General Casualty Co. of Wisconsin v. Wozniak Travel, Inc.

OPINION

The Saul Zaentz Company d/b/a Tolkien Enterprises (Tolkien) sued Wozniak Travel, Inc. d/b/a Hobbit Travel (Hobbit Travel) alleging trademark infringement for the wrongful use of the word “hobbit” in Hobbit Travel’s business name. Hobbit Travel’s insurer, General Casualty Company of Wisconsin (General Casualty), sought declaratory relief in the United States District Court for the District of Minnesota from its duty to defend and indemnify Hobbit Travel. The federal district court certified two questions to this court:

1) Does trademark infringement fall within the scope of “misappropriation of advertising ideas or style of doing business” or constitute “infringement of copyright, title or slogan” as set forth in the CGL [commercial general liability] policy?

2) Is a trademark an “advertising idea” or does trademark infringement constitute “infringing upon another’s *574copyright, trade dress or slogan” as set forth in the CUL [commercial umbrella liability] policy?

We answer both questions in the affirmative.

Tolkien is a California corporation that owns the right to use and license trademarks related to the late Professor J.R.R. Tolkien’s novels The Hobbit and The Lord of the Rings trilogy. Professor Tolkien created the term “hobbit” in the 1930s to describe the fictional, three-foot-tall characters featured in those novels. Since publication, the novels and their hobbit characters have enjoyed widespread popularity, which exponentially grew as the novels were developed into plays, movies, and merchandise. To promote and protect its increasingly valuable interests in the Tolkien works, Tolkien became the owner of numerous trademarks, including the term “hobbit,” and established a worldwide licensing program to publicize these interests.

Hobbit Travel is a Minnesota-based travel agency that has been operating under that name since 1976. Hobbit Travel established a website directed at travel consumers all over the United States. This website incorporated the term “hobbit” in displaying Hobbit Travel’s name, in titles of special offers, and in several connected domain names. Tolkien’s discovery of this website prompted a 2006 lawsuit against Hobbit Travel in the United States District Court for the Northern District of California for trademark infringement, trademark dilution, and unfair competition.

Tolkien claimed Hobbit Travel was wrongfully appropriating Tolkien’s “hobbit” trademark, confusing the public about Hobbit Travel’s association with Tolkien, and capitalizing on Tolkien’s goodwill. Tolkien, through its licensees, utilized the term “hobbit” and the corresponding characters for its own advertising and merchandising of the Tolkien works. Some marketing specifically combined the “hobbit” mark with the theme of travel, as the journeys of hobbits compose a significant thread in each novel’s story. The term “hobbit” was licensed for travel products such as bags, souvenirs, board games, and computer games. One licensee made an agreement with Air New Zealand for the airline to market itself as “Airline to Middle-earth” and paint the hobbit characters on its jets. Another Tolkien licensee arranged for an online travel ticketing service to promote travelling to London and Canada for a stage musical adaption of The Lord of the Rings. Tolkien argued that its market for these and other services was “irreparably harmed” by Hobbit Travel’s use of “hobbit,” and asked for injunctive relief, monetary damages, and attorney fees.1

At the time Tolkien filed suit against Hobbit Travel, General Casualty insured Hobbit Travel under a Commercial General Liability (CGL) policy and a Commercial Umbrella Liability (CUL) policy. General Casualty agreed to defend the Tolkien/Hobbit Travel litigation under a reservation of rights, and filed a complaint for declaratory relief in the United States District Court of Minnesota. In its complaint, General Casualty asserted that the allega*575tions made by Tolkien in the underlying complaint failed to allege an enumerated “advertising injury” offense under General Casualty’s insurance policies. Both General Casualty and Hobbit Travel moved for summary judgment on whether these “advertising injury” definitions extended coverage for Tolkien’s allegations.

The federal district court determined there was no controlling decision on “this important question of Minnesota law.” Accordingly, the district court certified to this court whether Tolkien’s trademark infringement allegations fall within the scope of General Casualty’s policies. We accepted the certified questions.

This court “may answer a question of law certified ... by a court of the United States ... if the answer may be determinative of an issue in pending litigation in the certifying court and there is no controlling appellate decision, constitutional provision, or statute of this state.” Minn.Stat. § 480.065, subd. 3 (2008).2 The certified questions presented are questions of law that we review de novo. Dohney v. Allstate Ins. Co., 632 N.W.2d 598, 600 (Minn.2001). The interpretation of an insurance policy, the underlying issue in this case, is also a legal issue subject to de novo review. Home Ins. Co. v. Nat’l Union Fire Ins., 658 N.W.2d 522, 527 (Minn.2003).

