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Pennsylvania National Mutual Casualty Insurance Co. v. Beach Mart, Inc.

United States Court of Appeals, Fourth Circuit

August 1, 2019

PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY Plaintiff - Appellee
v.
BEACH MART, INC. Defendant-Appellant and L&L WINGS, INC. Defendant

          Argued: May 7, 2019

          Appeal from the United States District Court for the Eastern District of North Carolina, at Elizabeth City. Terrence W. Boyle, Chief District Judge. (2:14-cv-00008-BO)

         ARGUED:

          Stephen Forest Shaw, WOMBLE BOND DICKINSON (US) LLP, Greensboro, North Carolina, for Appellant.

          Michael Duane Jones, HEDRICK GARDNER KINCHELOE & GAROFALO, LLP, Charlotte, North Carolina, for Appellee.

         ON BRIEF:

          Charles A. Burke, WOMBLE BOND DICKINSON (US) LLP, Raleigh, North Carolina, for Appellant.

          David L. Levy, HEDRICK GARDNER KINCHELOE & GAROFALO, LLP, Charlotte, North Carolina, for Appellee.

          Before KEENAN, WYNN, and FLOYD, Circuit Judges.

          WYNN, CIRCUIT JUDGE:

         In this appeal, Pennsylvania National Mutual Casualty Insurance Company ("Penn National") contends that it has no duty to defend its insured, Beach Mart, Inc. ("Beach Mart"), in an underlying lawsuit against L&L Wings, Inc. ("L&L"). Penn National argues that its duty to defend was eliminated by the "prior publication" exclusions in the insurance policies, which preclude an insured from obtaining coverage for injuries caused to third parties through continuous conduct that began prior to coverage. The district court agreed but for the reasons that follow, we reverse and remand.

         I.

         To resolve this issue of whether Penn National has a duty to defend Beach Mart in the underlying lawsuit against, L&L. we look to: (A) L&L's pleadings in the underlying action, and (B) the insurance policies that Penn National issued to Beach Mart.

         A.

         In September 2011, Beach Mart brought the underlying action against L&L in the United States District Court for the Eastern District of North Carolina to determine who could use the WINGS trademark. L&L answered the complaint and asserted several counterclaims, including claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Beach Mart subsequently amended its complaint, and L&L in turn amended its answer and reasserted its counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing.[1] For purposes of this appeal, the factual allegations supporting L&L's counterclaims and amended counterclaims are taken as true. See, e.g., Bain v. Unitrin Auto & Home Ins. Co., 708 S.E.2d 410, 413 ( N.C. Ct. App. 2011). Those allegations are materially indistinguishable, so we jointly discuss them below.

         L&L and Beach Mart each operate retail stores that sell beach apparel in beachfront communities. Since 1978, L&L has continuously operated and marketed its stores under the WINGS trademark, and in 2008, it registered that mark with the United States Patent and Trademark Office for use in "retail apparel stores; retail clothing stores; [and] retail discount store services in the field of beachwear clothing." J.A. 663.

         Prior to 1995, L&L employed Israel Golassa to work in its retail stores. But on January 1, 1995, Golassa left L&L to found Beach Mart. That same day, L&L and Beach Mart executed a one-year agreement wherein L&L licensed the WINGS mark to Beach Mart for use in two North Carolina stores "to sell beach-related apparel, beach toys, souvenirs and other related items under the WINGS trademark." J.A. 664, 788. At the end of the year, the parties reached an oral understanding that allowed Beach Mart to continue using the mark for an annual fee. That oral licensing agreement continued "for a number of years," but at ...


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