`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF GEORGIA
`ATLANTA DIVISION
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`CIVIL ACTION NO.
`1:07-CV-0369-JFK
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`OWNERS INSURANCE
`COMPANY,
` Plaintiff,
`v.
`JUDY GORDON, AXIO DESIGN,
`LLC, ROBERT A. LEE, BRENDAN
`C. MURPHY, BCM CUSTOM
`HOMES, INC., a Georgia
`corporation, SARAH M. LEE,
`CHESAPEAKE DEVELOPMENT,
`INC., a Georgia corporation, and
`RAL PROPERTIES AND
`DEVELOPMENT, INC.,
` Defendants.
`
`ORDER AND OPINION
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`Plaintiff Owners Insurance Company filed the above-styled action against the
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`named Defendants on February 12, 2007. [Doc. 1]. Plaintiff’s complaint is for
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`declaratory judgment brought pursuant to Rule 57 of the Federal Rules of Civil
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`Procedure. [Id.]. Plaintiff seeks the court to enter judgment that Plaintiff has no duty
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`to defend or indemnify any of the Defendants under certain insurance policies for
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`AO 72A
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 2 of 26
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`claims asserted in an underlying lawsuit, Gordon and Axio Design, LLC v. Lee, et al.,
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`1:05-CV-2162-JFK, pending in this court. Pursuant to Rule 56 of the Federal Rules
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`of Civil Procedure, Plaintiff has moved for summary judgment, seeking a declaration
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`in its favor based upon the pleadings, statements of material facts, exhibits, and
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`discovery materials submitted by the parties. [Doc. 56].
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`I.
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`Facts
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`When evaluating the merits of a motion for summary judgment, the court must
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`view the evidence and factual inferences in a light most favorable to the non-moving
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`party. See Rollins v. TechSouth, Inc., 833 F.2d 1525, 1528 (11th Cir. 1987). However,
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`unsupported self-serving statements by the party opposing summary judgment are
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`insufficient to avoid summary judgment. See Midwestern Waffles, Inc. v. Waffle
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`House, Inc., 734 F.2d 705, 714 (11th Cir. 1984). Therefore, the evidence presented by
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`the parties having been evaluated in accordance with the foregoing principles, the
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`following facts are deemed to be true for the limited purpose of evaluating Plaintiff’s
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`motion [Doc. 56] for summary judgment.
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`In or around September of 2000, Defendant Judy Gordon, Defendant Robert
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`Lee, and an individual named Herman Howard joined together to form and become
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`partners
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`in The Design Collaborative Kaisen, LLC (“TDC”),
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`in Atlanta.
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`[1:05-CV-2162-JFK, Doc. 79 at 4]. The work initially performed by TDC was
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`architectural design, interior design, and graphic design. [Id.]. In late 2000 or early
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`2001, TDC entered into a joint venture with Defendant BCM Custom Homes to design
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`and build houses in an area of Atlanta called Lynwood Park. [Id.]. Defendant Brendan
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`Murphy was the President of BCM Custom Homes. [Id.]. In the fall of 2001, Howard
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`left TDC at the behest of Gordon and Lee. [1:05-CV-2162-JFK, Doc. 79 at 7]. After
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`the departure of Howard, Gordon and Lee reorganized TDC, redistributed
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`responsibilities, and renamed it Axio Design, LLC (“Axio”), in 2002. [Id.].
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`Plaintiff Owners Insurance Company issued a commercial general liability
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`policy to BCM Custom Homes, policy number 994618-48440171, with effective
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`policy periods from August 4, 1999, through November 5, 2002 (“BCM policy”).
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`[PSMF ¶ 9; Murphy Aff. ¶ 22]. By amendment effective November 5, 2002, the
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`named insured for the BCM policy was changed to Chesapeake Development, Inc.1
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`[PSMF ¶ 11; Murphy Aff. ¶ 23]. In 2002, Owners Insurance issued a commercial
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`general liability insurance policy to Chesapeake Development (“Chesapeake policy”).
