Cases Relating to Advertising and Personal Injury
Coverage for Libel/Slander/Disparagement
Travelers Property Casualty Company of America v. Charlotte Russe Holding, Inc., 207
Call.App.4th 969 (2012)
Hartford Casualty Insurance Company v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
(review granted by the California Supreme Court)
CNA Casualty of California v. Seaboard Surety Company, 176 Cal.App.3d 598 (1986)
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
Barnett v. Fireman’s Fund Ins. Co., 90 Cal.App.4th 500 (2001)
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (N.D. Cal. 2008)
Michael Taylor Designs, Inc. v. Travelers Prop. Cas. Co. of Am., 761 F.Supp.2d 904 (N.D.
Cal. 2011)
****************************************
The following case material was reprinted from WestlawNext with permission of Thomson
Reuters.
January 7, 2014
Travelers Property Casualty Company of America v...., 207 Cal.App.4th 969...
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summary judgment motion in the trial court.
West's Ann.Cal.C.C.P. § 437c(c).
KeyCite Yellow Flag - Negative Treatment
Disagreed With by
Hartford Cas. Ins. Co. v. Swift Distribution, Inc.,
Cal.App. 2 Dist., October 29, 2012
[2]
207 Cal.App.4th 969
Court of Appeal, Second District, Division 1, California.
There is a triable issue of material fact for
purposes of summary judgment if, and only
if, the evidence would allow a reasonable trier
of fact to find the underlying fact in favor of
the party opposing the motion in accordance
with the applicable standard of proof. West's
Ann.Cal.C.C.P. § 437c.
TRAVELERS PROPERTY CASUALTY COMPANY
OF AMERICA, Plaintiff and Respondent,
v.
CHARLOTTE RUSSE HOLDING, INC.,
et al., Defendants and Appellants.
No. B232771. | June 21, 2012.
| Review Denied Sept. 26, 2012.
Synopsis
Background: Insurer brought action against insured, a
clothing retailer, seeking declaratory judgment that there
was no potential for coverage under its commercial
general liability (CGL) policies for claims raised in
manufacturer's action alleging breach of contract, fraudulent
and negligent misrepresentation, and intentional interference
with contractual relationship. The Superior Court, Los
Angeles County, No. BC442597, Robert L. Hess, J., entered
summary judgment in favor or insurer. Insured appealed.
[3]
[4]
In order to carry its burden of proof, a party
moving for summary judgment must first make
a prima facie showing that there is an absence
of an essential element of, or a complete defense
to, the case against it. West's Ann.Cal.C.C.P. §
437c.
[5]
Appeal and Error
Extent of Review Dependent on Nature of
Decision Appealed from
Appellate court independently determines the
legal effect of the documentation underlying a
Judgment
Weight and sufficiency
Judgment
Showing to be made on supporting affidavit
Insurance
Questions of law or fact
The interpretation, construction, and application
of an insurance contract are purely issues of law.
West Headnotes (18)
[1]
Judgment
Absence of issue of fact
An issue of fact becomes one of law for purposes
of summary judgment only if the undisputed
facts leave no room for a reasonable difference
of opinion. West's Ann.Cal.C.C.P. § 437c.
[Holding:] The Court of Appeal, Chaney, J., held that
complaint alleging that insured offered manufacturer's
products for sale at severely discounted prices, resulting in
diminution of the brand, triggered personal injury coverage
for product disparagement.
Reversed.
Judgment
Existence or non-existence of fact issue
[6]
Insurance
In general; standard
A liability insurer's duty to defend arises when
a suit against its insured seeks damages that are
potentially within the policy's coverage.
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[7]
Insurance
Commencement of Duty; Conditions
Precedent
Insurance
In general; standard
A liability insurer has no duty to defend its
insured only if the claim against it cannot, by
any conceivable theory, raise an issue that would
bring it within policy's coverage.
Insurance
Termination of duty; withdrawal
With regard to the duty to defend, the liability
insurer's coverage obligation begins whenever
the insurer becomes aware of facts giving rise to
the potential for coverage, and continues until it
has been established that there is no potential for
coverage.
1 Cases that cite this headnote
[8]
Insurance
Pleadings
1 Cases that cite this headnote
Insurance
Matters beyond pleadings
The duty to defend does not depend on the labels
given to the causes of action in the underlying
claims against the insured; instead it rests on
whether the alleged facts or known extrinsic facts
reveal a possibility that the claim may be covered
by the policy.
[12]
In order to prevail on a liability insurer's motion
for summary judgment based on the absence of
a duty to defend, the insured need only show
that the underlying claim may fall within policy
coverage, and the insurer must prove it cannot;
once the possibility of coverage arises, any doubt
as to whether the facts establish or defeat the
existence of the defense duty must be resolved in
the insured's favor.
1 Cases that cite this headnote
[9]
Insurance
In general; standard
A liability insurer's duty to defend is broader than
its duty to indemnify; it therefore may owe a
duty to defend its insureds even when a trier of
fact might ultimately determine that the policy
does not entitle them to indemnity for the claims
against them.
[10]
Insurance
Matters beyond pleadings
Whether the liability insurer owes a duty to
defend turns not on whether the insured proves
to be actually entitled to be indemnified for
the underlying claim, but only on those facts
known by the insurer at the inception of a third
party lawsuit, along with facts extrinsic to the
complaint that may also reveal a possibility that
the claim may be covered by the policy.
[11]
Insurance
In general; standard
Judgment
Insurance
[13]
Insurance
Defamation or disparagement
Complaint alleging that insured clothing
retailer offered manufacturer's products for
sale at severely discounted prices, resulting
in significant and irreparable damage to
and diminution of the brand and trademark,
damaging its “marketability and saleability,”
triggered commercial general liability (CGL)
policy's personal injury coverage for
“publication of material that slanders or libels a
person or organization or disparages a person's
or organization's goods, products or services,”
and, thus, insurer owed duty to defend; although
complaint did not expressly allege product
disparagement or all the elements of trade libel,
complaint could reasonably be interpreted to
constitute a claim of product disparagement
resulting in damage to brand.
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See 2 Witkin, Summary of Cal. Law (10th ed.
2005) Insurance, §§ 89, 148.
3 Cases that cite this headnote
[14]
Insurance
Defamation or disparagement
In order to trigger personal injury coverage for
“publication of material that slanders or libels a
person or organization or disparages a person's
or organization's goods, products or services,”
it is not essential that the underlying claims be
expressly phrased in terms of “disparagement”
or trade libel; the underlying claims may trigger
a duty to defend if the conduct for which
the policies provide coverage is charged by
implication, as well as by direct accusation.
1 Cases that cite this headnote
[15]
Insurance
Defamation or disparagement
A claim alleging all the elements of a trade libel
cause of action is not a prerequisite to personal
injury coverage for “publication of material that
slanders or libels a person or organization or
disparages a person's or organization's goods,
products or services.”
3 Cases that cite this headnote
[16]
Insurance
Pleadings
Liability insurer's duty to defend is not
conditioned on the sufficiency of the underlying
pleading's allegations of a cause of action; that is
an issue for which the policy entitles the insured
to an insurer-funded defense.
1 Cases that cite this headnote
[17]
Insurance
Matters beyond pleadings
The fact that the liability insurer may know
of a good defense, even an ironclad one, to
the underlying claim does not relieve it of its
obligation to defend its insured.
1 Cases that cite this headnote
[18]
Insurance
Defamation or disparagement
Commercial general liability (CGL) policy
providing personal injury coverage for
“publication of material that slanders or libels a
person or organization or disparages a person's
or organization's goods, products or services”
covers publication of material either that slanders
or libels a person or organization, or that
disparages a person's or organization's goods,
products or services; both are not required.
3 Cases that cite this headnote
Attorneys and Law Firms
**14 Caldwell Leslie & Proctor, Los Angeles, Christopher
G. Caldwell, Andrew Esbenshade and Kelly L. Perigoe for
Defendants and Appellants.
**15 Lewis Brisbois Bisgaard & Smith, Los Angeles, Lane
J. Ashley, Raul L. Martinez and Raquel Vidal for Plaintiff and
Respondent.
Opinion
CHANEY, J.
*971 Plaintiff and respondent, Travelers Property Casualty
Company Of America (Travelers), filed this action for
declaratory relief seeking a *972 determination that there
was no potential for coverage under its policy, and therefore
no duty to defend its insureds, Charlotte Russe Holding,
Inc., Charlotte Russe Merchandising, Inc., David Mussafer,
Jenny J. Ming, Advent International Corp., Advent CR
Holdings, Inc., and Advent CR, Inc. (the Charlotte Russe
parties), in litigation against them by Versatile Entertainment,
Inc., and its parent, People's Liberation, Inc. (collectively
Versatile). The trial court agreed with Travelers, and granted
its motion for summary judgment. We will reverse the
summary judgment.
BACKGROUND 1
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1
Unless otherwise noted, the facts are taken from those
conceded by the parties to be undisputed, and the
documents presented by the parties in connection with
the summary judgment motion.