Because most insurance policies are preprinted forms drafted solely by insurance companies — basically contracts of adhesion — policy words of inclusion will be broadly construed, and words of exclusion are narrowly considered. Nathe Bros., Inc. v. Am. Nat’l Fire Ins. Co., 615 N.W.2d 341, 344 (Minn.2000); 2 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 22:31 (3d ed.2005). Unambiguous words will be given their “plain, ordinary, and popular meaning.” Minn. Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175, 179 (Minn.1990) (citing Smith v. St. Paul Fire & Marine Ins. Co., 353 N.W.2d 130, 132 (Minn.1984)). Ambiguous words, however, will be construed against the insurer according to the “reasonable expectations” of the insured. Id. If undefined terms are reasonably susceptible to more than one interpretation, the terms must be interpreted liberally in favor of finding coverage. Wanzek Constr., Inc. v. Employers Ins. of Wausau, 679 N.W.2d 322, 329 (Minn.2004).

I.

The first certified question from the federal district court of Minnesota asks:

Does trademark infringement fall within the scope of “misappropriation of advertising ideas or style of doing business” or constitute “infringement of copyright, title or slogan” as set forth in the CGL policy?

This question stems from the advertising-injury definitions in General Casualty’s CGL policy; General Casualty’s *576duty to defend arises if Tolkien’s alleged damages arose under one of these advertising-injury definitions. An insured’s “duty to defend extends to every claim that ‘arguably’ falls within the scope of coverage[, and] the duty to defend one claim creates a duty to defend all claims.” Wooddale Builders, Inc. v. Md. Cas. Co., 722 N.W.2d 283, 302 (Minn.2006). An insurer trying to avoid a duty to defend “has the burden of establishing that all parts of the cause of action fall clearly outside the scope of coverage.” Metro. Prop. & Cas. Ins. Co. v. Miller, 589 N.W.2d 297, 299 (Minn.1999). To determine whether a duty exists, the allegations in the underlying complaint and the surrounding facts will be compared with the relevant language in the insurance policy. Haarstad v. Graff, 517 N.W.2d 582, 584-85 (Minn.1994).

Relevant provisions in the CGL policy state that General Casualty will defend any suit seeking damages because of “advertising injury” to which the insurance applies. The policy provides that

“[a]dvertising [i]njury” means injury arising out of one or more of the following offenses:

c. Misappropriation of advertising ideas or style of doing business; or

d. Infringement of copyright, title or slogan.

A threshold question is whether the absence of the word “trademark” in the advertising-injury definitions excludes Tolkien’s claims. General Casualty argues that if its policies were intended to provide coverage for trademark infringement, they would have expressly referenced trademark infringement in them, citing to cases from the Sixth and Eighth Circuits that used this reasoning to support their holdings that trademark infringement claims do not constitute advertising injury. See Callas Enters., Inc. v. Travelers Indem. Co., 193 F.3d 952, 956-57 (8th Cir.1999); ShoLodge, Inc. v. Travelers Indem. Co., 168 F.3d 256, 260 (6th Cir.1999); Advance Watch Co. v. Kemper Nat’l Ins. Co., 99 F.3d 795, 803 (6th Cir.1996).

We conclude that the absence of the word “trademark” in the CGL policy does not foreclose the possibility that trademark infringement falls within the scope of the advertising-injury definitions in General Casualty’s policy. First, the policy provides coverage for injuries “arising out of’ the advertising-injury definitions, which expands the scope of the policy language since this court has defined “arising out of’ broadly as “originating from,” “growing out of,” or “flowing from.” Dougherty v. State Farm Mut. Ins. Co., 699 N.W.2d 741, 744 (Minn.2005). Second, the Minnesota rules of insurance policy interpretation require policies to be read in favor of finding coverage, and require courts to look past the legal nomenclature to the underlying allegations. Finally, the duty to defend applies to claims that “arguably” fall within the policy, and if insurance policy language is susceptible of more than one meaning, it must be given the meaning that favors coverage.3 See Wanzek, 679 N.W.2d at 329.

*577We turn to the question of whether Tolkien’s damages arose out of one of the advertising-injury definitions. General Casualty argues that all of the policy terms have unambiguous definitions that do not include allegations of trademark infringement. Hobbit Travel responds that, at a minimum, the underlying allegations plainly fall within the scope of “infringement of title” from the “infringement of copyright, title or slogan” provision.4

Only one other state supreme court has ruled on trademark infringement allegations under the standard CGL policy definitions of advertising injury. The Wisconsin Supreme Court recently held that “infringement of title” encompasses trademark infringement claims. Acuity v. Bagadia, 310 Wis.2d 197, 750 N.W.2d 817, 827 (2008). The underlying case involved a judgment for Symantec Corporation, which owned various “Norton” trademarks, against a business selling software using the “Norton” name. Id. at 820. The business’s insurer filed a declaratory-judgment action, asserting that advertising injury provisions in its CGL policy did not cover Symantec’s trademark infringement allegations. Id. at 821.