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`1Chesapeake Development was the name of the company formed by Lee and
`Murphy after the dissolution of the Axio/BCM Lynwood Park joint venture.
`[1:05-CV-2162-JFK, Doc. 79 at 10].
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`[PSMF ¶ 12; Murphy Aff. ¶¶ 24, 25]. The effective policy period for policy number
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`994618-48440171 was from November 5, 2002, through September 7, 2004, and the
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`effective policy period for policy number 044618-48044326 was from September 7,
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`2004, through September 7, 2006. [PSMF ¶ 12; Murphy Aff. ¶¶ 24, 25]. Brendan
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`Murphy stated in his affidavit that the insurance agent for BCM Custom Homes and
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`Chesapeake Development was Mark Verbeke of Taylor & Turner Insurance Services,
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`Inc. [Murphy Aff. ¶ 19].
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`The language of the policies contains the terms and conditions pursuant to which
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`Owners Insurance agreed to provide insurance coverage. [PSMF ¶ 21]. Under
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`Coverage A, the BCM policy and the Chesapeake policy provide: “We will pay those
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`sums that the insured becomes legally obligated to pay as damages because of ‘bodily
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`injury’ or ‘property damage’ to which this insurance applies.” [Richards Aff., Exs. A,
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`B]. Under Coverage B, the policies provide: “We will pay those sums that the insured
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`becomes legally obligated to pay as damages because of ‘personal injury’ or
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`‘advertising injury’ to which this coverage part applies.” [Id.].
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`The BCM Policy and Chesapeake Policy, in pertinent part, define “advertising
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`injury” as “injury arising out of . . . Misappropriation of advertising ideas or style of
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`doing business; or Infringement of copyright, title or slogan.” [Richards Aff., Exs. A,
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`B]. Under the Section entitled “Who is an Insured,” the policies provide:
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`1. If you are designated in the Declarations as: . . .
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`c. An organization other than a partnership or joint venture, you are an
`insured. Your executive officers and directors are insureds, but only with
`respect to their duties as your officers or directors. Your stockholders are
`also insureds, but only with respect to their liability as stockholders.
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`2. Each of the following is also an insured:
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`a. Your employees, other than your executive officers, but only for acts
`within the scope of their employment by you. . . .
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`4. Any organization you newly acquire or form, other than a partnership
`or joint venture, and over which you maintain ownership or majority
`interest, will qualify as a Named Insured if there is no other similar
`insurance available to that organization. . . .
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`No person or organization is an insured with respect to the conduct of any
`current or past partnership or joint venture that is not shown as a Named
`Insured in the Declarations.
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`[PSMF ¶ 19]. The BCM policy and the Chesapeake policy also provide the following
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`section, which is entitled “Duties In The Event Of Occurrence, Claim Or Suit”:
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`a. You must see to it that we are notified as soon as practicable of an
`“occurrence” or an offense which may result in a claim. To the extent
`possible, notice should include: (1) How, when and where the
`“occurrence” or offense took place; (2) The names and addresses of any
`injured persons and witnesses; and (3) The nature and location of any
`injury or damage arising out of the “occurrence” or offense.
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`b. If a claim is made or “suit” is brought against any insured, you must:
`(1) Immediately record the specifics of the claim or “suit” and the date
`received; and (2) Notify us as soon as practicable. You must see to it that
`we receive written notice of the claim or “suit” as soon as practicable.
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`c. You and any other involved insured must: (1) Immediately send us
`copies of any demands, notices, summonses or legal papers received in
`connection with the claim or “suit”; (2) Authorize us to obtain records
`and other information; (3) Cooperate with us in the investigation,
`settlement or defense of the claim or “suit”; and (4) Assist us, upon our
`request, in the enforcement of any right against any person or
`organization which may be liable to the insured because of injury or
`damage to which this insurance may also apply.