Underlying lawsuits by Versatile against the Charlotte
Russe parties
The underlying litigation for which the Charlotte Russe
parties sought coverage arises out of pleadings filed by
Versatile in litigation against the Charlotte Russe parties. On
October 26, 2009, certain of the Charlotte Russe parties sued
Versatile alleging claims for fraud, breach of contract, and
restitution. On October 27, 2009, Versatile filed an action
against those parties, alleging causes of action for breach
of contract, declaratory relief, and fraudulent and negligent
misrepresentation. Also on October 27, 2009, Versatile filed
another action against others of the Charlotte Russe parties,
alleging their intentional interference with the contractual
relationship between Versatile and Charlotte Russe. And on
December 23, 2009, Versatile filed a cross-complaint in the
Charlotte Russe parties' action against it. 2
2
Although Travelers' summary judgment motion
identifies four sets of pleadings involving the various
Versatile and Charlotte Russe parties, because they all
contain substantially identical allegations against the
Charlotte Russe parties, we discuss them below without
specific identification or differentiation.
As relevant here, Versatile's pleadings alleged that the
Charlotte Russe parties had contracted in December 2008 to
become the exclusive sales outlet for Versatile's “ ‘People's
Liberation’ ” brand of apparel, which included jeans and
knits. Versatile identified the People's Liberation brand as
a “ ‘premium,’ ” “ ‘high end’ ” brand, claiming that it
had “ ‘invested millions of dollars developing the [People's
Liberation] [b]rand so that it became associated in the
marketplace with high-end casual apparel” which “was
distributed ... exclusively through fine department stores
and boutiques....' ” (Italics omitted.) Versatile alleged that
although Charlotte Russe had never before offered this sort
of apparel for sale “ ‘at a higher price point commanded
by a premium brand such as People's Liberation Brand,’
” (italics omitted) Charlotte Russe had promised to provide
the investment and *973 support necessary to “ ‘promote
the sale of premium brand denim and knit products in order
to encourage [Charlotte Russe's] customers to purchase such
premium products at a higher price point at its [Charlotte
Russe] stores.’ ” (Italics omitted.) Versatile's pleadings went
on to allege that the Charlotte Russe parties had failed
to live up to those representations, however, giving rise
**16 to its allegation of causes of action for breach of
contract, declaratory relief, and fraudulent and negligent
misrepresentation.
Specifically, Versatile alleged, the Charlotte Russe parties
had threatened, and had begun, “ ‘the “fire sale” of People's
Liberation Branded apparel at “close-out” prices.’ ” This sale
of Versatile's premium brand clothing at severe discounts not
only violated the parties' agreement, it alleged, but “will also
certainly result in significant and irreparable damage to and
diminution of the People's Liberation Brand and trademark.”
Versatile sought declaratory relief and damages for its losses
“as a result of Defendants' breaches, including damage to and
diminution of the People's Liberation Brand and trademark
which will certainly result from Defendants' ‘fire sale’ of
People's Liberation Branded goods at ‘close-out’ prices.”
During their later correspondence with Travelers, the
Charlotte Russe parties informed Travelers that Versatile's
discounting claim was factually based on the Charlotte Russe
parties' “ ‘public display of signs in store windows and on
clothing racks announcing that People's Liberation brand
jeans were on sale,’ ” as well as on their “written markdowns on individual People's Liberation clothing items.” And
in connection with Travelers' summary judgment motion, the
Charlotte Russe parties presented evidence of 70 to 85 percent
price markdowns of People's Liberation brand clothing, and
the opinion of an experienced apparel industry expert that
such markdowns and “dramatic price reduction[s], promoted
in such a manner, had the potential to have a disparaging
effect on the People's Liberation brand,” for it suggests to
the consumer that the product—particularly “premium, highend or luxury goods such as the People's Liberation brand
products”—is of an inferior quality.” 3
3
The expert went on to opine: “Decreasing the price
of certain premium or luxury goods (like People's
Liberation brand products) decreases consumers'
preference for buying them because they are no
longer perceived as exclusive/high status products....
“[A] retailer's price reduction disparages the product's
‘worth’—in terms of reputation, panache, and other
modalities of chic—in the eyes of both the market, at
large, and potential purchasers, in specific.”
The relevant Travelers policies
The Charlotte Russe parties were covered by two
consecutive Travelers policies, from September 30, 2008
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to September 30, 2010, providing commercial general
liability coverage. Both policies include “personal injury” and
*974 “advertising injury” liability coverage, with insuring
agreements providing that the insurer has a duty to defend
the insured against any suit seeking damages for “personal
injury” and “advertising injury” claims.
The policies' personal injury coverage applies to “ ‘[p]ersonal
injury’ caused by an offense arising out of your business,
excluding advertising....” Its advertising injury coverage
applies to “ ‘[a]dvertising injury’ caused by an offense
committed in the course of advertising your goods,
products or services; ...” Both provide “broad ‘offensebased’ coverage” for claims alleging injury arising out of
“[o]ral, written, or electronic publication of material that
slanders or libels a person or organization or disparages
a person's or organization's goods, products or services,
provided that claim is made or ‘suit’ is brought by the
person or organization that claims to have been slandered or
libeled, or whose goods, products or services have allegedly
been disparaged; ...” The policies exclude coverage for an “
‘advertising injury’ arising out of a breach of contract.” There
is no **17 similar exclusion for a personal injury arising out
of a breach of contract.
Travelers denies coverage
The Charlotte Russe parties tendered the Versatile actions to
Travelers for a defense on December 24, 2009.
On May 13, 2010, Travelers notified the Charlotte Russe
parties by letter that it was declining to either indemnify
or defend them against the claims asserted by Versatile, on
the ground that there was no potential for coverage. In the
ensuing exchange of correspondence, Charlotte Russe took
the position that Versatile's claims involved disparagement
within the policies' terms, potentially within the policies'
coverage for both personal injury and advertising injury.
Travelers maintained that “coverage was not available under
its Policies because ‘the reduction of a product's price is not ...
a disparagement of that product.’ ”
The coverage litigation and Travelers' motion for
summary judgment
On July 29, 2010, Travelers filed a declaratory relief
action, seeking a determination that it owed no duty to
defend or indemnify the Charlotte Russe parties in the
various underlying actions. The Charlotte Russe parties crosscomplained for declaratory relief, breach of contract, and
breach of the implied covenant of good faith and fair dealing,
alleging that Travelers' denial of a defense under the liability
policies resulted in serious damages.
Travelers moved for summary judgment, contending that
the Charlotte Russe parties would be unable to establish a
potential for coverage under the *975 Travelers' policies.
The motion's key contention was that in order for the
Charlotte Russe parties to be eligible for coverage under
its policies' personal injury or advertising injury provisions,
the claims against them must amount to actionable claims
of trade libel. According to Travelers' motion, “under
established California law, the allegations in the underlying
Versatile litigation against the Charlotte Russe entities must
be compared with the elements of the trade libel tort in
order to properly assess the potential for coverage under the
Travelers' disparagement coverage.” The motion contended
that a cause of action for trade libel or disparagement requires
an allegation of the publication of a false statement and
resulting loss of business, and that Versatile's claims against
the Charlotte Russe parties alleged neither.
Travelers is awarded summary judgment; the Charlotte
Russe parties appeal
The trial court heard Travelers' summary judgment motion on
March 9, 2011, overruling Travelers' objections to certain of
the Charlotte Russe parties' opposing evidence, but granting
Travelers' motion. Judgment was entered in Travelers' favor
on April 22, 2011, and notice of its entry was filed April 29,
2011. The Charlotte Russe parties filed a timely appeal on
May 3, 2011.
DISCUSSION
The critical question in this appeal is whether Versatile's
claims against the Charlotte Russe parties constitute
allegations that the Charlotte Russe parties disparaged its
goods, within the meaning of the Charlotte Russe parties'
coverage under the Travelers' policies. If they do not, there
was no potential for coverage, and Travelers had no duty to
defend.
However, if Versatile's allegations can reasonably be
interpreted to encompass claims that the Charlotte Russe
parties disparaged its goods, within the meaning of the
Travelers' policies, there was a potential **18 for coverage
under the policies' personal injury coverage, and therefore a
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duty to defend the Charlotte Russe parties against Versatile's
claims in the underlying litigation. Because we conclude
that the allegations of the Versatile pleadings could be
reasonably interpreted to allege that the Charlotte Russe
parties disparaged the People's Liberation brand and led
potential purchasers to believe that it was not a “premium,”
“high end” brand, we will reverse the summary judgment.
1. Standard of Review
[1] Summary judgment may be granted only “if all the
papers submitted show that there is no triable issue as to any
material fact and that the moving party *976 is entitled to
a judgment as a matter of law,” eliminating the need for a
trial of the action. (Code Civ. Proc., § 437c, subd. (c); Villa
v. McFerren (1995) 35 Cal.App.4th 733, 741, 41 Cal.Rptr.2d
719.) This court independently determines the legal effect of
the documentation underlying the summary judgment motion
in the trial court. (Villa v. McFerren, supra, 35 Cal.App.4th
at p. 741, 41 Cal.Rptr.2d 719.)
2. Versatile's claims give rise to a potential for coverage
under the Travelers policy
a. Duty to defend
[6] [7] [8] A liability insurer's duty to defend arises when
a suit against its insured seeks damages that are potentially
within the policy's coverage. (La Jolla Beach & Tennis Club,
Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th 27, 43, 36
Cal.Rptr.2d 100, 884 P.2d 1048.) An insurer has no duty to
defend its insured only if the claim against it cannot, by any
conceivable theory, raise an issue that would bring it within
policy's coverage. (Ibid.) The duty does not depend on the
labels given to the causes of action in the underlying claims
against the insured; “instead it rests on whether the alleged
facts or known extrinsic facts reveal a possibility that the
claim may be covered by the policy.” (Atlantic Mutual Ins.
