                                                                     SECOND DIVISION
                                                                     March 31, 2008




No. 1-07-0526

AMERICAN FAMILY MUTUAL INSURANCE              )
COMPANY,                                      )              Appeal from the
                                              )              Circuit Court of
              Plaintiff-Appellee,             )              Cook County.
    v.                                        )
                                              )
CONNIE ROTH, Individually and d/b/a/          )
Roth and Roth Insurance Agency, Inc.;         )
BONNIE ROTH, Individually and d/b/a Roth      )
and Roth Insurance Agency, Inc.; and ROTH AND )              Honorable
ROTH INSURANCE AGENCY, INC., d/b/a            )              William O. Maki,
Roth and Roth Insurance,                      )              Judge Presiding.
                                              )
               Defendants-Appellants.         )


       JUSTICE SOUTH delivered the opinion of the court:

       This appeal arises from an order of the circuit court of Cook County that granted

plaintiff’s motion for summary judgment, holding that plaintiff, American Family Mutual

Insurance Company (American Family), did not have a duty to defend defendants pursuant to the

terms and conditions of the businessowners package policy it issued to defendants. American

Family instituted this declaratory judgment action against defendants seeking a determination of

its duty to defend the insureds in an underlying federal court action (American Family Mutual

Insurance Co. v. Roth, No. 05 C 3839) (hereinafter referred to as the underlying action). The

basis of the underlying action was alleged misappropriation of trade secrets.

       American Family is a Wisconsin-based insurer that underwrites a broad base of

commercial and personal lines of insurance products. Defendants Bonnie Roth and Connie Roth
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are the owners of an Aurora, Illinois, insurance agency known as Roth & Roth Insurance. Both

Bonnie and Connie worked as exclusive agents of American Family pursuant to the terms of

written agency agreements. Connie became an agent in July 1997, and Bonnie became an agent in

December 2002.

        The agent agreements provided in part that the policies, endorsements, policy records,

manuals, materials and supplies furnished by American Family to defendants remained American

Family’s property and had to be returned within 10 days of the termination of the agency

agreements. This included all copies that were in defendants’ possession and control. The

agreements also contained nonsolicitation clauses that prohibited defendants from soliciting

American Family policyholders credited to their account or from inducing them to cancel or

replace their American Family policies for one year following the termination of the agent

agreements. The agreements also contained a choice of law provision, which provided they

would be governed by Wisconsin law.

        Additionally, the agent agreements contained a database agreement endorsement that

defendants also signed. The database agreements governed defendants’ access to American

Family’s proprietary computer system, software, and database, as well as the return of hard files

upon termination of the agency relationship. The database also included customer lists and

confidential customer information.

        The Wisconsin Uniform Trade Secrets Act (Wis. Stat. Ann. §134.90(1)(c) (West 2001))

defines a trade secret as:

                        “[I]nformation, including a formula, pattern, compilation,


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               program, device, method, technique or process to which all of the

               following apply:

                       1. The information derives independent economic value,

               actual or potential, from not being generally known to, and not

               being readily ascertainable by proper means by, other persons who

               can obtain economic value from its disclosure or use.

                       2. The information is the subject of efforts to maintain its

               secrecy that are reasonable under the circumstances.”

It further provides:

                       “(2) Misappropriation. No person, including the state, may

               misappropriate or threaten to misappropriate a trade secret by

               doing any of the following:

                       ***

                       (b) Disclosing or using without express or implied consent a

               trade secret of another if the person did any of the following:

                       ***

                       (2) at the time of disclosure or use knew, or had reason to

               know that he or she obtained knowledge of the trade secret through

               any of the following means:

                       ***

                       (b) acquiring it under circumstances giving rise to a duty to


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1-07-0526

               maintain its secrecy or limit its use.” Wis. Stat. Ann. §134.90(1)(c)

               (West 2001).

       The American Family Web site states that the company can only obtain information from

the customers that are to be used in the company’s business; the names and addresses of the

customers cannot be shared without their written consent; and the sharing of customer lists with

another insurer or agency violates the Gramm Leach Bliley Act (GLB) (15 U.S.C.A. §6801

(2002)). Defendants had access to and notice of the contents of the Web site throughout their

agency with American Family.

