight answered with a similar cross-motion. After briefing on the motions was completed, the Milady lawsuit settled. According to West American's amended complaint, West American and Milady arrived at an agreement whereby West American, on behalf of Moonlight, paid Milady a sum of $100,000 to settle the lawsuit. Based on this development, West American has added two counts to its original complaint against Moonlight. In addition to the original claim regarding its duty to defend (Count I of the amended complaint), West American seeks reimbursement of its defense expenditures in the Milady lawsuit and indemnification of the settlement amount (Counts II and III of the amended complaint).

For the purposes of resolving the motions presently pending before this court,, we do not address the issue whether West American is obligated to pay defense or settlement costs related to the Milady lawsuit, and therefore set aside Counts II and III of the amended complaint. The legal analysis governing those claims may differ from the standard governing whether West American had a duty to defend in the first place. A resolution of whether a duty to defend existed under the agreement, however, will dispose of at least one count of the amended complaint and simplify this lawsuit.*fn3 Therefore, turning to Count I of the amended complaint we find that West American ...


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