Co. v. J. Lamb, Inc. (2002) 100 Cal.App.4th 1017, 1034, 123
Cal.Rptr.2d 256 (Atlantic Mutual ).)
[2]
[3] The party moving for summary judgment—
Travelers—bears the burden of showing that there is no
triable issue of material fact, and therefore that it is entitled
to judgment as a matter of law. “There is a triable issue
of material fact if, and only if, the evidence would allow a
reasonable trier of fact to find the underlying fact in favor
of the party opposing the motion in accordance with the
applicable standard of proof.” (Aguilar v. Atlantic Richfield
Co. (2001) 25 Cal.4th 826, 850, 107 Cal.Rptr.2d 841, 24
P.3d 493, fn. omitted.) An issue of fact becomes one of law
only if “the undisputed facts leave no room for a reasonable
difference of opinion.” (Preach v. Monter Rainbow (1993) 12
Cal.App.4th 1441, 1450, 16 Cal.Rptr.2d 320.)
**19 [9] [10] *977 A liability insurer's duty to defend
is broader than its duty to indemnify; it therefore may owe
a duty to defend its insureds even when a trier of fact
might ultimately determine that the policy does not entitle
them to indemnity for the claims against them. (Montrose
Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287,
300, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (Montrose Chemical
).) Whether the insurer owes a duty to defend turns not
on whether the insured proves to be actually entitled to be
indemnified for the underlying claim, but only on “ ‘those
facts known by the insurer at the inception of a third party
lawsuit,’ ” along with facts extrinsic to the complaint that may
also “ ‘reveal a possibility that the claim may be covered by
the policy.’ ” (Id. at p. 295, 24 Cal.Rptr.2d 467, 861 P.2d
[4] [5] In order to carry its burden of proof, a party moving 1153.)
for summary judgment must first make a prima facie showing
that there is an absence of an essential element of, or a
[11]
[12]
The insurer's coverage obligation begins
complete defense to, the case against it. (Aguilar v. Atlantic
whenever the insurer becomes aware of facts giving rise to
Richfield Co., supra, 25 Cal.4th at p. 849, 107 Cal.Rptr.2d
the potential for coverage, and continues until it has been
841, 24 P.3d 493.) Once the defendant has made that prima
established that there is no potential for coverage. (Montrose
facie showing, the burden shifts to the opposing party to show
Chemical, supra, 6 Cal.4th at p. 295, 24 Cal.Rptr.2d 467,
that one or more material facts essential to a cause of action
861 P.2d 1153.) In order to prevail on an insurer's motion for
or defense require trial. (Code Civ. Proc., § 437c, subd. (p)
summary judgment based on the absence of a duty to defend,
(2).) The interpretation, construction, and application of an
“the insured need only show that the underlying claim may
insurance contract are purely issues of law. (Century Transit
fall within policy coverage; the insurer must prove it cannot.”
Systems, Inc. v. American Empire Surplus Lines Ins. Co.
(Id. at p. 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153.) Once the
(1996) 42 Cal.App.4th 121, 125, 49 Cal.Rptr.2d 567.)
possibility of coverage arises, “[a]ny doubt as to whether the
facts establish [or defeat] the existence of the defense duty
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must be resolved in the insured's favor.” (Id. at pp. 299–300,
24 Cal.Rptr.2d 467, 861 P.2d 1153.)
4
4
Whether Versatile would have been entitled to recover
damages encompassing the sorts of losses it alleged to
be incurring as a result of the Charlotte Russe parties'
conduct (i.e., whether their price markdowns actually
disparaged Versatile's products) was not determined,
because the underlying litigation was settled in January
2011.
b. The underlying litigation need not allege all elements
of a cause of action for trade libel in order to trigger
personal injury coverage for product disparagement
1. Coverage may be triggered by implied
allegations of disparaging statements
[13] The Versatile pleadings charged in the underlying
litigation that the Charlotte Russe parties had offered the
People's Liberation products for sale at severely discounted
prices, resulting in “significant and irreparable damage
to and diminution of the People's Liberation Brand and
trademark,” damaging its “marketability and saleability.”
Travelers contends that these allegations of price discounts
do not accuse the Charlotte Russe parties of either product
disparagement or false statements, and therefore that they do
not trigger the policies' personal injury or advertising injury
coverage. 5
5
Travelers has argued that advertising injury coverage
would in any event be unavailable due to the policies'
exclusions for advertising injuries that result from
breaches of contract. The Versatile parties respond
that advertising injury coverage remains potentially
available, because no breach of contract has been
established. We need not address this issue, because (as
in the Atlantic Mutual case) we find potential coverage
under the personal injury provision, to which the breachof-contract exclusion does not apply. (See Atlantic
Mutual, supra, 100 Cal.App.4th at p. 1030, fn. 12, 123
Cal.Rptr.2d 256.)
[14] *978 In order to trigger personal injury coverage it
is not essential that the underlying claims must be expressly
phrased in terms of “ disparagement” or trade libel, **20
however. (Atlantic Mutual, supra, 100 Cal.App.4th at p.
1034, 123 Cal.Rptr.2d 256.) The underlying claims may
trigger a duty to defend if the conduct for which the policies
provide coverage is charged by implication, as well as by
direct accusation.
In the Atlantic Mutual case the policy provided coverage
for the insured's publication of material “ ‘that slanders or
libels a person or organization or disparages a person's
or organization's goods, products or services.... ’ ” (100
Cal.App.4th at p. 1032, 123 Cal.Rptr.2d 256.) The insured
sought coverage for underlying litigation that alleged it had
falsely stated to the plaintiff's customers that the plaintiff's
products were burdened with patents, and that their purchase
of those products would subject them to litigation. (Id. at
pp. 1024, 1034–1035, 123 Cal.Rptr.2d 256.) The question
therefore was whether the underlying litigation's allegations
amounted to claims that the insured had published “matter
derogatory to the plaintiff's title to his property, or its quality,
or to his business in general' ”; if so, it “disparaged” the
product. (Id. at p. 1035, 123 Cal.Rptr.2d 256.)
The court held in Atlantic Mutual that the underlying
litigation came within the policy's personal injury coverage
because it alleged that the insured had published “ ‘matter
derogatory to the plaintiff's title to his property, or its quality,
or to his business in general.’ ” “The plain language of the
Atlantic Mutual policy includes in the definition of ‘personal
injury’ the publication of any oral or written statement that
not only slanders or libels but also one that disparages an
organization or its goods, products, or services. This amounts
to coverage for product disparagement and trade libel as well
as defamation.” (Atlantic Mutual, supra, 100 Cal.App.4th at
p. 1035, 123 Cal.Rptr.2d 256.)
The language of Travelers' policies is the same as that
in Atlantic Mutual, providing coverage for “publication of
material that slanders or libels a person or organization or
disparages a person's or organization's goods, products or
services....” And here, too, the allegation of disparagement
may be implied. The question here, as in Atlantic Mutual,
therefore is not whether the underlying claims expressly
allege that the Charlotte Russe parties disparaged Versatile's
products, but whether the allegations may be understood to
accuse the Charlotte Russe parties of statements and conduct
*979 “that slanders or libels a person or organization or
disparages a person's or organization's goods, products or
services....” 6
6
“[T]the language employed [is] to be regarded ...
according to the sense and meaning under all the
circumstances attending the publication which such
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language may fairly be presumed to have conveyed to
those to whom it was published. So that in such cases
the language is uniformly to be regarded with what has
been its effect, actual or presumed, and its sense is to be
arrived at with the help of the cause and occasion of its
publication.” (Bettner v. Holt (1886) 70 Cal. 270, 274,
11 P. 713.)
2. A claim of trade libel is not a prerequisite
to personal injury coverage for disparagement
[15]
Travelers contends that “disparagement,” in the
insurance context, “refers to the tort of trade libel,” a tort
that requires pleading and proof of a false statement of fact.
According to Travelers, coverage therefore is defeated as a
matter of law by the underlying pleadings' failure to allege “an
injurious false statement disparaging Versatile's products....”
However, Versatile's pleadings alleged that the People's
Liberation brand had been identified in the market as
premium, high-end goods; and that the Charlotte **21 Russe
parties had published prices for the goods implying that they
were not. It therefore pled that the implication carried by the
Charlotte Russe parties' pricing was false. That is enough.
(Atlantic Mutual, supra, 100 Cal.App.4th at pp. 1034–1035,
123 Cal.Rptr.2d 256; Nichols v. Great American Insurance
Companies (1985) 169 Cal.App.3d 766, 774, 215 Cal.Rptr.
416 [statement may constitute product disparagement if
plaintiff pleads facts showing the statements' defamatory
meaning “by innuendo”]; E.piphany, Inc. v. St. Paul Fire &
Marine Ins. Co. (N.D.Cal.2008) 590 F.Supp.2d 1244, 1253–
1254 [insured's claim of superiority of its products necessarily
implied inferiority of competitor's products].)
657.) “The fact that [the insurer] may have known of a good
defense, even an ironclad one, to the [underlying] claim did
not relieve it of its obligation to defend its insured.” (CNA
Casualty of California v. Seaboard Surety Co. (1986) 176
Cal.App.3d 598, 609, fn. 4, 222 Cal.Rptr. 276.) 8
7
The trial court stated during argument that “[t]here is no
trade libel alleged because there is no claim that there
was a false statement.”
