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Inc. v. State Farm Fire & Casualty Co.

Court of Appeals of Illinois, First District, First Division

June 19, 2017


         Appeal from the Circuit Court of Cook County, No. 15 CH 15220 Honorable Edward S. Harmening, Judge Presiding.

          JUSTICE MIKVA delivered the judgment of the court, with opinion. Presiding Justice Connors and Justice Harris concurred in the judgment and opinion.



         ¶ 1 The issue presented in this case is whether "State Farm Insurance Company" (State Farm)[1] owed its insured, Green4All Energy Solutions, Inc. (Green4All), a duty to defend in an underlying lawsuit filed by Flow Dynamics, LLC (Flow). The underlying suit was filed February 2015, Green4All tendered its defense of the underlying suit to State Farm in April 2015, and in May 2015, State Farm refused the tender. The underlying case settled in September 2015 and Green4All filed this action against State Farm, alleging that State Farm breached its insurance contract with Green4All and violated section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 2014)) by refusing to defend its insured. The circuit court granted State Farm's cross-motion for summary judgment, holding that the underlying complaint failed to allege an advertising injury covered by the insurance policy. For the following reasons, we affirm the judgment of the circuit court.

         ¶ 2 BACKGROUND

         ¶ 3 A. The Policy

         ¶ 4 State Farm issued an insurance policy to Green4All effective September 21, 2014, through September 21, 2015 (the Policy). The Policy provided both that State Farm would "pay those sums that the insured becomes legally obligated to pay as damages" as a result of any " 'personal and advertising injury' to which this insurance applies" and that State Farm would defend the insured against suits seeking such damages. The Policy defined a "personal and advertising injury" as an injury "arising out of, " in pertinent part, an "[o]ral or written publication, in any manner, of material that *** disparages a person's or organization's goods, products or services." The Policy defined an "advertisement" as "a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters."

         ¶ 5 The Policy excluded coverage for those personal and advertising injuries "[c]aused by or at the direction of the insured with the knowledge" that the actions would cause such an injury; "[a]rising out of oral or written publication of material if done at the action or direction of the insured with knowledge of its falsity"; "[a]rising out of the failure of goods, products or services to conform with any statement of quality or performance" made in the insured's advertisement; or "[a]rising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights."

         ¶ 6 B. The Underlying Complaint

         ¶ 7 In February 2015, Flow filed its complaint against Green4All and Green4All's president, Dan Handley, in the United States District Court of the Southern District of Florida (case No. 9:15-cv-80129). Flow alleged that, in April 2014, it was issued patent No. 8, 707, 981, titled "System for Increasing the Efficiency of a Water Meter." According to Flow's complaint, the patent "describes a system that is used to remove entrained water bubbles from a water supply and thereby increase the efficiency of an associated water meter." Flow sells this "patented system commercially under the mark 'Smart Valve'.' " Flow alleged that, "[u]pon information and belief, " Green4All sold a competing system called "H2minusO®" which it advertised as "having the ability to correct billable consumption rates by increasing the efficiency of water meter readings." Flow alleged that H2MinusO "directly infringe[d] one or more claims of [its] Patent." In counts I through III, Flow set forth claims of direct and indirect patent infringement by Green4All and indirect patent infringement by Mr. Handley.

         ¶ 8 In count IV, which is the only count that Green4All contends provides the basis for a duty to defend, Flow set forth a claim of "False Marking" by both Green4All and Mr. Handley, alleging, in pertinent part:

"38. [Green4All and Mr. Handley] have falsely marked the H2MinusO® as being 'patent pending' in [Green4All's] commercial literature when, upon information and belief, no application has been filed in the name of [Green4All]. On information and belief, the application [Green4All and Mr. Handley] were referring to was in fact the application of [Flow].
39. Plaintiff has been competitively harmed in commerce by this false marking because the marking tends to persuade customers and potential customers that the H2MinusO® product, which marketed and sold competitively with [Flow]'s 'Smart Valve'', is superior to [Flow]'s product.
40.The false marking complained of herein also implies that [Green4All and Mr. Handley] invented, or are otherwise responsible for novelty of, the 'Smart Valve'' product when such is not the case.
41. Plaintiff seeks injunctive relief to preclude [Green4All and Mr. Handley] from further marking and advertising that [their] products as [sic] 'patent pending.' The ...

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