The Wisconsin Supreme Court held that trademark infringement falls within the plain and ordinary meaning of “infringement of title.” Id. at 827. The court first turned to dictionary definitions of “title” and “trademark,” finding several overlaps in terminology. Id. at 824-25 (citing Random House Unabridged Dictionary 1989 (2d ed.1993); Black’s Law Dictionary 1485, 1493 (6th ed.1990)). The court also relied on decisions that have broadly construed the plain meaning of “title” to include the narrower term “trademark.” Id. at 825-26 (citing Charter Oak Fire Ins. Co. v. Hedeen & Cos., 280 F.3d 730, 736 (7th Cir.2002) (relying on cases defining “title” as “names and related trademarks,” including names of books, songs, products, and services) (citations omitted)); see also Williamson, 1997 WL 53029, at *4 (stating that “title” is broader than “trademark” because a title becomes a trademark through extended use or statutory registration). The Wisconsin Supreme Court adopted a broad construction of the plain meaning of title, stating that such an interpretation was more consonant with the canons of insurance policy interpretation. Acuity, 750 N.W.2d at 827.

The conclusion of the Wisconsin Supreme Court is in line with a substantial majority of decisions from other courts that have construed the advertising-injury definitions in CGL policies to include trademark infringement. A large number of federal district courts and some federal circuit courts have given coverage under the advertising-injury definitions. See, e.g., Am. Employers’ Ins. Co. v. DeLorme Publ’g Co., 39 F.Supp.2d 64, 77 (D.Me.1999) (listing federal district court decisions finding coverage); see also State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co., 343 F.3d 249 (4th Cir.2003). Additionally, most state court opinions on this issue — an issue of insurance policy interpretation that generally belongs to state courts — have given coverage under the advertising-injury provisions. See, e.g., Acuity, 750 N.W.2d at 826-27; Carnival Brands, Inc. v. Am. Guar. & Liab. Ins. Co., 726 So.2d 496 (La.Ct.App.1999); Westfield Ins. Co. v. Factfinder Mktg. Research, Inc., 168 Ohio App.3d 391, 860 N.E.2d 145 (2006).

*578The minority view was first articulated by the Sixth Circuit in Advance Watch, 99 F.3d at 802. The court closely examined the scope of “misappropriation of advertising ideas,” and held that each word’s unambiguous definition in tort or common law would be too stretched by including the extensive body of law protecting trademarks. Id. at 802-03. The Sixth Circuit reinforced this holding in a later case where it held that each word in “infringement of copyright, title or slogan” is unambiguous, with “title” having an ordinary meaning of “the non-copyrightable title of a book, film, or other literary or artistic work.” ShoLodge, 168 F.3d at 259 (citation omitted). The court held that infringement of a trademarked hotel name did not fall within that definition, because the name of a business is not the same as the name of an artistic work. Id. at 260.

The minority view has had a limited following by other jurisdictions, a following that includes the Eighth Circuit. Callas, 193 F.3d at 956-57; Nationwide Mut. Ins. Co. v. Mortensen, 222 F.Supp.2d 173, 185—86 (D.Conn.2002). In Callas, the Eighth Circuit had concluded that trademark claims were barred from a defense because the claims arose from a breach of contract, but went on to analyze the scope of the policy’s advertising-injury definitions. 193 F.3d at 955-56. Relying exclusively on the Sixth Circuit in Advance Watch and Sho-Lodge, the Callas court determined that trademark infringement does not fall within the scope of advertising-injury definitions. Id. at 957.

Although the Callas court applied Minnesota law, we are not persuaded by its conclusion. The court did not have to reach the advertising-injury issue because the claims were excluded from coverage, and the court made no mention of Minnesota insurance policy construction. Additionally, the narrow interpretations in the minority view have been criticized by some courts. See Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, 1190 (11th Cir.2002) (listing critical courts).

We are persuaded by the reasoning of the Wisconsin Supreme Court and the trend of other courts in concluding that trademark infringement falls within the plain and ordinary meaning of “infringement of title.” In this case, Tolkien specifically alleged that Hobbit Travel misused its book name and character labels. In particular, Tolkien alleges the right “to use and license others to use, marks related to the Tolkien Works including, without limitation, the titles of each of the Tolkien Works and the names and visual representations of the characters.... ” Characters throughout all the novels are termed “hobbits” — one of the novels is even called The Hobbit. Hobbit Travel intentionally used the name of this novel and its characters in its agency name and website.