8
We do not share Travelers' certainty that a claim of
objective falsity is in all circumstances an essential
element of the tort of trade libel. The cases it cites for
this proposition involve or discuss both disparagement
and trade libel—but none of them hold, in the context
of insurance coverage for disparagement, that the
concepts are interchangeable or inextricably linked.
(E.g., Microtec Research v. Nationwide Mut. Ins. Co.
(9th Cir.1994) 40 F.3d 968, 972; ComputerXpress,
Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1010, 113
Cal.Rptr.2d 625; Polygram Records, Inc. v. Superior
Court (1985) 170 Cal.App.3d 543, 548, 216 Cal.Rptr.
252; Nichols v. Great American Insurance Companies,
supra, 169 Cal.App.3d at p. 773, 215 Cal.Rptr. 416;
Total Call Internat., Inc. v. Peerless Ins. Co. (2010) 181
Cal.App.4th 161–169, 104 Cal.Rptr.3d 319.)
Finally, we cannot rule out the possibility that Versatile's
pleadings could be understood to charge that the dramatic
discounts at which the People's Liberation products were
being sold communicated to potential customers the
implication—false, according to Versatile—that the products
were not (or that the Charlotte Russe parties did not believe
them to be) premium, high-end goods. Arguably, a trade libel
claim might survive under these theories. According to the
comments to the Restatement Second of Torts, the concept
[16] [17] Moreover, even if it were true that Versatile's of trade libel encompasses “a statement in the form of an
claim against the Charlotte Russe parties could not be
opinion, if the statement implies the existence of undisclosed
viable without alleging all the elements of a trade libel
facts that justify the opinion....” (Rest.2d Torts, § 626, com.
cause of action, as Travelers argues and the trial court
c, p. 346; see also Atlantic Mutual, supra, 100 Cal.App.4th
7
at pp. 1024–1025, fn. 3, 123 Cal.Rptr.2d 256 [allegation that
apparently concluded, the result here would be no different.
insured asserted patent carries implication of false statement
The insurer's duty to defend is not conditioned on the
that competitor was infringing patent].)
sufficiency of the underlying pleading's allegations of a
cause of action; that is an issue for which the policy
entitled the Charlotte Russe parties to an insurer-funded
defense. (Montrose Chemical, supra, 6 Cal.4th at p. 298, 24
**22 3. The policy language does not
Cal.Rptr.2d 467, 861 P.2d 1153 [“insurer may not decline to
require pleading or proof of a trade libel tort
defend a suit merely because it is devoid of merit, but instead
must assert appropriate defenses on its insured's behalf in
We find no suggestion in the language of the policy's personal
the underlying action”]; *980 Barnett v. Fireman's Fund
injury coverage that a prerequisite to establishing a potential
Ins. Co. (2001) 90 Cal.App.4th 500, 510, 108 Cal.Rptr.2d
for personal injury coverage for disparagement is that the
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
8
Travelers Property Casualty Company of America v...., 207 Cal.App.4th 969...
144 Cal.Rptr.3d 12, 2012 Daily Journal D.A.R. 9673
accusations against its insured must include all the essential
elements of the trade libel tort (whatever those requirements
may be). Rather, the policy language is inconsistent with that
contention.
[18] The claims asserted by Versatile were sufficient to raise
reasonable inferences that the Charlotte Russe parties had
disparaged the People's Liberation products and brand, within
the meaning of the policy language. As noted above, that
language provides personal injury coverage for “publication
of material that slanders or libels a person or organization
or disparages a person's or organization's goods, products or
services....” (Italics added.) That phraseology makes coverage
for disparagement an alternative to coverage for libelous
materials, not an element of that coverage. Under it, the *981
policy covers publication of material either that slanders or
libels a person or organization, or that disparages a person's
or organization's goods, products or services; both are not
required.
Coverage is triggered under this policy language by a
claim that the insureds published material that disparages
a person's or organization's goods, products or services,
whether trade libel is or is not an element of that claim.
Because the Versatile claims against the Charlotte Russe
parties could reasonably be interpreted to constitute a claim of
product disparagement resulting in damage to their People's
Liberation brand, those claims are sufficient to trigger
Travelers' obligation to provide the Charlotte Russe parties
with a defense. The trial court therefore erred in granting
summary judgment to the contrary.
DISPOSITION
The judgment is reversed. Appellants are awarded their costs
on appeal.
We concur: ROTHSCHILD, Acting P.J. and JOHNSON, J.
CONCLUSION
Parallel Citations
207 Cal.App.4th 969, 2012 Daily Journal D.A.R. 9673
End of Document
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
9
Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
148 Cal.Rptr.3d 679, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329...
Opinion
KeyCite Red Flag - Severe Negative Treatment
Review Granted and Opinion Superseded by
Hartford Cas. Ins. v.
Swift Distribution,
Cal., February 13, 2013
148 Cal.Rptr.3d 679
Review Granted
Previously published at: 210 Cal.App.4th 915
(Cal.Const. art. 6, s 12; Cal. Rules of
Court, Rules 8.500, 8.1105 and 8.1110,
8.1115, 8.1120 and 8.1125)
Court of Appeal, Second
District, Division 3, California.
HARTFORD CASUALTY INSURANCE
COMPANY, Plaintiff and Respondent,
v.
SWIFT DISTRIBUTION, INC. et
al., Defendants and Appellants.
No. B234234. | Oct. 29, 2012.
| Review Granted Feb. 13, 2013.
Synopsis
Background: Liability insurer brought action against insured
for declaratory judgment that insurer had no duty to defend an
underlying action. The Superior Court, Los Angeles County,
No. BC442537, Debre K. Weintraub, J., granted summary
judgment for insurer. Insured appealed.
[Holding:] The Court of Appeal, Kitching, J., held that action
based on advertisements for product that resembled and had
similar name to competitor's product was not within “product
disparagement” coverage.
Affirmed.
Attorneys and Law Firms
*681 Little Reid & Karzai, Eric R. Little, M. Catherine Reid
and Najwa Tarzi Karzai, Irvine, for Defendant and Appellant.
Tressler, David Simantob and Elizabeth L. Musser, Los
Angeles, for Plaintiff and Respondent.
KITCHING, J.
INTRODUCTION
The issue in this appeal is whether the “advertising injury”
provision of an insurance policy required the insurer to
provide a defense for its insured against a claim that
the insured company's advertisements disparaged another
company's products. In this case, Company A advertised its
product, which resembled and had a name similar to the
product sold by Company B. Company A's advertisement,
however, did not identify Company B's product expressly
and did not disparage Company B's product. When Company
B sued, Company A made a demand on its insurer to
defend against that suit under an insurance policy provision
that provided coverage for “advertising injury,” defined as
injury arising out of publication of material that disparaged
a person's or organization's goods, products, or services.
Because the advertisement did not identify Company B's
product, and contained no matter derogatory to Company
B's title to its property, its quality, or its business, no
disparagement occurred. Therefore the insurance policy did
not provide a potential for coverage of this claim for damages
because of advertising injury and the insurer did not owe the
insured a duty to defend.
Specifically, in an underlying action, Gary–Michael Dahl
(Dahl), who manufactured and sold the “Multi–Cart,” sued
Swift Distribution, Inc., dba Ultimate Support Systems, Inc.,
Michael Belitz, and Robin Slaton (Ultimate), for patent
and trademark infringement, unfair competition, dilution of
a famous mark, and misleading advertising arising from
Ultimate's sale of its product, the “Ulti–Cart.” Ultimate
tendered defense of Dahl's action to its insurer, Hartford
Casualty Insurance Company (Hartford), which refused
to defend it in the Dahl action. In a subsequent action
for declaratory relief against Ultimate, Hartford sought a
declaration that it had no duty to defend or indemnify
Ultimate in the Dahl action. The trial court granted Hartford's
motion for summary judgment and Ultimate appeals.
We find that Ultimate's advertisements did not expressly
refer to Dahl's Multi–Cart and did not “disparage” Dahl's
Multi–Cart product or business, and there was no coverage
or potential for coverage for “advertising injury” under the
Hartford insurance policy. Thus Hartford had no duty to
defend Ultimate in the Dahl action, and the trial court
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
1
Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
148 Cal.Rptr.3d 679, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329...
correctly granted summary judgment for Hartford. We affirm
the judgment.
FACTUAL AND PROCEDURAL HISTORY
Hartford issued a liability insurance policy to Swift
Distribution, Inc. dba Ultimate Support Systems for the
period January 29, 2009, to January 29, 2010. The Hartford
policy's insuring agreement stated: “We will pay those sums
that the insured becomes legally obligated to pay as damages
because of ... ‘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 ... ‘personal and advertising
injury’ to which this insurance does not apply.”
While the Hartford complaint was pending, counsel for
Ultimate notified counsel for Hartford that the court in
the Dahl action granted Ultimate's motion for summary
adjudication as to Dahl's two patent infringement claims.
Subsequently counsel for Ultimate notified counsel for
Hartford that the Dahl action had settled.
Hartford and Ultimate filed motions for summary judgment
or in the alternative summary adjudication. The trial court
entered an order granting summary judgment in favor of
Hartford and denying Ultimate's motion. The judgment
entered in favor of Hartford determined that Hartford had
no duty to defend or indemnify Ultimate in the Dahl action.
Ultimate filed a timely notice of appeal.