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`d. No insureds will, except at their own cost, voluntarily make a payment,
`assume any obligation, or incur any expense, other than for first aid,
`without our consent.
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`[Richards Aff., Exs. A, B].
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`In September of 2002, Lee and Murphy held a meeting with Gordon, at which
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`time Lee informed Gordon that he wanted to withdraw from Axio and pursue a
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`business relationship with Murphy and BCM Custom Homes. [1:05-CV-2162-JFK,
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`Doc. 79 at 9]. During the meeting, Lee handed Gordon a letter which stated, in part:
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`This letter is to serve as my formal notice to withdraw from Axio Design,
`LLC. I have included in this notice a review of our current company’s
`operating agreement given by Harold Hudson as well as a review of my
`corporate responsibility regarding my ability to enter a business
`relationship with Brendan Murphy. Also included in this notice is a
`proposal for how the assets of Axio Design, LLC should be divided as
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 7 of 26
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`well as a way Axio Design may be removed from the construction
`liabilities in Lynnwood [sic] Park.
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`[Id.; Robert Lee Dep. at 104, Ex. 4; Gordon Dep. at 90].
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`On October 7, 2002, Judy Gordon wrote a letter to Robert Lee which was “in
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`response to your recent letter conveying an offer to terminate our business
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`arrangements.” [Gordon Dep., Ex. 22]. In the letter, Gordon proposed a number of
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`settlement terms. For example, Gordon proposed that Lee resign as a member of Axio
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`and that the assets of Axio, Brendan Murphy and BCM Custom Homes be divided in
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`a particular way. [Id.]. Gordon also wrote, “Since all of the residential designs being
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`used are the property of Axio, in the event that any of these designs are used in the
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`future, a licensing fee of $17,500 must be paid to Axio for each such use.” [Gordon
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`Dep., Ex. 22]. A week later, Gordon wrote another letter to Lee stating, in pertinent
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`part: “I am waiting for your response to my recent counteroffer. Should it not be
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`received by the close of business on Friday, October 18th, I may be left with no
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`alternative but to seek my remedy in court, which would be an expensive and
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`protracted process for all involved.” [Gordon Dep., Ex. 23].
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`According to Gordon, Lee responded with a proposal on October 18, 2002, and
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`Gordon wrote another letter to Lee on October 28, 2002. [Gordon Dep., Ex. 24].
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 8 of 26
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`Gordon noted numerous disputes she had with Lee regarding his proposed settlement
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`terms and division of assets. [Id.]. Gordon also wrote, “The fees in my earlier
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`proposal for the use of Axio-owned plans were based upon the fee schedules
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`commonly employed by registered architects in residential design. . . . Furthermore,
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`the house plans in question are the property of Axio. Any claims to the contrary are
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`false. Any and all future use of the plans include compensation to Axio.” [Gordon
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`Dep., Ex. 24].
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`Almost three years later, on August 19, 2005, Gordon and Axio filed a complaint
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`in this court against Robert Lee, Brendan Murphy, BCM Custom Homes, Sarah Lee,
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`Chesapeake Development, and RAL Properties and Development, (collectively, the
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`“Chesapeake Defendants”). [1:05-CV-2162-JFK, Doc. 1]. In the complaint, Gordon
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`and Axio asserted many claims based on the division of assets. Another prominent
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`issue in the underlying suit (and the issue upon which the parties focused in their
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`summary judgment motions) was whether the Chesapeake Defendants’ use of certain
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`residential design plans constituted copyright infringement. [1:05-CV-2162-JFK, Doc.
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`79 at 9]. Brendan Murphy stated that within a few days of being served with the
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`complaint in August 2005, he called Mark Verbeke, the insurance agent for
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`Chesapeake Development, and told him about the lawsuit. [Murphy Aff. ¶¶ 19, 27].
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 9 of 26
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`Murphy discussed the claims with Verbeke and faxed him a copy of the complaint.
