Hanover Insurance Co v. Urban Outfitters Inc

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

No. 14-3705

________________

THE HANOVER INSURANCE COMPANY

v.

URBAN OUTFITTERS, INC.; U.O.COM, LLC;

URBAN OUTFITTERS WHOLESALE, INC.;

ANTHROPOLOGIE, INC; ANTHROPOLOGIE.COM, LP;

FREE PEOPLE OF PA, LLC; FREEPEOPLE.COM, LLC,

v.

ONEBEACON AMERICA INSURANCE COMPANY

Urban Outfitters, Inc.; UO.com, LLC; Urban Outfitters

Wholesale, Inc.; Anthropologie, Inc.; Anthropologie.com,

L.P.; Free People of PA, LLC; Freepeople.com, LLC;

OneBeacon America Insurance Company,

Appellants

________________

Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil Action No. 2-12-cv-03961)

District Judge: Honorable Thomas N. O’Neill, Jr.

________________

Argued March 3, 2015

Before: AMBRO, SCIRICA and ROTH, Circuit Judges

(Opinion filed: October 23, 2015)

Ilan Rosenberg, Esq. (ARGUED)

Jacob C. Cohn, Esq.

Gordon & Rees

2005 Market Street

Suite 2900

Philadelphia, PA 19103

Dorothy A. Hickok, Esq.

Drinker, Biddle & Reath

18th & Cherry Streets

One Logan Square

Suite 2000

Philadelphia, PA 19103

Counsel for Appellants

Andrew J. Gallogly, Esq. (ARGUED)

Margolis Edelstein

170 South Independence Mall West

The Curtis Center

Suite 400E

Philadelphia, PA 19106

Counsel for Appellee

2

________________

OPINION

________________

ROTH, Circuit Judge

The “prior publication” exclusion of liability insurance

contracts prevents a company from obtaining ongoing

insurance coverage for a continuing course of tortious

conduct. In this appeal, we consider the scope of the “prior

publication” exclusion.

I.

On February 28, 2012, in the U.S. District Court in

New Mexico, the Navajo Nation and its affiliates (collectively

Navajo Nation) sued Urban Outfitters and its affiliates

(collectively Urban Outfitters) for trademark infringement

and related common law and statutory violations. Navajo

Nation’s central allegation was that Urban Outfitters

“advertised, promoted, and sold its goods under the ‘Navaho’

and ‘Navajo’ names and marks” on the Internet and in retail

3

stores “[s]ince at least March 16, 2009.”1 Urban Outfitters

tendered the complaint to OneBeacon America Insurance

Company and Hanover Insurance Company.

OneBeacon provided commercial general liability and

umbrella liability coverage to Urban Outfitters prior to July 7,

2010. The Insuring Agreement specifically included

“personal and advertising injury” coverage.2 On July 7, 2010,

1

On September 19, 2014, after years of discovery and three

amended complaints, the District Court in New Mexico

dismissed Urban Outfitters’ counterclaim seeking a judicial

declaration that Navajo Nation’s federally registered

NAVAJO trademarks are invalid and therefore subject to

cancellation. On March 23, 2015, the U.S. Court of Appeals

for the Tenth Circuit denied permission for interlocutory

appeal. Currently pending before the District Court in New

Mexico are various motions and cross-motions, including

motions for summary judgment.

2

“Personal and advertising injury” was defined in the policy,

in pertinent part, as

(2) Oral or written publication, in any

manner, of material that disparages a person’s

or organization’s goods, products or services.