ISSUE
*682 The policy defined “personal and advertising injury”
in several ways. One definition of “personal and advertising
injury” was “ injury ... arising out of ... [o]ral, written
or electronic publication of material that slanders or libels
a person or organization or disparages a person's or
organization's goods, products or services[.]”
Ultimate claims on appeal that the Dahl action alleged
facts that constituted the potentially covered offense of
disparagement.
On January 26, 2010, Dahl filed an action against Ultimate,
Dahl v. Swift Distribution, Inc. in U.S. District Court, Central
District of California. The Dahl complaint alleged that Dahl
owned a U.S. patent to a “convertible transport cart,” which
he had sold as the “Multi–Cart” collapsible cart since 1997.
The Multi–Cart can be manipulated into eight configurations,
and is used to move music, sound, and video equipment
quickly and easily. The U.S. Patent and Trademark Office
issued a patent to Dahl for the “Multi–Cart” mark. The Dahl
complaint alleged that Ultimate impermissibly manufactured,
marketed, and sold the “Ulti–Cart,” which infringed patents
and trademarks for Dahl's Multi–Cart and diluted Dahl's
trademark. The complaint attached advertisements for the
Ulti–Cart, which do not name the Multi–Cart, Dahl, or any
other products other than the Ulti–Cart.
1. Standard of Review
Any party to an action may move for summary judgment
on a cause of action or defense—a plaintiff contending that
there is no defense to the action, a defendant contending that
the action has no merit. (Code Civ. Proc., § 437c, subd. (a);
Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843,
107 Cal.Rptr.2d 841, 24 P.3d 493 (Aguilar ).)
Ultimate made three demands upon Hartford to defend it the
Dahl action under the Hartford insurance policy. Hartford
denied coverage to Ultimate for the Dahl action and stated
that Hartford had no duty to defend or indemnify Ultimate.
Hartford filed a complaint for declaratory relief against
Ultimate seeking a declaration that it had no duty to defend
or indemnify Ultimate in the Dahl action.
DISCUSSION
The party moving for summary judgment bears the burden of
persuasion that there is no triable issue of material fact and
that it is entitled to judgment as a matter of law. A triable
issue of material fact exists only if the evidence would allow
a reasonable trier of fact to find the underlying fact in favor
of the party opposing the motion. (Aguilar, supra, 25 Cal.4th
at p. 850, 107 Cal.Rptr.2d 841, 24 P.3d 493.) “[I]f a plaintiff
who would bear the burden of proof by a preponderance
of evidence at trial moves for summary judgment, he must
present evidence that would require *683 a reasonable trier
of fact to find any underlying material fact more likely than
not.” (Id. at p. 845, 107 Cal.Rptr.2d 841, 24 P.3d 493.)
A plaintiff moving for summary judgment has met its burden
of showing that there is no defense to a cause of action if it
has proved each element of the cause of action entitling it to
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2
Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
148 Cal.Rptr.3d 679, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329...
judgment on that cause of action. Once the plaintiff has met
that burden, the burden shifts to the defendant to show the
existence of a triable issue of one or more material facts as to
that cause of action or a defense thereto. The defendant may
not rely upon the mere allegations or denials of its pleadings
to show that a triable issue of material fact exists, but instead
must set forth specific facts showing that a triable issue of
material fact exists as to that cause of action or a defense
thereto. (Code Civ. Proc., § 437c, subd. (p)(1); Aguilar, supra,
25 Cal.4th at p. 849, 107 Cal.Rptr.2d 841, 24 P.3d 493.)
The court must grant the motion if all the papers submitted
show there is no triable issue as to any material fact—that
no issue requires a trial as to any fact that is necessary under
the pleadings and the law—and that the moving party is
entitled to a judgment as a matter of law. (Code Civ. Proc.,
§ 437c, subd. (c); Aguilar, supra, 25 Cal.4th at p. 843, 107
Cal.Rptr.2d 841, 24 P.3d 493.)
2. The Insurer's Duty to Defend Against Third Party
Claims Against the Insured
[1] Liability insurance imposes on the insurer both the
obligation to indemnify the insured against third party claims
covered by the policy and to defend such claims against its
insured by furnishing competent counsel and paying attorney
fees and costs. The duty to defend is generally determined
from all the information available to the insurer when the
defense is tendered, although later developments may also
affect the insurer's duty to defend. (Howard v. American
National Fire Ins. Co. (2010) 187 Cal.App.4th 498, 519–520,
115 Cal.Rptr.3d 42.)
[2] [3] [4] The duty to defend is more broad than the duty
to indemnify. The insurer must indemnify claims covered
by the policy, but must also defend against a suit that
potentially seeks damages within the coverage of the policy.
The potential or possibility of coverage triggers the duty to
defend. (Howard v. American National Fire Ins. Co. supra,
187 Cal.App.4th at p. 520, 115 Cal.Rptr.3d 42.) The duty
to defend arises when the insurer learns of facts giving
rise to the potential for coverage. (New Hampshire Ins. Co.
v. Ridout Roofing Co. (1998) 68 Cal.App.4th 495, 505,
80 Cal.Rptr.2d 286.) A determination whether the insurer
owes a duty to defend is made in the first instance by
comparing allegations of the complaint with policy terms.
Facts outside the complaint may give rise to a duty to defend
when they reveal a possibility that the policy may cover the
claim. (Montrose Chemical Corp. v. Superior Court (1993)
6 Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)
“The duty to defend is determined by reference to the policy,
the complaint, and all facts known to the insurer from any
source.” (Id. at p. 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153,
italics omitted.)
[5] [6] The duty to defend is broad, but not unlimited. The
nature and kinds of risks covered by the policy define its
scope. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th
1, 19, 44 Cal.Rptr.2d 370, 900 P.2d 619.) The insurer need
not defend where extrinsic facts eliminate the potential for
coverage despite allegations in the complaint which suggest
potential liability (ibid.), and where the third party complaint
can by no conceivable theory *684 raise a single issue
which could bring it within the policy coverage. (Montrose
Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 300,
24 Cal.Rptr.2d 467, 861 P.2d 1153.)
In an action seeking declaratory relief on the issue of an
insurer's duty to defend, the insured must prove the existence
of a potential for coverage, i.e. that the policy may provide
coverage of the underlying claim. The insurer, by contrast,
must establish the absence of a potential for coverage; it
must prove that the policy cannot provide coverage of the
underlying claim. (Montrose Chemical Corp. v. Superior
Court, supra, 6 Cal.4th at p. 300, 24 Cal.Rptr.2d 467, 861
P.2d 1153.)
3. Facts Known to Hartford
Ultimate cited specific paragraphs of the Dahl complaint as
containing elements of a claim of disparagement.
Unfair Competition Under the Lanham Act: Dahl's claim
for unfair competition under the Lanham Act (15 U.S.C.
§ 1125(a)) alleged that Ultimate advertised and offered for
sale products that infringed two patents and the “Multi–
Cart” mark owned by Dahl. The Dahl complaint alleged that
Ultimate engaged in this advertising with intent to mislead
the public as to the origin and ownership of rights in Dahl's
mark, and to mislead the public to believe that Ultimate's
products were the same as Dahl's or were authorized by or
related to Dahl. The Dahl complaint alleged that Ultimate's
advertising falsely made it appear that Ultimate designed, or
was authorized to manufacture and sell, Ultimate's infringing
products (the “Ulti–Cart,” whose name and design was nearly
identical to Dahl's “Multi–Cart”), and that Ultimate owned
or had manufacturing rights to the patent and trademarkprotected Multi–Cart.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
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Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
148 Cal.Rptr.3d 679, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329...
Misleading Advertising: In a cause of action for untrue and/
or misleading advertising, the Dahl complaint alleged that
Ultimate violated Business and Professions Code sections
17500 and 17505 by falsely claiming to be the manufacturer,
wholesaler, or importer, or to own or control the intellectual
property, factory, or other source of supply, of the Multi–
Cart and Dahl's mark. This cause of action alleged that these
violations caused Dahl's potential clients to contact Ultimate
to buy its infringing product. It further alleged that through the
false designation of origin, Dahl's intellectual property, mark,
and patents were being inaccurately associated with Ultimate.
Allegations in Dahl's Application for a Temporary
Restraining Order: Dahl's application for a temporary
restraining order alleged: (1) that Ultimate marketed a knockoff of Dahl's “Multi–Cart,” and by dropping the “M” from
“Multi–Cart,” adopted a nearly identical name for its cart
that created a likelihood of confusion with Dahl's “Multi–
Cart” trademark; (2) that Ultimate's use of a near-identical
mark was detrimental to Dahl's trade reputation and goodwill;
(3) that if not enjoined by the court, Ultimate's use of the
confusingly similar “Ulti–Cart” mark would cause confusion
in the public and loss of sales and customers to Dahl; (4)
that the infringing “Ulti–Cart” mark would be used to Dahl's
detriment since he would have no control over the nature and
quality of Ultimate's carts; (5) that any fault with those goods
would adversely affect Dahl's future sales and would tarnish
his name and reputation; (6) that industry and the consuming
public recognized the “Multi–Cart” mark as associated with
Dahl and as having a reputation for high quality and the
patented design Dahl invented; and (7) that Ultimate's use
of the “Ulti–Cart” mark and name would cause confusion or
mistake, or *685 would deceive the public as to the source
of Ultimate's goods and services.
