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Sentinel Insurance Co., Ltd. v. Yorktown Industries, Inc.

United States District Court, N.D. Illinois, Eastern Division

February 2, 2017

SENTINEL INSURANCE COMPANY, LTD., Plaintiff/ Counter-Defendant,
YORKTOWN INDUSTRIES, INC., Defendant/ Counter-Plaintiff


          Robert M. Dow, Jr. United States District Judge

         Plaintiff Sentinel Insurance Company brings this diversity suit seeking a declaration of its obligations to defend and indemnify Defendant Yorktown Industries against a lawsuit currently pending in California. Before the Court is Plaintiffs motion for summary judgment [41]. For the reasons that follow, the Court grants Plaintiffs motion for summary judgment [41]. The Court will enter a final judgment and close the case.

         I. Background

         The following facts are drawn primarily from the parties' Local Rule 56.1 statements, [27], [45-2], [45-3], and [47]. This action is an insurance coverage dispute. Plaintiff Sentinel Insurance Company is a Connecticut company that issued an insurance policy to Defendant, which was effective from August 1, 2012 to August 1, 2014. [27, at ¶¶ 1, 15] Defendant Yorktown Industries is an Illinois corporation that sells and distributes office supplies. [Id. at ¶2.]

         The insurance policy provides coverage for claims against Defendant for, among other things, "personal and advertising injury." [Id. at ¶ 16; 45-3 at ¶ 8.] "Personal and advertising injury" is defined as: "injury * * * arising out of one or more of the following offenses: * * * Copying, in your ‘advertisement' or on ‘your web site, ' a person's or organization's ‘advertising idea' or style of ‘advertisement.'” [27 at ¶ 16; see 45-3 at ¶ 8.] “Advertisement” is defined as “the widespread public dissemination of information or images that has the purpose of inducing the sale of goods, products or services through” radio, television, billboard, magazine, newspaper, the internet, or “[a]ny other publication that is given widespread public distribution.” [27 at ¶ 16; see 45-3 at ¶ 8.] “Advertising idea” is defined as “any idea for an ‘advertisement.'” [27 at ¶ 16; see 45-3 at ¶ 8.]

         The insurance policy also contains an exclusion for “personal and advertising injury”

7(a) Arising out of any actual or alleged infringement or violation of any intellectual property right, such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity; or
(b) Any injury or damage alleged in any claim or “suit” that also alleges an infringement or violation of any intellectual property right, whether such allegation of infringement or violation is made by you or by any other party involved in the claim or “suit, ” regardless of whether this insurance would otherwise apply.

[27 at ¶ 16] (“the Intellectual Property Exclusion”).

         On November 7, 2013, a business called Imaging Technologies Direct, LLC (“ITD”) filed suit against Defendant in the Superior Court of California (the “California Action”). [Id. at ¶ 5; Exhibit A (California Action Complaint).] ITD alleges that Defendant hired ITD employees as independent contractors and stole ITD's confidential business information, including ITD's customer list and sales information. [Id. at ¶ 6; Exhibit A.] ITD further alleges that Defendant used ITD's confidential business information to contact and solicit ITD customers and to divert sales from ITD to Defendant. [See id. at ¶ 8; Exhibit A, ¶¶ 17-25.] Based on these allegations, ITD asserts five cause of action: (1) violation of the Uniform Trade Secrets Act, (2) intentional interference with contractual relations, (3) intentional interference with prospective business advantage, (4) unfair competition, and (5) civil conspiracy. [Id. at ¶ 9; Exhibit A.]

         After the California Action was filed, Defendant demanded that Plaintiff defend and indemnify it under its insurance policies. [Id. at ¶ 18.] Plaintiff denied coverage and continues to deny that it owes Defendant any defense or indemnity obligations concerning the claims against Defendant in the California Action. [Id. at ¶ 18; 45-3, at ¶ 7.] Thereafter, on June 6, 2014, Plaintiff filed this declaratory judgment action requesting that the Court declare that it owes no insurance coverage to Defendant in connection with the California Action. [1 (Complaint); see also 5 (Amended Complaint).] On December 15, 2014, Defendant filed a three-count Second Amended Counterclaim seeking declarations that Plaintiff has a duty to defend against the California Action and alleging that Plaintiff breached its contractual obligations to defend it in the California Action by denying Plaintiff insurance coverage. [19.] The Court granted Plaintiff's motion to dismiss Count II of Second Amended Counterclaim to the extent that Defendant requested declaratory relief regarding Plaintiff's duty to indemnify Defendant for damages that Defendant may incur in the California lawsuit. [35.] On March 11, 2016, Plaintiff filed a motion for summary judgment, which is currently before the Court. [41.]

         II. Legal Standard

         Summary judgment is proper where there is “no dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine issue of material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The party seeking summary judgment has the burden of establishing the lack of any genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In evaluating a motion for summary judgment, the Court will construe all facts in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of the nonmoving party. Bell v. Taylor, 827 F.3d 699, 704 (7th Cir. 2016). However, “[c]onclusory allegations alone cannot defeat a motion for summary judgment.” Thomas v. Christ Hosp. & Med. Ctr., 328 F.3d 890, 892 (7th Cir. 2003).

         The parties agree that Illinois law governs this diversity action. “Under Illinois law, the interpretation of an insurance policy is a question of law that is properly decided by way of summary judgment.” Twenhafel v. State Auto Prop. & Cas. Ins. Co., 581 F.3d 625, 628 (7th Cir. 2009) (citation and internal quotation marks omitted). To determine whether an insurer has a duty to defend its insured, courts will compare the factual allegations of the underlying complaint, (the complaint in the California Action, in this case), to the language of the insurance policy. Amerisure Mut. Ins. Co. v. Microplastics, Inc., 622 F.3d 806, 810 (7th Cir. 2010). The Court should not “simply look to the particular legal theory pursued by the claimant, but must focus on the allegedly tortious conduct on which the lawsuit is based.” Citizens Ins. Co. of Am. v. Uncommon, LLC, 812 F.Supp.2d 905, 910 (N.D. Ill. 2011) (quoting Amerisure, 622 F.3d at 815-16) (internal quotation marks omitted). If the facts alleged in the complaint fall within, or potentially within, the policy's coverage, the insurer has a duty to defend. Amerisure, 622 F.3d at 810. The Court is to construe the policy terms and the allegations in the complaint in ...

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