This does not include any disparagement

related to the actual or alleged infringement

or violation of any intellectual property rights

or laws;

e. Oral or written publication of material that

violates a person’s right of privacy;

f. The use of another’s advertising idea in your

“advertisement”; or

4

OneBeacon issued a “fronting policy”3 to Urban Outfitters

providing identical coverage for which Hanover served as the

responsible insurer. The policy was in effect from July 7,

2010, to July 7, 2011. Hanover subsequently issued separate

commercial general liability and umbrella liability policies to

Urban Outfitters, which were effective from July 7, 2011, to

July 7, 2012. The “fronting policy” and Hanover-issued

policies excluded coverage for “personal and advertising

injury” liability “arising out of oral or written publication of

material whose first publication took place before the

beginning of the policy period.”4

On April 26, 2012, two months after Navajo Nation

filed the trademark infringement suit, Hanover provided a

reservation of rights letter, informing Urban Outfitters of

Hanover and OneBeacon’s joint retention of defense counsel.

On July 12, 2012, Hanover sought a judicial declaration in the

U.S. District Court for the Eastern District of Pennsylvania

that it was not responsible for Urban Outfitters’ defense or

indemnification. On August 19, 2013, the District Court

granted Hanover’s motion for judgment on the pleadings,

pursuant to Federal Rule of Civil Procedure 12(c).

g. Infringing upon another’s copyright, trade

dress or slogan in your “advertisement”.

3

A “fronting policy” is a risk management technique in

which an insurer underwrites a policy to cover a specific risk

but then cedes the risk to a reinsurer. See Douglas R.

Richmond, Getting a Fix on Fronting Policies, 31 No. 19 Ins.

Litig. Rep. 629 (2009). Here, the fronting company is One

Beacon and the reinsurer is Hanover.

4

See J.A. at 198, 224.

5

The District Court held that Hanover had no duty to

defend or indemnify since Hanover did not begin insurance

coverage of Urban Outfitters until sixteen months after the

alleged infringement began. The District Court found that,

because the claims in the underlying action alleged injuries

stemming from advertisements published prior to the policy

inception date, any resulting injury fell within the Hanover

policies’ “prior publication” exclusions.5 We dismissed an

initial appeal for lack of appellate jurisdiction.6 However, the

District Court has since addressed our jurisdictional concern

by entering final judgment for Hanover on its August 19,

2013, Order, pursuant to Rule 54(b). Urban Outfitters and

Third Party Defendant, OneBeacon, now appeal that order.

II.7

“We review de novo an order granting judgment on the

pleadings pursuant to Rule 12(c) of the Federal Rules of Civil

Procedure.”8 “[I]n reviewing the grant of a Rule 12(c)

motion, we must view the facts presented in the pleadings and

the inferences to be drawn therefrom in the light most

favorable to the nonmoving party.”9 Under Pennsylvania

law, which Hanover and Urban Outfitters agree governs,

5

Hanover Ins. Co. v. Urban Outfitters, No. 12-cv-3961, 2013

WL 4433440, at *5 (E.D. Pa. Aug. 19, 2013).

6

Hanover Ins. Co. v. Urban Outfitters Inc., 572 F. App’x 91,

93 (3d Cir. 2014).

7

The District Court had subject matter jurisdiction under 28

U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291.

8

In re Fosamax (Alendronate Sodium) Prods. Liab. Litig.

(No. II), 751 F.3d 150, 156 n.11 (3d Cir. 2014).

9

Id. at 154 n.4 (quotation marks omitted).

6

“[t]he interpretation of an insurance policy is a question of

law that we will review de novo.”10

III.

Urban Outfitters contends that the District Court erred

in finding that Navajo Nation’s trademark infringement

allegations fall under the Hanover policies’ “prior

publication” exclusions. Both sides acknowledge an absence

of binding authority, and urge us to derive antithetical lessons

from the few cases on point. For the reasons which follow,

we will affirm the District Court’s decision.

A.

In interpreting an insurance contract,

[o]ur inquiry is straightforward. We look first

to the terms of the policy which are a

manifestation of the “intent of the parties.”

[Donegal Mut. Ins. Co. v.] Baumhammers, 938

A.2d [286,] 290 [(Pa. 2007)]. “When the

language of the policy is clear and

unambiguous, we must give effect to that

language.” Id. . . . Next, we compare the terms

of the policy to the allegations in the underlying

claim. “It is well established that an insurer’s

duties under an insurance policy are triggered

by the language of the complaint against the

insured.” Kvaerner, 908 A.2d at 896. In

10

Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial

Union Ins. Co., 908 A.2d 888, 897 (Pa. 2006).