Dahl also responded to Ultimate's second set of
interrogatories in the Dahl action. Dahl's responses
essentially repeat the allegations of the complaint.
4. Ultimate's Advertisements Did Not Disparage Dahl's
Multi–Cart and Thus There Was No Coverage or Potential
for Coverage for Advertising Injury Under the Hartford
Insurance Policy
[7] To determine whether Hartford owes a duty to defend, we
compare allegations of the Dahl complaint, Dahl's application
for a temporary restraining order, and Dahl's responses to
interrogatories to the terms of the Hartford insurance policy.
The Hartford policy provided insurance coverage for “
‘personal and advertising injury’ caused by an offense arising
out of your business[.]” The policy defined “personal and
advertising injury” to include “injury ... arising out of ...
[o]ral, written or electronic publication of material that
slanders or libels a person or organization or disparages a
person's or organization's goods, products or services.”
[8] This provision provides coverage for product
disparagement, which is “an injurious falsehood directed
at the organization or products, goods, or services of
another....” (Atlantic Mutual Ins. Co. v. J. Lamb, Inc. (2002)
100 Cal.App.4th 1017, 1035, 123 Cal.Rptr.2d 256 (Atlantic
Mutual ).) Disparagement, or injurious falsehood, may
consist of publication of matter derogatory to plaintiff's title
to his property, its quality, or his business. (Ibid.) Tortious
product disparagement involves publication to third parties
of a false statement that injures the plaintiff by derogating
the quality of goods or services. (Total Call Internat., Inc.
v. Peerless Ins. Co. (2010) 181 Cal.App.4th 161, 169, 104
Cal.Rptr.3d 319.)
[9] The injurious falsehood must specifically refer to the
derogated property, business, goods, product, or services
either by express mention or reference by reasonable
implication. (Total Call Internat., Inc. v. Peerless Ins. Co.,
supra, 181 Cal.App.4th at p. 170, 104 Cal.Rptr.3d 319,
citing Blatty v. New York Times Co. (1986) 42 Cal.3d 1033,
1046, 232 Cal.Rptr. 542, 728 P.2d 1177 [“plaintiff must
allege that ‘the statement at issue either expressly mentions
him or refers to him by reasonable implication.’ ”] ) Dahl's
complaint, application for a temporary restraining order,
and responses to Ultimate's discovery do not allege that
Ultimate's advertisements specifically referred to Dahl by
express mention.
Ultimate argues that Dahl's complaint alleged that Ultimate's
use of “Ulti–Cart,” a name similar to Dahl's “Multi–
Cart,” referred to Dahl and Dahl's product by reasonable
implication. Dahl's complaint primarily alleged that because
of its similarity to Dahl's “Multi–Cart,” Ultimate's use of
the “Ulti–Cart” name misled the public into believing that
Ultimate's products were the same as Dahl's, were approved
by Dahl, or were affiliated with Dahl's “Multi–Cart” products.
Even if the use of “Ulti–Cart” could reasonably imply
a reference to “ Multi–Cart,” however, Ultimate's
advertisement contained no disparagement of “ Multi–Cart.”
As stated, disparagement involves “an injurious falsehood
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4
Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
148 Cal.Rptr.3d 679, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329...
directed at the organization or products, goods, or services
of another....” (atlantic mutual, supra, 100 caL.app.4th at
p. 1035, 123 cAl.rptr.2d 256.) The injurious falsehood or
disparagement may consist of matter derogatory to the
plaintiff's title to his property, its quality, or to his business
in general. (Ibid.) The advertisements for the “ Ulti– *686
Cart” did not include any of these derogations. Ultimate's
advertisements referred only to its own product, the Ulti–Cart,
and did not refer to or disparage Dahl's Multi–Cart. Dahl's
complaint alleged that by using a product name (Ulti–Cart)
that was very similar to Dahl's Multi–Cart product, Ultimate
deceived the public that Ultimate was the originator, designer,
or authorized manufacturer and distributor of its infringing
products. This, however, was not disparagement. (Atlantic
Mutual, supra, 100 Cal.App.4th at p. 1037, 123 Cal.Rptr.2d
256; Truck Ins. Exchange v. Bennett (1997) 53 Cal.App.4th
75, 90, 61 Cal.Rptr.2d 497; see also Microtec Research v.
Nationwide Mut. Ins. Co. (9th Cir.1994) 40 F.3d 968, 971–
972.) Because Dahl did not allege that Ultimate's publication
disparaged Dahl's organization, products, goods, or services,
Dahl was precluded from recovery on a disparagement theory.
(Nichols v. Great American Ins. Companies (1985) 169
Cal.App.3d 766, 774, 215 Cal.Rptr. 416.) Thus Dahl alleged
no claim for injurious false statement or disparagement that
was potentially within the scope of the Hartford policy
coverage for advertising injury.
5. Cases Cited to Show Disparagement by Implication Do
Not Apply
A. Travelers Property Casualty Co. of America v.
Charlotte Russe Holding, Inc.
The parties have cited the recent case of Travelers Property
Casualty Co. of America v. Charlotte Russe Holding, Inc.
(2012) 207 Cal.App.4th 969, 144 Cal.Rptr.3d 12 (Charlotte
Russe ). In Charlotte Russe, the manufacturer of “People's
Liberation” brand apparel sued the insured retailer. The
manufacturer claimed that the retailer, which had contracted
to become the exclusive sales outlet for People's Liberation
apparel, breached its contract and damaged the People's
Liberation brand and trademark by marking down prices
for the apparel. This advertising allegedly suggested to
consumers that People's Liberation products were of inferior
quality. (Id. at pp. 972–973, 144 Cal.Rptr.3d 12.) Charlotte
Russe held that the allegations in the complaint could
reasonably be interpreted to allege that the insured retailer
disparaged the People's Liberation brand, and that the
advertising injury provision of an insurance policy provided
coverage of, and the insurer had a duty to defend the insured
against, this claim of disparagement. (Id. at p. 981, 144
Cal.Rptr.3d 12.) We disagree. As discussed below, we believe
such a conclusion has no objectively reasonable basis.
As a preliminary manner, we observe that the allegations in
the Dahl complaint about Ultimate do not correspond to the
facts in Charlotte Russe. The Dahl complaint did not allege
that Ultimate implied, by steeply discounted pricing, that the
Multi–Cart was of poor quality. Unlike in Charlotte Russe,
Ultimate's advertisements referred only to its own product,
and did not refer to and therefore did not disparage Dahl's
product.
[10] More importantly, we disagree with the theory of
disparagement apparently recognized in Charlotte Russe.
There the manufacturer alleged that the People's Liberation
brand was identified in the market as premium, high-end
goods but the retailer's steeply discounted prices implied
that those products were not premium, high-end goods. The
manufacturer “therefore pled that the implication carried by
the [retailer's] pricing was false.” (Charlotte Russe, supra,
207 Cal.App.4th at p. 979, 144 Cal.Rptr.3d 12.) In spite of
the requirements that there be a publication (Shanahan v.
State Farm General Ins. Co. (2011) 193 Cal.App.4th 780,
789, 122 Cal.Rptr.3d 572) that specifically refers *687 to
the plaintiff (Total Call Internat., Inc. v. Peerless Ins. Co.,
supra, 181 Cal.App.4th at p. 170, 104 Cal.Rptr.3d 319),
Charlotte Russe held that this reduced pricing was enough
to constitute disparagement, which triggered the duty to
defend. We fail to see how a reduction in price—even a
steep reduction in price—constitutes disparagement. 1 Sellers
reduce prices because of competition from other sellers,
surplus inventory, the necessity to reduce stock because of
the loss of a lease, changing store location, or going out
of business, and because of many other legitimate business
reasons. Reducing the price of goods, without more, cannot
constitute a disparagement; a price reduction is not “an
injurious falsehood directed at the organization or products,
goods, or services of another....” (Atlantic Mutual, supra,
100 Cal.App.4th at p. 1035, 123 Cal.Rptr.2d 256.) A price
reduction may allegedly be injurious to the brand or its highend, high-quality reputation, but it is not false and is thus not
disparagement. Such an “injury” is a common experience in
the everyday world of free market competition.
1
The manufacturer in Charlotte Russe may well have
had a breach of contract claim against the retailer, but
that is not relevant to the issue before us, which is the
viability of the manufacturer's claim that the retailer's
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5
Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
148 Cal.Rptr.3d 679, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329...
price competition activity constituted disparagement of
the manufacturer's product for purposes of determining
insurance coverage. Even though there may be a valid
cause of action against an insured, that does not give rise
to an insurer's duty to defend and indemnify unless the
suit potentially seeks damages within the coverage of the
insurance policy.
We also question whether the insured could have objectively
reasonable expectations (Bank of the West v. Superior Court
(1992) 2 Cal.4th 1254, 1265, 10 Cal.Rptr.2d 538, 833 P.2d
545) that the insurer would provide a defense and indemnity
coverage for a claim made against the insured for placing
goods on sale at a reduced price. The insurance policy in
Charlotte Russe provided coverage for “ ‘publication of
material that slanders or libels a person or organization or
disparages a person's or organization's goods, products or
services.’ ” (Charlotte Russe, supra, 207 Cal.App.4th at p.
978, 144 Cal.Rptr.3d 12, italics added.) As we have already
noted, there was neither a publication nor a specific reference
to the manufacturer's products. For these reasons, we reject
the analysis of Charlotte Russe.