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`[Murphy Aff. ¶ 27]. In September 2005, Verbeke arrived at the Chesapeake office to
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`discuss the renewal of insurance policies and present an insurance proposal. Murphy
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`provided Verbeke with another copy of the complaint at that time, and they read
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`through it together and discussed the claims. [Murphy Aff. ¶ 29]. According to
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`Murphy, Verbeke informed him that the insurance policies would not provide coverage
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`for the claims and damages sought in the underlying lawsuit. [Murphy Aff. ¶ 30].
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`Murphy stated that nine months later, in June 2006, “a mediation was attempted
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`in the Underlying Lawsuit at the offices of [his] attorneys at Chamberlain Hrdlicka.”
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`[Murphy Aff. ¶ 31]. During the mediation, Murphy and one of his attorneys called
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`Verbeke. Verbeke then stated that, although he had received notice of the lawsuit and
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`been provided with a copy of the complaint, he had not notified Owners Insurance of
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`the suit. [Id.]. Murphy and his attorney asked Verbeke to notify Owners Insurance and
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`forward the complaint. [Id.]. Mike Richards, a claims representative for Owners
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`Insurance, stated in his affidavit that the company was first notified of the underlying
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`lawsuit on June 20, 2006. [Richards Aff. ¶ 11].
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`On May 14, 2007, this Court entered its Order on the summary judgment
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`motions filed by Axio and the Chesapeake Defendants in the underlying lawsuit.
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`[PSMF ¶ 5; 1:05-CV-2162-JFK, Doc. 79]. The Order denied Axio’s motion for
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`summary judgment and granted partial summary judgment in favor of the Chesapeake
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`Defendants. [PSMF ¶ 7; 1:05-CV-2162-JFK, Doc. 79]. In the present case, the
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`Chesapeake Defendants seek coverage and indemnity for the claims asserted in the
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`underlying lawsuit under certain insurance policies issued by Plaintiff Owners
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`Insurance. [Docs. 1, 57]. Owners Insurance seeks the court to enter judgment that the
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`company has no duty to defend or indemnify any of the Defendants under the relevant
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`insurance policies for claims asserted in the underlying lawsuit. [Docs. 1, 56].
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`Additional facts will be set forth below as they become necessary for discussion
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`of the parties’ claims.
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`II.
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`Summary Judgment Standard
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`Summary judgment is proper “if the pleadings, depositions, answers to
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`interrogatories, and admissions on file, together with affidavits, if any, show that there
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`is no genuine issue as to any material fact and that the moving party is entitled to
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`judgment as a matter of law.” Fed. R. Civ. P. 56(c). Rule 56(c) mandates the entry of
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`summary judgment, after adequate time for discovery, against a party “who fails to
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`make a showing sufficient to establish the existence of an element essential to that
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 11 of 26
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`party’s case, and on which that party will bear the burden of proof at trial.” Celotex
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`Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986).
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`The standard for granting summary judgment mirrors the directed verdict standard
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`under Rule 50(a), which requires the court to grant a directed verdict where there can
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`be but one reasonable conclusion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
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`250, 106 S. Ct. 2505, 2511, 91 L. Ed. 2d 202 (1986).
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`The movant bears the initial burden of asserting the basis of its motion, and that
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`burden is a light one. See Celotex, 477 U.S. at 323, 106 S. Ct. at 2553. The movant
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`is not required to negate its opponent’s claim. See id. Rather, the movant may
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`discharge this burden merely by “‘showing’ -- that is, pointing out to the district court
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`-- that there is an absence of evidence to support the non-moving party’s case.” Id. at
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`325, 106 S. Ct. at 2554. When this burden is met, the non-moving party is then
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`required to “go beyond the pleadings and . . . designate ‘specific facts showing that
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`there is a genuine issue for trial.’” Id. at 324, 106 S. Ct. at 2553 (quoting Fed. R. Civ.
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`P. 56(e)).