7

determining the existence of a duty to defend,

the factual allegations of the underlying

complaint against the insured are to be taken as

true and liberally construed in favor of the

insured.11

An insurer that disavows its duty to defend by reference to a

policy exclusion effectively “assert[s] an affirmative defense

and, accordingly, bears the burden of proving such

defense.”12

The Hanover policies’ “personal and advertising

injury” provisions clearly and unambiguously cover Urban

Outfitters’ alleged trademark infringement and related

common law and statutory violations.13 Nonetheless,

Hanover contends that it has no duty to defend since its

policies specifically excluded coverage for “personal and

advertising injury” liability “arising out of oral or written

publication of material whose first publication took place

before the beginning of the policy period.” The “fronting

policy” under which Hanover first assumed responsibility for

Urban Outfitters’ liability coverage became effective on July

7, 2010. Thus, we must determine whether Urban Outfitters’

liability-triggering conduct preceded or postdated that policy

period’s inception.

11

Nationwide Mut. Ins. Co. v. CPB Int’l, Inc., 562 F.3d 591,

595-96 (3d Cir. 2009) (footnote and, in final sentence only,

citation and quotation marks omitted).

12

Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735

A.2d 100, 106 (Pa. 1999).

13

See supra note 2.

8

The answer lies entirely within the four corners of the

underlying complaint.14 There Navajo Nation alleged that

Urban Outfitters engaged in “trademark infringement,

trademark dilution, unfair competition, false advertising,

commercial practices laws violations, and [] violation of the

Indian Arts and Crafts Act,”15 but offered little specificity as

to when the offensive conduct occurred. Navajo Nation’s

relevant allegations are as follows:

2. Since at least March 16, 2009,

Urban Outfitters has advertised, promoted, and

sold its goods under the “Navaho” and

“Navajo” names and marks. Urban Outfitters

offers these goods on the Internet and in stores

across the United States, and they compete

directly with the Navajo Nation’s goods.16

***

37. At least as early as March 16,

2009, Urban Outfitters started using the

14

See Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286,

290-91 (Pa. 2007); Erie Ins. Exch. v. Fidler, 808 A.2d 587,

590 (Pa. Super. Ct. 2002) (“The obligation of an insurer to

defend an action against the insured is fixed solely by the

allegations in the underlying complaint.”).

15

J.A. at 748. All citations to Navajo Nation’s complaint

refer to the First Amended Complaint, which governed when

Hanover filed the declaratory judgment action presently on

appeal. Subsequent amendments do not substantively alter

any relevant allegations.

16

J.A. at 749.

9

“Navajo” and “Navaho” names in its product

line, or in connection with the sale of its goods,

online, in its catalogs, and in its physical stores.

Defendant’s use has included, and includes (but

is not limited to): clothing, jewelry, footwear,

handbags, caps, scarves, gloves, undergarments,

and flasks. Defendant’s items sold under the

“Navajo” and “Navaho” names and marks

evoke the Navajo Nation’s tribal patterns,

including geometric prints and designs

fashioned to mimic and resemble Navajo

Indian-made patterned clothing, jewelry and

accessories. Urban Outfitters has sold and is

selling over 20 products using the “Navajo” and

“Navaho” trademarks in its retail stores, its

catalogs, and its online stores.17

***

41. Urban Outfitters began offering

retail clothing and accessories as early as March

2009 with the “Navajo” and “Navaho” as

trademarks to label or describe its products. For

example, a “Leather Navajo cuff” was offered

on Urban Outfitters’ website in January 2010.

Sometime in early 2011, and possibly earlier,

Urban Outfitters started a product line of 20 or

more items containing the NAVAJO trademark,

which Defendant sold on its website and in

retail stores. True and correct copies of

Defendants’ more than 20 items comprising the

17

J.A. at 759.