Accordingly, we hold that Tolkien’s trademark allegations fall within the plain meaning of “infringement of title” in General Casualty’s CGL policy. Because we conclude that the trademark infringement allegations fall within the scope of “infringement of title,” we need not reach the issue of whether the allegations also fall within the scope of “infringement of copyright ... or slogan” or “misappropriation of advertising ideas or style of doing business.”

II.

The second certified question from the federal district court of Minnesota asks:

Is a trademark an “advertising idea” or does trademark infringement constitute “infringing upon another’s copyright, trade dress or slogan” as set forth in the CUL policy?

*579General Casualty’s CUL policy defines “advertising injury” in part as injury arising out of the “use of another’s advertising idea in your ‘advertisement.’ ”5 As “advertising” is not definitively defined by General Casualty’s policies,6 we must define the term “advertising” to determine whether Tolkien’s damages arose out of that advertising-injury definition.

General Casualty asks us to adopt the Fifth Circuit’s definition of advertising as “a device for the solicitation of business.” Sport Supply Group, Inc. v. Columbia Cas. Co., 335 F.3d 453, 462-63 (5th Cir. 2003). The Fifth Circuit, adopting a common understanding of “advertising” as referring to “a device for the solicitation of business,” concluded that trademarks are not such a device because they are only names for goods or services. Id. at 463 (stating that the use of a trademark “would not, by itself, appear to serve as a ‘marketing device[ ] designed to induce the public to patronize’ establishments”).

Hobbit Travel argues that the definition of advertising can be construed as broadly as “the action of calling something to the attention of the public.” Hyman, 304 F.3d at 1188 (quoting Webster’s Collegiate Dictionary (9th ed.1983)) (internal citation omitted). Hobbit Travel cites to decisions holding that trademarks are inherently advertising: in distinguishing a product, a trademark plays an important role in promoting that product to the public. See, e.g., State Auto, 343 F.3d at 258 n. 12; DeLorme Publ’g, 39 F.Supp.2d at 74.

According to the Wisconsin Supreme Court,

A standard narrow definition and a standard broad definition of “advertising” have evolved in the common law. The standard narrow definition is: “widespread announcement or distribution of promotional materials.” The standard broad definition is: “any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business.”

Acuity, 750 N.W.2d at 828 (quoting Fireman’s Fund Ins. Co. v. Bradley Corp., 261 Wis.2d 4, 660 N.W.2d 666 (2003)) (citations omitted). We agree, with the Acuity court’s conclusion that either of these definitions is a reasonable interpretation of the term “advertising.” If undefined terms in an insurance policy are reasonably susceptible to more than one interpretation, the terms must be interpreted liberally in favor of finding coverage. Wanzek, 679 N.W.2d at 329. Therefore, we interpret the term “advertising” in favor of finding coverage and adopt the standard broad definition as: “any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business.”

We apply this broad definition to the facts of this case. Tolkien directly alleged in its underlying complaint that Tolkien and its licensees have “aggressively promoted” the “hobbit” trademark and *580have used the “hobbit” mark in connection with a wide variety of commercial goods and services. Further, Tolkien’s licensees used the theme of travel in the solicitation of business: hobbits were painted on jets to distinguish Air New Zealand as the “Airline to Middle-earth,” and travel packages to other countries were set up to sell theater tickets. One Tolkien representative stated that “a large part of the appeal of the Tolkien mythos, is that Middle Earth is a place that you can travel to,” a main reason why Tolkien used travel as a “marketing point.” Tolkien used the word “hobbit,” its corresponding characters, and travel as an idea to promote the various mediums of its novels to the public, actions that fall within the scope of “advertising idea.”

Tolkien also alleged that Hobbit Travel used the word “hobbit” in its domain name and on its website to attract the national public’s attention to its travel agency, and capitalize on the goodwill surrounding the Tolkien works. These uses of the word “hobbit” by Hobbit Travel were made in connection with the solicitation of travel business within our broad reading of “advertisement”; thus, Tolkien’s damages arose out of Hobbit Travel’s “use of another’s advertising idea in [its] ‘advertisement.’ ” Because we conclude that “hobbit” was used as an “advertising idea,” we need not address the alternative basis for finding coverage in the CUL policy: whether trademark infringement constitutes “infringing upon another’s copyright, trade dress or slogan.”

Certified questions answered in the affirmative.