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`While the evidence and factual inferences are to be viewed in a light most
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`favorable to the non-moving party, see Rollins, 833 F.2d at 1529; Everett v. Napper,
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`833 F.2d 1507, 1510 (11th Cir. 1987), that party “must do more than simply show that
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 12 of 26
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`there is some metaphysical doubt as to the material facts,” Matsushita Electrical Indus.
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`Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538
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`(1986). The non-moving party must come forward with specific facts showing there
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`is a genuine issue for trial. See id. at 587. An issue is not genuine if it is created by
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`evidence that is “merely colorable” or is “not significantly probative.” Anderson, 477
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`U.S. at 249-50, 106 S. Ct. at 2511; accord Young v. General Foods Corp., 840 F.2d
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`825, 828 (11th Cir. 1988). Similarly, substantive law will identify which facts are
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`material. See Anderson, 477 U.S. at 248, 106 S. Ct. at 2510. Thus, to survive a motion
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`for summary judgment, the non-moving party must come forward with specific
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`evidence of every element essential to its case. See Celotex, 477 U.S. at 323, 106 S.
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`Ct. at 2553; Rollins, 833 F.2d at 1528.
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`III. Discussion
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`Plaintiff Owners Insurance argues in its motion for summary judgment [Doc. 56]
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`that the court should grant declaratory judgment in its favor and rule that no coverage
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`is afforded under the relevant commercial general liability insurance policies.
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`According to Plaintiff, the court should find that the company has no duty to defend
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`or indemnify any of the Chesapeake Defendants for the claims asserted in the
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 13 of 26
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`underlying lawsuit. Plaintiff Owners Insurance contends that the Chesapeake
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`Defendants breached their duty under the terms of the insurance policies to notify
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`Owners Insurance “as soon as practicable” of the disputes surrounding the termination
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`of the business relationship between Chesapeake Defendants and Axio. Plaintiff also
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`argues that the Chesapeake Defendants breached their duty to notify Owners Insurance
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`of Axio’s lawsuit in a timely manner.2
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`During all relevant times, commercial general liability policies issued by
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`Plaintiff Owners Insurance Company to Defendant BCM Custom Homes and later
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`Defendant Chesapeake Development were in effect. [PSMF ¶¶ 9, 11; Murphy Aff. ¶¶
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`22, 23]. The BCM policy and the Chesapeake policy provide the following in a section
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`entitled “Duties In The Event Of Occurrence, Claim Or Suit”:
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`a. You must see to it that we are notified as soon as practicable of an
`“occurrence” or an offense which may result in a claim. To the extent
`possible, notice should include: (1) How, when and where the
`“occurrence” or offense took place; (2) The names and addresses of any
`injured persons and witnesses; and (3) The nature and location of any
`injury or damage arising out of the “occurrence” or offense.
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`2Plaintiff Owners Insurance also argues that the insurance policies exclude
`coverage for the claims asserted against the Chesapeake Defendants and that the
`company has no duty to defend or indemnify RAL Properties and Development. [Doc.
`56 at 17-25]. Because Plaintiff is entitled to summary judgment on the basis of the
`Chesapeake Defendants’ failure to comply with the policies’ notice provisions, the
`court will not address these additional arguments.
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`[Richards Aff., Exs. A, B]. According to Plaintiff Owners Insurance, the Chesapeake
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`Defendants failed to comply with this provision when they did not notify Plaintiff of
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`their disputes with Axio and Judy Gordon in the fall of 2002.
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`“Under Georgia law, an insurance company is free to fix the terms of its policies
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`as it sees fit, so long as they are not contrary to the law, and it may insure against
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`certain risks while excluding others.” Payne v. Twiggs County Sch. Dist., 269 Ga.