10

“Navajo Collection” sold at Urban Outfitters, as

they are or have been displayed for online

marketing and retailing at Defendant’s website,

are attached hereto collectively as Exhibit A.

[FN 5] Exhibit A is an illustrative, and not

exhaustive, list of Urban Outfitters infringing

activity. Indeed, Exhibit A only includes screen

shots from online shopping websites. Urban

Outfitters sold its goods in physical stores and

in catalogs, and this has also infringed on the

Navajo Nation’s marks.

[FN 5] These PDF images were copied from

Defendant’s website on October 16, 2011. 18

***

78. At least since March 16, 2009,

and possibly earlier as discovery will confirm,

and continuously thereafter to the present date,

Defendant has advertised, marketed, offered,

displayed for sale, and sold goods in manners

that falsely suggested they are Indian-made, an

Indian product, a product of an Indian Tribe, or

the product of an Indian arts and crafts

organization resident within the United States,

including Indian products consisting of jewelry

and clothing in a traditional Indian style, printed

design, or medium.19

18

J.A. at 760-61.

19

J.A. at 772.

11

Citing a lack of chronological specificity in Navajo

Nation’s allegations, Urban Outfitters urges us to use

extrinsic evidence to determine whether Hanover owes a duty

to defend. We decline for two reasons. First, and most

importantly, Pennsylvania law provides that the determination

of a duty to defend depends on the language of the policy and

the allegations of the complaint20 -- not on extrinsic evidence.

Second, the premise underpinning Urban Outfitters’

advocacy of extrinsic evidence is misguided. A complaint

that features few details as to when the plaintiff was wronged

is far from exceptional. On the contrary, allegations more

chronologically cryptic than Navajo Nation’s frequently form

the basis of advertising injury claims.21 To abandon the

underlying complaint whenever a plaintiff neglects to provide

a date-certain tortious conduct timeline would occasion more

protracted disputes by eroding the predictability that reliance

on a single pleading ensures.22

Confining our review to the contents of the underlying

complaint, we find Navajo Nation’s description of Urban

Outfitters’ allegedly infringing conduct remarkably

20

See Baumhammers, 938 A.2d at 290-91.

21

See, e.g., Transp. Ins. Co. v. Pa. Mfrs.’ Ass’n Ins. Co., 346

F. App’x 862, 863 (3d Cir. 2009); Maddox v. St. Paul Fire &

Marine Ins., 179 F. Supp. 2d 527, 528-29 (W.D. Pa. 2001);

Applied Bolting Tech. Prods., Inc. v. U.S. Fidelity & Guar.

Co., 942 F. Supp. 1029, 1031-32 (E.D. Pa. 1996).

22

It might be another matter if the facts known to the insurer

and those alleged in the complaint were in conflict. But since

neither insurer alleges such a factual conflict here, we decline

to opine on that decidedly more difficult scenario.

12

consistent. Thus, according to Navajo Nation, Urban

Outfitters advertised goods in a manner violative of its

trademark

 “[s]ince at least March 16, 2009” (¶ 2);

 “[a]t least as early as March 16, 2009” (¶ 37);

 “as early as March 2009” (¶ 41); and

 “[a]t least since March 16, 2009, and possibly earlier

as discovery will confirm, and continuously thereafter

to the present date” (¶ 78).

In each instance, Navajo Nation fixed March 16, 2009 (if not

earlier) as a start date for Urban Outfitters’ alleged

misconduct. Under the terms of the Hanover policies’ “prior

publication” exclusions, we must treat this date of “first

publication” as a landmark.23 Because Hanover was not

responsible for Urban Outfitters’ liability insurance coverage

until sixteen months thereafter, the exclusions apply—that is,

unless the underlying complaint contains allegations of “fresh

wrongs” that occurred during Hanover’s policy periods.

B.