       On February 15, 2005, American Family terminated its agent agreements with Bonnie and

Connie. At that time, American Family demanded the return of all of its property, including

policyholder records. In a letter dated February 17, 2005, American Family reminded the Roths

that privacy laws prohibited the disclosure of policyholder information to third parties outside of

American Family without the policyholder’s authorization. They further reminded them that they

may not disclose policyholder information to other insurers or agencies with whom they may

become associated.

       On or about May 19, 2005, Connie prepared and signed a mailing that solicited at least

one American Family customer to conduct business with Roth. The mailing was a letter that

contained personal financial information obtained by Connie while she was an agent of American

Family. On or about May 21, 2005, the customer contacted American Family to pursue a formal

complaint regarding the disclosure of personal information. Following their agency termination,

defendants solicited other American Family customers. American Family filed a formal complaint


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against defendants with the Illinois Division of Insurance. Defendants had not returned to

American Family all of the copies of the customer files and information that were in their

possession.

       At the trial level, American Family moved for summary judgment to determine the parties’

rights and obligations under the policy. Defendants filed a cross-motion for summary judgment

on the issue of American Family’s duty to defend them in the underlying action. The trial court

granted American Family’s motion for summary judgment and denied defendants’ motion for

judgment, finding that American Family did not owe a duty to defend in the underlying action.

       Defendants have raised the following issues on appeal: (1) whether the circuit court

properly granted summary judgment, finding plaintiff did have a duty to defend the defendants

pursuant to the terms and conditions of the businessowners package policy that it issued to

defendants, and (2) whether the policy exclusions for breach of contract or trade secret

infringement apply to the underlying cause of action.

       In appeals from summary judgment rulings, we conduct a de novo review. Atlantic

Mutual Insurance Co. v. American Academy of Orthopaedic Surgeons, 315 Ill. App. 3d 552, 559

(2000). “The reviewing court must construe all evidence strictly against the movant and liberally

in favor of the nonmoving party.” Atlantic Mutual, 315 Ill. App. 3d at 559. Where the pleadings,

depositions and affidavits show there is no genuine issue of material fact, the moving party is

entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2006); Atlantic Mutual,

315 Ill. App. 3d at 559. “If reasonable persons could draw different inferences from undisputed

facts, summary judgment should be denied.” Atlantic Mutual, 315 Ill. App. 3d at 559.


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1-07-0526

       Defendants maintain that the trial court erred in granting summary judgment to American

Family and make the following arguments:

                      (1) the underlying complaint contains factual allegations of

              personal and advertising injury that bring the action within the

              policy’s coverage;

                      (2) American Family had a duty to defend because the

              underlying action seeks damages in addition to equitable relief;

                      (3) Count II of the underlying complaint contains

              allegations that clearly establish a duty to defend;

                      (4) the factual allegations of the underlying complaint

              regarding tortious interference with contractual relationships and

              tortious interference with prospective business expectations

              unequivocally create a duty to defend;

                      (5) American Family’s duty to defend is established by

              factual allegations regarding policy provisions that define “use of

              another’s advertising idea” as a “personal and advertising injury”;

              and

                      (6) American Family must defend defendants even if

              coverage only exists under a single, discrete cause of action

              notwithstanding any possible exclusions of other claims or legal

              theories.


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1-07-0526

       In order to determine whether the insurer’s duty to defend has arisen, the court must

compare the allegations of the underlying complaint to the policy language. Outboard Marine

Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 125 (1992). “The allegations in the

underlying complaint must be liberally construed in favor of the insured.” Outboard Marine

Corp., 154 Ill. 2d at 125. “If the court determines that these allegations fall within, or potentially

within, the policy’s coverage, the insurer has a duty to defend the insured against the underlying

complaint.” (Emphasis omitted.) Outboard Marine Corp., 154 Ill. 2d at 125. “[T]he insurer can

safely and justifiably refuse to defend only when the allegations clearly show on their face that the

claim is beyond policy coverage, for the duty to defend is broader than the duty to [indemnify].”