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`361, 363, 496 S.E.2d 690, 691 (1998) (citing Continental Cas. Co. v. HSI Fin. Servs.,
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`Inc., 266 Ga. 260, 262, 466 S.E.2d 4, 6 (1996)). Moreover, “unambiguous terms in an
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`insurance policy require no construction, and their plain meaning will be given full
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`effect, regardless of whether they might be of benefit to the insurer, or be of detriment
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`to an insured.” Id. at 363, 496 S.E.2d at 691-92 (citing Continental Cas., 266 Ga. at
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`262; 466 S.E.2d at 6; Liberty Nat’l Ins. Co. v. Davis, 198 Ga. App. 343, 344, 401
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`S.E.2d 555, 556 (1991)). “It is also the general rule that the insured is chargeable with
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`knowledge of all the conditions imposed upon him by the terms of his policy.”
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`Richmond v. Georgia Farm Bureau Mut. Ins. Co., 140 Ga. App. 215, 221, 231 S.E.2d
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`245, 250 (1976). Insurance policy provisions which require the insured to provide
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`prompt notice to the insurer of potential claims are common and have been held to be
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`enforceable. See, e.g., Canadyne-Georgia Corp. v. Continental Ins. Co., 999 F.2d 1547
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`(11th Cir. 1993); South Carolina Ins. Co. v. Coody, 957 F. Supp. 234 (M.D. Ga. 1997);
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`Richmond, 140 Ga. App. 215, 231 S.E.2d 245. “The purpose of a notice provision in
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`an insurance policy is to enable an insurer to investigate promptly the facts surrounding
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`the occurrence while they are still fresh and the witnesses are still available, to prepare
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`for a defense of the action, and, in a proper case, to determine the feasibility of
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`settlement of the claim.” Coody, 957 F. Supp. at 237 (quoting Richmond, 140 Ga.
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`App. at 221, 231 S.E.2d at 250).3
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`In the present case, under the terms of the policy, the Chesapeake Defendants
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`were required to provide notice to Plaintiff Owners Insurance “as soon as practicable
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`of an ‘occurrence’ or an offense which may result in a claim.” [Richards Aff., Exs. A,
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`B]. Plaintiff contends that the Chesapeake Defendants knew or should have known
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`that claims could result from the disputes surrounding the termination of the business
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`relationship between the Chesapeake Defendants and Axio in the fall of 2002. [Doc.
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`56]. The Chesapeake Defendants acknowledge that they made no attempt to provide
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`notice to Plaintiff Owners Insurance regarding any aspect of their disputes with Axio
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`and Judy Gordon until late 2005. However, the Chesapeake Defendants argue that they
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`3It is the insurer who “bears the burden of showing that a fact situation falls
`within an exclusionary clause of an insurance policy.” Connell v. Guarantee Trust Life
`Ins. Co., 246 Ga. App. 467, 470, 541 S.E.2d 403, 406 (2000).
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 16 of 26
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`had no reason to believe that the 2002 disputes would give rise to a claim under the
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`insurance policies until three years later, in August 2005, when Axio and Gordon
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`served the Chesapeake Defendants with the complaint in the underlying lawsuit. [Doc.
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`57 at 6].
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`The issue that must be decided is whether the terms of the insurance policies
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`required the Chesapeake Defendants to promptly notify Owners Insurance of the 2002
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`disputes with Axio and Gordon. If the duty to provide prompt notice arose in 2002,
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`then the Chesapeake Defendants’ decision not to make any effort to inform Owners
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`Insurance until at least 2005 means that Defendants did not comply with the policies.
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`Because the notice provision was a condition precedent to coverage, a failure to
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`comply would result in this court finding that Plaintiff Owners Insurance has no duty
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`to defend or indemnify any of the Chesapeake Defendants for the claims asserted in an
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`underlying lawsuit. See Federated Mut. Ins. Co. v. Ownbey Enterprises, Inc., 278 Ga.
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`App. 1, 3, 627 S.E.2d 917, 919 (2006).