There is no binding authority in this Court on what

constitutes a “fresh wrong.” The Ninth Circuit Court of

Appeals, however, recently considered the question on

analogous facts. In Street Surfing, LLC v. Great American E

& S Insurance Co., the court defined “fresh wrongs” as “new

matter,” which in turn “is material not ‘substantially similar’

23

See, e.g., Applied Bolting, 942 F. Supp. at 1036.

13

to the material published before the coverage period.”24 The

court emphasized that “courts have not considered all

differences between pre-coverage and post-coverage

publications, but have focused on the relationship between the

alleged wrongful acts manifested by those publications. A

post-coverage publication is ‘substantially similar’ to a pre-

coverage publication if both publications carry out the same

alleged wrong.”25

The insurer in Street Surfing was excused from its duty

to defend despite differences in pre- and post-coverage

advertisements. Although the ads featured different products,

the advertising idea was the same regardless of the product:

the products all used the allegedly infringing identification

“Street Surfing.” The Ninth Circuit held that the post-

coverage ads were not “fresh wrongs” because (1) the

underlying plaintiff did not “allege that the post-coverage

advertisements were separate torts occurring during the policy

period” and (2) the advertisements “arose out of each term’s

similarity to [plaintiff’s] advertising idea.”26

We find this approach persuasive but we will attempt

to build on it. Under Pennsylvania law, “[a]n insurer’s duty

to defend is broader than its duty to indemnify.”27 However,

reasonable limits may be imposed on that broad duty, as for

instance in cases of alleged advertising harm. There, the prior

24

See Street Surfing, LLC v. Great Am. E & S Ins. Co., 776

F.3d 603, 612 (9th Cir. 2014).

25

Id. at 612-13.

26

Id. at 614.

27

Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d

526, 540 (Pa. 2010).

14

publication exclusion serves to limit the coverage for an

ongoing course of wrongful conduct. Nevertheless, if a new

infringement has superseded the original infraction, the

insurers (and courts) must distinguish between “fresh

wrongs” and mere variations on a theme.

As with the duty to defend, the allegations in the

underlying complaint control.28 Where a plaintiff alleges a

substantive difference between allegedly infringing

advertisements, published before and during the relevant

policy period, the later advertisements are “fresh wrongs” that

fall outside the “prior publication” exclusion. But variations,

occurring within a common, clearly identifiable advertising

objective, do not give rise to “fresh wrongs.”

When a purported advertising violation stems from

such common, clearly identifiable objectives, the “prior

publication” exclusion applies to excuse an insurer from its

duty to defend if that insurer has assumed coverage

responsibility after the insured has commenced the liability-

triggering conduct. In determining whether two or more sets

of advertisements share a common objective, courts may look

to whether the plaintiff charged the insured with separate torts

or an agglomeration.29 Other significant, factors include

whether the complaint describes a significant lull between

pre- and post-coverage advertising initiatives and whether the

28

See Baumhammers, 938 A.2d at 290-91.

29

See Street Surfing, 776 F.3d at 614.

15

advertisements share a common theme relating to the alleged

violation.30

Urban Outfitters stands accused of an apparently

continuous string of trademark infringement and related

violations. In the underlying complaint, where Navajo Nation

affixed dates to Urban Outfitters’ purported misconduct, the

dates were generally accompanied by qualifiers denoting

continuity (e.g., Urban Outfitters has infringed “since” or

“[a]t least as early as” March 2009). Navajo Nation provided

more chronological specificity only in describing particular

Urban Outfitters advertisements which fit the alleged pattern

of infringement. Thus, it alleged, “[f]or example,” that Urban

Outfitters offered certain infringing products on its website in

January 2010 and in retail stores as well “[s]ometime in early

2011, and possibly earlier.”31 Navajo Nation attached screen

shots of the later product line as an exhibit to its complaint,

but cautioned that it was “an illustrative, and not exhaustive,

list of Urban Outfitters infringing activity.”32

We may not infer from Navajo Nation’s attachment of

only post-coverage advertisements as exhibits that those

advertisements substantively differed from pre-coverage ads.