Management Support Associates v. Union Indemnity Insurance Co. of New York, 129 Ill. App.

3d 1089, 1096 (1984). “ ‘Moreover, if the underlying complaints allege several theories of

recovery against the insured, the duty to defend arises even if only one such theory is within the

potential coverage of the policy.’ ” Lexmark International, Inc. v. Transportation Insurance Co.,

327 Ill. App. 3d 128, 135 (2001), quoting United States Fidelity & Guaranty Co. v. Wilkin

Insulation Co., 144 Ill. 2d 64, 73 (1991).

       In the instant case, the underlying complaint has five counts: count I - permanent

injunction and other relief for violation of the Wisconsin Trade Secrets Act; count II - violation of

the Gramm Leach Bliley Act (15 U.S.C.A. §6801 (2001)) and Health Insurance Portability and

Accountability Act (42 U.S.C.A. §1320D-6 (1996)); count III - breach of contract; count IV -

tortious interference; and count V - tortious interference with prospective business expectations.1


       1
           Count II was dismissed and is not part of this appeal.

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1-07-0526

        “A court’s primary objective in construing the language of an insurance policy is to

ascertain and give effect to the intentions of the parties as expressed by the language of the

policy.” Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352, 362 (2006).

We give the policy’s words their “ ‘plain, ordinary, and popular meaning,’ ” Lexmark, 327 Ill.

App. 3d at 135, quoting Outboard Marine Corp., 154 Ill. 2d at 108. Little weight is given to the

legal label that characterizes the allegations of the underlying complaint; rather, the determination

focuses on whether the alleged conduct arguably falls within at least one of the categories of

wrongdoing listed in the policy. Lexmark, 327 Ill. App. 3d at 135-36.

        The American Family policies at issue were effective as of September 15, 2004, and

February 22, 2005. The 2004 American Family policy covered both property and liability. Under

the liability section, the policy stated as follows:

                        “a. We will pay those sums that the insured becomes legally

                obligated to pay as damages because of ‘bodily injury,’ ‘property

                damage,’ or ‘personal and advertising injury’ to which this

                insurance applies. We will have the right and duty to defend the

                insured against any ‘suit’ seeking those damages. However, we

                will have no duty to defend the insured against any ‘suit’ seeking

                damages for ‘bodily injury,’ ‘property damage,’ or ‘personal and

                advertising injury,’ to which this insurance does not apply.”

        The coverage section of the policy, under liabilities, further indicates that it applies:

                        “(2) To ‘personal and advertising injury’ caused by an


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               offense arising out of your business, but only if the offense was

               committed in the ‘coverage territory’ during the policy period.”

       The exclusions portion of the policy, in terms of “personal and advertising injury,” states

that it does not apply to the following:

               “Personal and advertising injury:

                          (1) Caused by or at the direction of the insured with the

               knowledge that the act would violate the rights of another an would

               inflict ‘personal and advertising injury’ ;

                          (2) Arising out of oral or written publication of material, if

               done by or at the direction of the insured with knowledge of its

               falsity;

                                                  ***

                          (6) Arising out of a breach of contract, except an implied

               contract to use another’s advertising idea in your ‘advertisement’;

                                                  ***

                          (13) Arising out of the infringement of copyright, patent,

               trademark, trade secret or other intellectual property rights.

               However, this exclusion does not apply to infringement in your

               ‘advertisement,’ of copyright trade dress or slogan.”

       The policy defines “personal and advertising injury” as “injury” including consequential

“bodily injury,” arising out of one or more of the following offenses, in pertinent part:


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                       “e. Oral or written publication, in any manner, of material

               that violates a person’s right of privacy;

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

               ‘advertisement’; or

                       g. Infringing upon another’s copyright, trade dress or

               slogan in your ‘advertisement.’ ”

       The 2005 American Family policy only changed the insured’s mailing address and did not

alter the terms of coverage.

       The underlying complaint states two causes of action, i.e., breach of contract based upon

alleged violations of the agent agreements and tortious interference arising from defendants’

alleged misappropriation of information which was gleaned from American Family’s customer

database. “The complaint must be read as a whole in order to assess its true nature.” United Fire

& Casualty Co. v. Jim Maloof Realty, Inc., 105 Ill. App. 3d 1048, 1050 (1982).