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`“The duty to provide notice to the insurer is triggered when the insured actually
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`knew or should have known of the possibility that it might be held liable for the
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`occurrence in question.” Coody, 957 F. Supp. at 237. The Chesapeake Defendants
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`argue that they first learned of a possible claim under the insurance policies in August
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`Case 1:07-cv-00369-JFK Document 73 Filed 02/26/08 Page 17 of 26
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`2005, when they were served with the complaint in the underlying lawsuit. [Doc. 57
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`at 6]. In the complaint, Gordon and Axio alleged claims based on the division of assets
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`and asserted that the Chesapeake Defendants’ use of certain residential design plans
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`constituted copyright infringement. [1:05-CV-2162-JFK, Doc. 1, Doc. 79 at 9]. The
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`insurance policies cover claims for “advertising injury,” which is defined as “injury
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`arising out of . . . Misappropriation of advertising ideas or style of doing business; or
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`Infringement of copyright, title or slogan.” [Richards Aff., Exs. A, B]. Defendants
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`argue that the complaint’s allegation of copyright infringement “was the first notice
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`any of the Chesapeake Defendants received as to any claim of advertising injury by
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`Gordon or AXIO.” [Murphy Aff. ¶ 17].
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`The court finds that the Chesapeake Defendants reasonably should have known
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`that their disputes with Axio and Gordon in the fall of 2002 could have resulted in a
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`claim for copyright infringement, which is covered under the terms of the insurance
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`policies. [Richards Aff., Exs. A, B]. On October 7, 2002, Judy Gordon wrote a letter
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`to Robert Lee, wherein she proposed that Lee resign as a member of Axio and that the
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`assets of Axio, Brendan Murphy and BCM Custom Homes be divided in a particular
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`way. [Gordon Dep., Ex. 22]. Gordon also wrote, “Since all of the residential designs
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`being used are the property of Axio, in the event that any of these designs are used in
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`the future, a licensing fee of $17,500 must be paid to Axio for each such use.”
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`[Gordon Dep., Ex. 22]. At this point, the Chesapeake Defendants reasonably should
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`have known of the possibility of a claim for copyright infringement.
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`Ownership of a valid copyright is one of the elements necessary to establish
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`copyright infringement. Feist Publications, Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S.
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`340, 361, 111 S. Ct. 1282, 1296, 113 L. Ed. 2d 358 (1991). Gordon made it clear in
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`her letter that she believed that Axio owned the residential designs and that if Lee or
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`any of the Chesapeake Defendants wanted to use any of the designs, they would be
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`required to pay Axio a licensing fee. [Gordon Dep., Ex. 22]. Because the Copyright
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`Act grants copyright protection to the owners of a work, Gordon’s assertion of Axio’s
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`ownership of the designs in the October 7th letter put the Chesapeake Defendants on
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`notice that their disputes with Axio and Gordon may have resulted in a copyright
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`infringement claim. 17 U.S.C. § 201(a). This was not the only indication that the
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`Chesapeake Defendants received about the possibility of a claim. On October 15,
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`2002, approximately a week after Gordon wrote the letter discussed supra, Gordon
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`wrote another letter to Lee stating, in pertinent part: “I may be left with no alternative
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`but to seek my remedy in court, which would be an expensive and protracted process
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`for all involved.” [Gordon Dep., Ex. 23]. The Chesapeake Defendants obviously were
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`aware that Gordon was considering filing a lawsuit. Gordon wrote another letter to Lee
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`on October 28, 2002, wherein she again asserted that the residential design plans were
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`owned by Axio and that she would not permit Lee or the Chesapeake Defendants to use
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`the plans unless they paid Axio licensing fees. [Gordon Dep., Ex. 24]. In the letter,
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`Gordon stated to Lee: “The fees in my earlier proposal for the use of Axio-owned plans
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`were based upon the fee schedules commonly employed by registered architects in
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`residential design. . . . Furthermore, the house plans in question are the property of
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`Axio. Any claims to the contrary are false. Any and all future use of the plans include
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`compensation to Axio.” [Gordon Dep., Ex. 24].
