The opinion of the court was delivered by: CALDWELL
These are breach of contract claims in which the plaintiff, The Frog, Switch & Manufacturing Co. ("Frog"), brought suit against the defendants, United States Fire Insurance Company ("USFIC") and The Travelers Indemnity Company of Illinois ("Travelers") for failing to defend and indemnify it for liability arising from a lawsuit filed against Frog by ESCO Corporation ("ESCO"). Frog further alleges a bad faith denial of coverage under 42 Pa. C.S. § 8371.
We are considering USFIC's motion to dismiss under Fed. R. Civ. P. 12(b)(6) which asserts that the plaintiff has failed to state a claim for which relief can be granted. In deciding this motion, "all facts alleged in the complaint and all reasonable inferences that can be drawn from them must be accepted as true." Malia v. General Elec. Co., 23 F.3d 828, 830 (3d Cir. 1994). The motions must be denied unless the plaintiff can prove no set of facts in support of its claim that would entitle it to recovery. See Piecknick v. Pennsylvania, 36 F.3d 1250, 1255 (3d Cir. 1994). We consider not only the complaint but also the insurance policies and the complaint in the underlying lawsuit by ESCO, which are attached to the complaint. See Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
In addition, we are considering Travelers' motion for summary judgment and Frog's cross motion for partial summary judgment, which concerns Travelers' duty to defend. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). In reviewing the evidence, facts and inferences must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538, 553 (1986). Summary judgment must be entered in favor of the moving party "where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." Id. at 586-87, 106 S. Ct. at 1356, 89 L. Ed. 2d at 552 (citations omitted).
When a moving party has carried his or her burden under Rule 56, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586-87, 106 S. Ct. at 1356, 89 L. Ed. 2d at 552 (citations omitted). The nonmoving party "must present affirmative evidence in order to defeat a properly supported motion for summary judgment," and cannot "simply reassert factually unsupported allegations contained in [the] pleadings." Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989) (citation omitted). "If the [nonmoving party's] evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, 477 U.S. 242, 249-50, 106 S. Ct. 2505, 2511, 91 L. Ed. 2d 202, 212 (1986) (citations omitted).
The defendants argue that the claims made against plaintiff in the ESCO lawsuit were not within the coverage afforded under their respective policies, including any duty to defend. This is the dispute we must resolve.
On July 17, 1995, ESCO filed a complaint in this court (Civil Docket No. 1:CV-95-1153) against Frog and its employee, John R. Olds ("Olds"). ESCO alleged that Olds, who had been a chief engineer for Amsco Cast Products, Inc. ("Amsco"), copied and removed from Amsco's offices trade secret and confidential business information relating to Amsco's product line of dipper buckets (used in the mining industry) and delivered them to Frog.
Olds had agreed in August 1994 to accept employment with Frog but did not notify Amsco of this fact until the day he started work with Frog, on October 17, 1994. He allegedly took certain documents from Amsco shortly before his departure. ESCO filed suit.
ESCO alleged that Frog used trade secrets and confidential information it acquired to enter the market for dipper buckets, a line of business in which Frog had not previously engaged. ESCO's initial complaint, filed on July 17, 1995, alleged six claims against Frog, all pertaining to unfair competition. On September 30, 1996, ESCO filed an amended complaint that added four claims, including two for violations of the Lanham Act, 15 U.S.C. § 1125(a) (1988).
The Lanham Act claims alleged false advertising by Frog. ESCO alleged that Frog promoted its dipper buckets through "widespread distribution of a product promotional brochure, publication in an industry trade journal, and verbal and written direct communication to customers." According to ESCO, Frog advertised "a new and 'revolutionary' design" for dipper buckets although Frog had done no design work, but was instead attempting to sell buckets designed with drawings "unlawfully appropriated" from Amsco. ESCO further alleged that the products sold by Frog were in fact Amsco products which Frog was attempting to pass off as its own and that "the market was falsely led to believe" that Frog designed the buckets and could produce them.
Just before trial, Frog reached a settlement agreement with ESCO, agreeing to pay $ 2,625,000 to settle all claims raised by ESCO.
B. Denial of Insurance Coverage.
Frog has insurance policies with Travelers and USFIC. The Travelers policy provides general liability coverage while the USFIC policy is an umbrella policy. These policies were in effect during the litigation between Frog and ESCO.
The Travelers and USFIC policies provide coverage for "advertising injury." The Travelers policy covers injury that is "caused by an offense committed in the course of advertising your goods, products or services," while the USFIC policy covers "injury that arises out of [Frog's] advertising activities." The policies further define "advertising injury" as injury arising from one of the following:
a. Oral or written publication of material that slanders or libels a person or organization or disparage a person's or ...