       Although the policy indicates it applies to “personal and advertising injury” arising from

oral or written publication, in any manner, of material that violates one’s right of privacy, it also

specifically excludes from coverage any personal and advertising injury that: (1) is caused by or at

the discretion of the insured with the knowledge that the act would violate the rights of another

and would inflict personal and advertising injury; (2) arises from breach of contract; and (3) arises

out of the copyright, patent, trademark or trade secret infringement or other intellectual property

rights. Defendants’ alleged written solicitation of American Family’s customers whose personal

and confidential information was allegedly extrapolated from the American Family computer


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database was precisely the type of material that is generally covered under the policy as a

“personal and advertising injury.” However, the policy exclusions specifically exclude any injury

that is caused by the insured, knowing that the act would violate the rights of another and cause

such injury, arose from breach of contract, or arose from trademark or trade secret infringement.

Each of these three elements is present.

       First of all, defendants’ alleged conduct concerning American Family’s computer database

was done knowingly because the agent agreements specifically required them to relinquish any

American Family property within 10 days of termination of the agency relationship and barred

them from soliciting any of their former customers for one year after termination of the agency

relationship. These alleged actions of defendants constitute a breach of the agency agreements;

and the alleged retention and subsequent use of confidential information which were gleaned from

American Family’s database and computer system amounts to trademark and trade secret

infringement. As such, the allegations of the underlying action do not fall within, or potentially

within, the policy’s coverage. For that reason, American Family does not owe a duty to defend

the defendants.

       This result is consistent with this court’s holding in United Fire & Casualty, 105 Ill. App.

3d 1048 (1982). In that case, plaintiffs issued a "Real Estate Agents Errors and Omissions”

insurance policy to defendant, who was a real estate broker. The policy provided coverage for

any claim against the insured caused by any negligent act or omission of the insured but did not

apply to any “dishonesty, intentional fraud, criminal or malicious act, libel or slander.” United

Fire & Casualty, 105 Ill. App. 3d at 1049. A lawsuit was filed against the defendant, alleging a


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1-07-0526

breach of his fiduciary duty as a real estate broker whereby he allegedly induced plaintiffs to sell

their home at a price grossly below its fair market value to an agent of the defendant, who in turn

resold the property at a substantial profit. United Fire & Casualty, 105 Ill. App. 3d at 1049. The

defendant tendered his demand to defend to United, which denied coverage and refused to

undertake the defense. United then filed a declaratory judgment action seeking a declaration

concerning coverage and its duty to defend under the policy.

        The appellate court in United found the underlying complaint essentially stated one cause

of action, that of intentional fraud, and that the complaint must be read as a whole in order to

assess its true nature. The court further held that since the factual allegations of the complaint

were premised upon only one theory of recovery, that of intentional fraud, and did not fall within

the potential coverage of the insurance policy, United had no duty to defend its insured. United

Fire & Casualty, 105 Ill. App. 3d at 1050.

        Similarly, in the case at bar, because the allegations of the underlying action do not

fall within or potentially within the policy’s coverage, American Family does not owe a duty to

defend defendants in the underlying action.

        Next, defendants contend the policy exclusions for breach of contract or trade secret

infringement should not apply to a cause of action that does not sound in breach of contract or

trade secret infringement. However, as stated above, the underlying complaint has to be read as a

whole in order to assess its true nature, regardless of the label given to characterize its allegations.

Lexmark, 327 Ill. App. 3d at 135-36; United Fire & Casualty, 105 Ill. App. 3d at 1050. The

underlying complaint specifically alleges breach of contract in count III, seeks an injunction based


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upon alleged violations of the Wisconsin Trade Secrets Act in count I, and alleges tortious

interference based upon defendants’ alleged actions of trade secret infringement in counts IV and

V. Therefore, we find the underlying action is based upon a breach of contract and trade secret

infringement.

       Accordingly, the judgment of the circuit court is affirmed.

       Affirmed.

       HOFFMAN, P.J., and HALL, J., concur.




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