30

The Seventh Circuit has analyzed the “prior publication”

exclusion under a different framework. See Taco Bell Corp.

v. Cont’l Cas. Co., 388 F.3d 1069, 1072-74 (2004). To the

extent Taco Bell requires that pre- and post-coverage

advertisements be identical (or nearly identical) for the “prior

publication” exclusion to apply, we disagree that the

exclusion demands such rigor.

31

See supra note 17.

32

Id.

16

In fact, taking Navajo Nation’s complaint as true compels the

opposite conclusion.33 Navajo Nation did not charge Urban

Outfitters with committing separate torts before and during

Hanover’s coverage period. Nor did it hint at a hiatus in

Urban Outfitters’ tortious pursuits between March 2009 and

the complaint’s filing. Navajo Nation alleged that Urban

Outfitters “started using the ‘Navajo’ and ‘Navaho’ names”

via all relevant instrumentalities of infringement (use “in its

product line, or in connection with the sale of its goods,

online, in its catalogs, and in its physical stores”) well before

Hanover’s coverage period commenced.34 Moreover, the

“Leather Navajo cuff” offered on Urban Outfitters’ website in

January 2010 (six months before Hanover’s coverage period

33

Similarly, we reject Urban Outfitters’ suggestion that,

because Navajo Nation’s allegations “lump defendants

together and are insufficiently specific to determine the

precise allegations directed against each individual

defendant,” the court must inquire further as to “the precise

claims against each insured.” In the very first sentence of its

complaint, Navajo Nation alleges that it “brings this

Amended Complaint against Urban Outfitters, Inc., and its

wholly-owned and controlled subsidiaries, entities, and retail

brands (collectively ‘Urban Outfitters’ or ‘Defendant’).” J.A.

at 748. Urban Outfitters accurately contends that Navajo

Nation did not distinguish thereafter between the various

defendants, but that is precisely the point: Navajo alleged

that each Urban Outfitters affiliate engaged in the same

course of wrongful conduct. It is not our task to discern the

plausibility of Navajo Nation’s allegations. On the contrary,

we are required to take them at face value. See

Baumhammers, 938 A.2d at 290-91.

34

See supra note 16.

17

began) appears thematically consistent with the more than

twenty post-coverage advertising examples Navajo Nation

identified.35

It is apparent from Navajo Nation’s complaint that

Urban Outfitters’ advertisements, which predated Hanover’s

coverage period, share a common objective with those that

followed. Thus, we conclude that the latter ads are not “fresh

wrongs.” The “prior publication” exclusions apply, and

Hanover has no duty to defend Urban Outfitters in the

underlying action.

IV.

Risk is a concept with which we are intimately

acquainted.36 Those who wager correctly are rewarded and

those who guess wrong suffer losses. The purpose of

insurance is to disperse that risk. But “[a]n insured cannot

insure against something that has already begun and which is

known to have begun.”37 The “prior publication” exclusion

prevents a continuing tortfeasor from passing the risk for its

misconduct on to an unwitting insurer. Taking Navajo

Nation’s underlying allegations as true, Urban Outfitters

engaged in similar liability-triggering behavior both before

35

See J.A. at 786-809.

36

As early as the sixteenth century, popular English proverbs

cautioned of risk and its vagaries in terms familiar to present

usage. See, e.g., Adam Fox, Oral and Literate Culture in

England, 1500-1700, 140-41 (2000).

37

See Matagorda Ventures, Inc. v. Travelers Lloyds Ins. Co.,

203 F. Supp. 2d 704, 716 (S.D. Tex. 2000) (citation and

quotation marks omitted).

18

and during Hanover’s coverage period. We therefore hold

that the exclusion applies.

For the foregoing reasons, we will affirm the District

Court’s order granting Hanover’s motion for judgment on the

pleadings.

19