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`The court finds that as a result of these three letters sent in October 2002, the
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`Chesapeake Defendants reasonably should have known that claims may have resulted
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`under the terms of their insurance policies with Plaintiff Owners Insurance. Therefore,
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`as a condition precedent to coverage, the Chesapeake Defendants were required to
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`provide notice to Plaintiff Owners Insurance “as soon as practicable.” [Richards Aff.,
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`Exs. A, B]. The Chesapeake Defendants made no effort to notify Owners Insurance
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`of a possible claim until August 2005, after they were served with the complaint filed
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`by Gordon and Axio. [1:05-CV-2162, Doc. 1]. Brendan Murphy stated that within a
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`few days of being served with the complaint in August 2005, he called Mark Verbeke,
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`the insurance agent for Chesapeake Development, and told him about the lawsuit,
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`discussed the claims, and faxed him a copy of the complaint. [Murphy Aff. ¶¶ 19, 27].
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`Murphy stated that nine months later, in June 2006, he learned that Verbeke had not
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`notified Owners Insurance of the suit. [Murphy Aff. ¶ 31]. Murphy and his attorney
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`asked Verbeke to notify Owners Insurance and forward the complaint. [Id.]. Owners
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`Insurance was first notified of the underlying lawsuit on June 20, 2006. [Richards Aff.
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`¶ 11].
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`As discussed infra, the court finds that Murphy’s notice to Verbeke in 2005 did
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`not constitute notice to Plaintiff Owners Insurance. But even if it is assumed that
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`Owners Insurance received notice of the lawsuit from the Chesapeake Defendants
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`when Verbeke was first notified, this delay in notification was unreasonable as a matter
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`of law. The Chesapeake Defendants first knew or should have known of a potential
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`claim in October 2002, but they waited until August 2005, a period of 34 months,
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`before even attempting to notify Owners Insurance. Courts in Georgia have held that
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`notification delays shorter than the present one were unreasonable as a matter of law.
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`For example, in Protective Ins. Co. v. Johnson, 256 Ga. 713, 714, 352 S.E.2d 760, 761
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`(1987), the Supreme Court of Georgia found that the insured’s unexcused 17 month
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`delay in giving the insurer notice was unreasonable and constituted a breach of the
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`insurance policy’s requirement of notification “as soon as practicable.” Likewise, the
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`district court in Coody, 957 F. Supp. at 238-39, found that a 29 month delay in
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`notifying the insurer of potential liability was not “as soon as practicable” as the policy
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`required and, thus, was a “clear violation of the unambiguous terms of the policy.” See
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`also Snow v. Atlanta Int’l Ins. Co., 182 Ga. App. 1, 354 S.E.2d 644 (1987) (holding
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`that a ten month delay was unreasonable as a matter of law); Richmond, 140 Ga. App.
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`at 221, 231 S.E.2d at 250 (holding that an eight month delay was unreasonable as a
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`matter of law).
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`A reasonable jury would necessarily conclude that the notice delay in the present
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`case of at least 34 months was not “as soon as practicable” as required by the terms of
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`the policies. Chesapeake Defendants did not fulfill their duty to give prompt notice of
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`the disputes which led to the suit. Compliance with the notice provision is a condition
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`precedent for coverage under the policies; therefore, Plaintiff Owners Insurance has no
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`duty to defend or indemnify any of the Chesapeake Defendants for the claims asserted
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`in an underlying lawsuit. For all these reasons, the court GRANTS Plaintiff’s motion
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`for summary judgment [Doc. 56].
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`Even assuming arguendo that the Chesapeake Defendants were not required to
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`notify Plaintiff Owners Insurance of the disputes with Axio and Gordon which led to
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`the lawsuit, the court nevertheless would grant summary judgment in favor of Plaintiff.
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`Summary judgment is warranted because the Chesapeake Defendants breached their
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`duty to notify Owners Insurance of Axio’s lawsuit in a timely manner as required by
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`the relevant terms of the insurance policies