B. Federal and Out–of–State Decisions
Ultimate cites a series of cases from federal courts and
from the courts of other states. These cases do not bind
California courts. (Nagel v. Twin Laboratories, Inc. (2003)
109 Cal.App.4th 39, 55, 134 Cal.Rptr.2d 420; US Ecology,
Inc. v. State of California (2005) 129 Cal.App.4th 887, 905,
28 Cal.Rptr.3d 894.) These cases are also distinguishable or
inapplicable.
In Acme United Corp. v. St. Paul Fire & Marine Ins. Co. (7th
Cir.2007) 214 Fed.Appx. 596, a competitor sued Acme for
allegedly making false and disparaging statements about the
competitor's products by stating on its product packaging that
its scissors and paper trimmers were bonded with titanium,
which made them superior to stainless steel scissors and
paper trimmers which were not bonded with titanium. Acme's
insurer denied coverage and disclaimed any duty to defend
under the advertising injury liability provision of the policy,
which indemnified the insured for damages for advertising
that disparaged the products of others. (Id. at pp. 596–598.)
Acme United Corp. concluded that the competitor's complaint
sufficiently alleged that Acme's advertisements were directed
at *688 the competitor's products and that Acme disparaged
the competitor's products through a false comparison. These
allegations of advertising injury offense triggered the insurer's
duty to defend Acme against the competitor's complaint. (Id.
at pp. 600–601.) Dahl's complaint, by contrast, does not allege
that Ultimate's advertisements falsely compared the Ulti–Cart
to Dahl's Multi–Cart. Thus Dahl's complaint did not allege
the disparagement by false comparison that occurred in Acme
United Corp.
In Liberty Mut. Ins. Co. v. OSI Industries (2005) 831 N.E.2d
192, Thermodyne sued OSI and Beltec for advertising and
selling a “Temperfect Oven,” which contained flat aluminum
plate shelving that Thermodyne claimed was unique and a
trade secret. Thermodyne's lawsuit alleged that through an
agent's statements, OSI and Beltec claimed ownership of the
development of the Thermodyne oven and its flat aluminum
plate shelving technology, which disparaged the Thermodyne
Oven by creating confusion about which company, OSI/
Beltec or Thermodyne, had the rights to and produced an oven
with the unique technology. This triggered the insurer's duty
to defend under the advertising injury provision of the policy.
(Id. at p. 199.) Dahl's complaint does not allege that Ultimate
made statements claiming ownership of unique technology of
the Multi–Cart or that Ultimate had the rights to and produced
the Multi–Cart. Thus Dahl's complaint did not allege the
disparagement by assertion of ownership of rights to another's
product that occurred in Liberty Mut. Ins. Co.
Ultimate cites E.piphany, Inc. v. St. Paul Fire & Marine Ins.
Co. (N.D.Cal.2008) 590 F.Supp.2d 1244 for the proposition
that disparagement by implication is actionable under
California law. (Id. at p. 1252.) In E.piphany Inc., Sigma
sued E.piphany, alleging that E.piphany falsely advertised
its software products as “all Java” and “fully J2EE,” which
gave its products an unfair and undeserved advantage over
Sigma and other competitors which in fact did offer “all
Java” and “fully J2EE” software. (Id. at pp. 1249–1250.)
E.piphany sued its insurer seeking a declaration that the
insurer had a duty to defend. E.piphany, Inc. found that
Sigma's complaint alleged that E.piphany falsely stated that it
was the only producer of “all Java” “fully J2EE” software and
that E.piphany suggested that its competitors' technology was
behind E.piphany's technology. Thus the Sigma complaint
alleged that E.piphany's false claims about the superiority of
its own products necessarily implied the inferiority of Sigma's
competing products. (Id. at p. 1253.) E.piphany Inc. held that
the Sigma complaint contained disparagement allegations
potentially covered by the insurer's policy and thus triggered
the insurer's duty to defend. (Id. at p. 1254.)
As we have explained, the Dahl complaint did not allege
that Ultimate disparaged Dahl's products by implication.
The Dahl complaint contained no allegations that Ultimate's
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6
Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
148 Cal.Rptr.3d 679, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329...
advertising falsely stated it was the only producer of a
product with features also available on Dahl's “Multi–Cart;”
that Ultimate's advertising suggested that its competitor's
technology was behind that of Ultimate; or that Ultimate
made false claims about the superiority of the Ulti–Cart
which necessarily implied the inferiority of Dahl's competing
product. Ultimate's advertisements did not disparage
another's product, either expressly or by implication; they said
nothing about a competitor's product.
In Michael Taylor Designs, Inc. v. Travelers Prop. Cas. Co.
of America (N.D.Cal.2011) 761 F.Supp.2d 904, a furniture
manufacturer, Ivy Rosequist, sued *689 Michael Taylor
Designs, Inc. (MTD) for breach of contract and violation of
the Lanham Act. Rosequist's complaint alleged that MTD
distributed promotional materials containing photographs of
Rosequist's furniture, but displayed cheap, synthetic knockoffs of Rosequist's products in its showroom, which misled
and confused customers about the origin of those products
and diluted and tarnished Rosequist's trade dress. (Id. at pp.
907–908.) MTD sued the insurer seeking a declaration that
the insurer had a duty to defend the trade dress infringement
claim alleged in the original complaint.
The issue was whether the Rosequist complaint contained a
claim for “disparagement” under the policy, which promised
coverage where the insured “disparaged” the another's goods,
products, or services. (Id. at p. 910.) Rosequist's complaint
created a possibility of a covered claim for disparagement
by alleging that defendant advertised Rosequist's products,
did not sell Rosequist's products, and “steered” customers
to imitation products. The term “steered” implied further
statements by defendant's personnel that the imitation
products were the Rosequist furniture shown in defendant's
promotional materials. (Id. at pp. 911–912.)
The Dahl complaint alleges no comparable conduct by
Ultimate. It does not allege that Ultimate displayed photos of
the Multi–Cart in advertisements and then steered customers
to purchase the Ulti–Cart, or led customers to believe the
Ulti–Cart was Dahl's own product. Thus even under the
analysis of Michael Taylor Designs, Inc., the Dahl complaint
did not allege disparagement and did not create a possibility
of coverage under the advertising injury provision of the
Hartford insurance policy.
Finally, Ultimate cites Burgett, Inc. v. American Zurich
Ins. Co. (E.D.Cal.2011) 830 F.Supp.2d 953 as clarifying
an insurer's duty to defend a claim of disparagement by
implication. In Burgett, Persis International and Richards
(Persis) sued Burgett for falsely representing to another
company, Samick, that it had valid and enforceable rights
to the “SOHMER” trademark, which Persis alleged that
it owned. The Persis complaint alleged that by entering
into a licensing agreement with and accepting compensation
from Samick, and by holding itself out to Samick and the
world as rightful owner of the SOHMER trademark, Burgett
induced and was contributorily liable for Samick's acts of
trademark infringement and unfair competition. Burgett's
insurer, Zurich, declined to defend Burgett in the Persis
action, asserting that the personal and advertising injury
provision did not provide coverage and that the trademark
exclusion excused Zurich from defending the action. (Id. at
pp. 957–958.)
The Burgett court found that Burgett represented to Samick
that it was the only holder of the SOHMER trademark (which
implied that Burgett's right to use the SOHMER trademark
was superior to that of Persis), represented that Persis did
not have the rights to the SOHMER trademark, and created a
likelihood of confusion or misunderstanding about the source,
sponsorship, or approval of Persis's goods. Burgett held
that the Persis complaint alleged sufficient facts to establish
the potential for coverage of its claim of disparagement by
implication, which triggered Zurich's duty to defend Burgett
in the Persis action. (Id. at pp. 963–964.)
The Dahl complaint, by contrast, did not allege that Ultimate
represented itself as the only holder of the Multi–Cart
trademark, implied that Ultimate had a right to use the
Multi–Cart trademark that was superior to that of Dahl, or
represented that Dahl did not have rights to the Multi– *690
Cart trademark. Thus the Dahl complaint did not allege
disparagement by implication, and no potential for coverage
triggered Hartford's duty to defend Ultimate in the Dahl
action.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to
plaintiff Hartford Casualty Insurance Company.
We concur: KLEIN, P.J., and CROSKEY, J.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
7
Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012)
148 Cal.Rptr.3d 679, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329...
Parallel Citations
, 105 U.S.P.Q.2d 1389, 12 Cal. Daily Op. Serv. 12,329, 2012
Daily Journal D.A.R. 15,041
End of Document
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
8
CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
KeyCite Yellow Flag - Negative Treatment
Declined to Follow by
Curtis Universal, Inc. v. Sheboygan Emergency
Medical Services, Inc.,
E.D.Wis., February 22, 1994
receive its attorney fees incurred in bringing the contribution
action. (Opinion by Barry-Deal, J., with Scott, Acting P. J.,
and Merrill, J., concurring.)
HEADNOTES
176 Cal.App.3d 598, 222 Cal.Rptr. 276
Classified to California Digest of Official Reports
CNA CASUALTY OF CALIFORNIA,
Plaintiff and Appellant,
v.
SEABOARD SURETY COMPANY
et al., Defendants and Appellants.
No. A021608.
Court of Appeal, First District, Division 3, California.
Jan 14, 1986.
SUMMARY
The trial court entered a judgment ordering three insurers,
under principles of equitable contribution, to pay plaintiff
insurer a portion of the legal expenses it incurred in
defending a lawsuit against their insured, which defendants
had declined. Defendants argued that their insurance policies
did not provide coverage for any of the causes of action
alleged in the underlying antitrust complaint against the
insured. Defendants appealed, and plaintiff cross-appealed,
contending that the trial court's method of apportioning the
parties' individual contributions to the costs of defense was
not equitable. (Superior Court of the City and County of San
Francisco, No. 761572, Frank W. Shaw, Jr., Judge.)
The Court of Appeal affirmed, applying the rule that an
insurer's duty to defend must be analyzed and determined on
the basis of any potential liability arising from facts available
to the insurer from the complaint or other sources available to
it at the time of the tender of defense, and that the obligation
to defend is not dependent on the facts contained in the
complaint alone. Looking to the facts alleged in the complaint
against the insured, rather than the formal theory of liability
or cause of action pleaded, the court held that those facts gave
rise to the potential of liability under defendants' policies, and
they therefore bore the duty to defend the insured. The court
rejected the contention that certain limitations and exclusions
in their respective policies entitled defendants to refuse to
defend the action. The court also held the trial court properly
apportioned the costs of defense among the four insurers
on the basis of the relative limits of coverage set by their
respective policies, and that plaintiff was not entitled to
(1)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Scope.
An insurer's duty to defend its insured is much broader than
the duty to indemnify. The duty to defend must be analyzed
and determined on the basis of any potential liability arising
from facts available to the insurer from the complaint or other
sources available to it at the time of the tender of defense.
If the insurer is obliged to take up the defense, it must do
so as soon as possible, both to protect the interests of the
insured and to limit its own exposure to loss. Unlike the duty
to indemnify, which is only determined after liability is finally
established, the duty to defend must be assessed at the outset
of the case.
[See Cal.Jur.3d, Insurance Contracts and Coverage, § 415;
Am.Jur.2d, Insurance, § 1405 et seq.]
(2)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Determination.
An insurer's obligation to defend its insured is not dependent
on the facts contained in the complaint against the insured
alone; the insurer must furnish a defense when it learns of
facts from any source that create the potential of liability
under its policy. The duty to defend is so broad that as long
as the complaint contains language creating the potential of
liability under an insurance policy, the insurer must defend
an action against its insured, even though it has independent
knowledge of facts not in the pleadings that establish that the
claim is not covered.
(3)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Particular Policies.
Under insurance policies requiring an insurer to defend its
insured in any suit alleging an injury under the policy even if
the suit is “... groundless, false or fraudulent,” it is the duty
of the insurer to defend the insured when sued in any action
or the facts alleged in the complaint support a recovery for
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1
CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
an occurrence covered by the policy, regardless of the fact
that the insurer has knowledge that the injury is not in fact
covered.
All insurer may not decline a defense of its insured based on in
exclusion in the policy where the application of the exclusion
is only a possibility.
(4a, 4b)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured--Face of Complaint--Antitrust Action--Other
Bases of Liability.
General liability insurers for a regional clearing house for a
credit card system had a duty to defend their insured in a
lawsuit by a competitor entitled “antitrust,” even though an
antitrust defense was not within the coverage of the policies,
where the facts alleged in the complaint gave rise to the
potential of liability under the policies' provisions covering
piracy, unfair competition, idea misappropriation, libel,
slander, and other defamation, and malicious prosecution.
When there is doubt as to whether the duty to defend exists,
the doubt must be resolved in favor of the insured. The
fact the antitrust action against the insured was ultimately
dismissed on statute of limitations grounds was immaterial to
the insurer's duty to defend, as was the dismissal of another
cause of action for lack of federal subject-matter jurisdiction.
(8)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Exclusions.
An exclusion in a general liability policy was ambiguous on
its face and thus inapplicable, where it excluded coverage
for “any claim or suit based upon or arising out of alleged
false, misleading, deceptive, fraudulent or misrepresenting
advertising or any claim of suit for unfair competition
based thereon,” but where the exclusion appeared to exclude
coverage for virtually any claim made under the policy, which
purported to provide indemnification for damages resulting
from libel, slander, defamation, piracy, unfair competition,
or idea misappropriation committed or alleged to have been
committed in an advertising context. Any ambiguity in an
exclusionary clause is strictly interpreted against the insurer,
and reasonable doubts as to uncertain language must be
resolved in favor of the insured.
(5)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Rejection of Tender.
Before an insurer may rightfully reject a tender of defense
from its insured, it must investigate and evaluate the facts
expressed or implied in the third party complaint as well as
those which it learns from its insured and any other sources.
Failure to do so bars the insured from denying the tendered
defense.
(6)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Determination.
All insurer's duty to defend its insured must be determined
from the fact and inferences known to the insurer from the
pleadings, available information and its own investigation at
the time of the tender of defense, and cannot be adjudged on
the basis of hindsight.
(7)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Exclusion.
(9)
Insurance Contracts and Coverage § 132--Actions--Trial-Questions of Law and Fact--Material Concealment.
The issue of whether an insured committed a “material
concealment” under Ins. Code, § 330 et seq., is a question
of fact to be decided by the trial court on the basis of the
evidence.
(10)
Insurance Contracts and Coverage § 139--Actions--New Trial
and Appeal--Judicial Review.
On appeal in an insurance action, the judgment must be
upheld if it is supported by any substantial evidence, even
if it is against the weight of other contradictory evidence.
An appellate court must examine the record in the light
most favorable to the prevailing party, giving it the benefit
of every reasonable inference, and resolving all conflicts in
support of the judgment. Where evidence is undisputed, but
different inferences may be drawn therefrom, the appellate
court is not at liberty to make its own inferences and decide
the case accordingly; the conclusions of the trial judge
must be accepted, since it is for the trier of fact to resolve
such conflicting inferences in the absence of a rule of law
specifying the inference to be drawn.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
2
CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
(11)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Effect of Denial of Liability.
Where an insurer denies liability to defend its insured under a
policy which it has issued, it waives any claim that the notice
provisions of the policy have not been complied with.
(12)
Appellate Review § 32--Presenting and Preserving Questions
in Trial Court--Failure to Raise Issue.
Although as a general rule issues not properly raised at trial
will not be considered on appeal, an appellate court may, in
its discretion, consider an issue not properly raised in the trial
court if the issue presents a pure question of law on undisputed
evidence regarding either a noncurable defect of substance,
such as lack of jurisdiction of complete failure to state a cause
of action, or a matter affecting the public interest or the due
administration of justice.
(13)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Duration.
An insurer's duty to defend its insured does not cease until the
final determination of the underlying action on appeal.
Insurance Contracts and Coverage § 120--Contribution-Action--Attorney Fees.
An insurer, who prevailed in an action against other insurers
for contribution for costs incurred in defending an insured
whom the other insurers declined to defend, was not entitled
to recover its attorney fees in the contribution action, where,
although the prevailing insurer contended that, since it was
equitably subrogated to the rights of the insured, it should
recover its attorney fees just as the insured assertedly would
have had it sued the other insurers for breach of the covenant
of good faith and fair dealing, the contention was based
entirely on hypotheticals with no foundation in fact. The
prevailing insurer had no contractual relationship with the
other insurers and thus no standing to assert a breach of
the covenant of good faith and fair dealing in its own right,
and thus had no standing to recover its attorney fees in the
contribution action.
COUNSEL
Raymond C. Oleson for Plaintiff and Appellant. *603
Graydon S. Staring, Thomas R. Dean, Gail M. Heckemeyer,
Lillick McHose & Charles, Eric C. Bettelheim, John H.
O'Reilly, Laurene A. Wheeler, Barfield, Barfield, Dryden &
Ruane, Marvin A. Jacobs and Jay R. Mayhall for Defendants
and Appellants.
BARRY-DEAL, J.
(14)
Insurance Contracts and Coverage § 107--Obligation to
Defend Insured-- Multiple Insurers--Apportionment of Costs
of Defense.
Where several insurers were responsible for defending an
insured in a lawsuit, but only one assumed the defense, the
trial court, in an action for contribution by the one insurer
against the others, properly apportioned the costs of defense
on the basis of the relative limits of coverage set by their
respective policies. The costs of defense must be apportioned
on the basis of equitable considerations not found in the
insurers' own contracts, since the insurance companies who
must share the burden do not have any agreements among
themselves. Although in given cases the true scope of an
insured's coverage might not be confined to the liability limits
of a given policy, but may also include the period of time
covered by the policy and the interrelation between the terms
of the policy and the wrongs alleged against the insured by a
claimant, the method of allocation employed by the trial court
was fair and reasonable.
(15)
This appeal raises important issues regarding the extent of the
responsibility of insurance carriers to provide their insured
with a defense. Seaboard Surety Company (Seaboard),
Insurance Company of North America (INA), and Pacific
Indemnity Company (Pacific) (collectively appellants) appeal
from a judgment ordering them under principles of equitable
contribution to pay respondent and cross-appellant CNA
Casualty of California (CNA) a portion of the legal expenses
incurred by CNA in defending a lawsuit against their insured,
Western States Bankcard Association (WSBA). We affirm
the judgment.
Appellants argue that their insurance policies could not be
construed to provide coverage for any of the causes of action
alleged in the underlying antitrust complaint against WSBA,
WSBA had no reasonable expectation of coverage under any
of the subject policies, and they therefore had no duty to
defend WSBA; that particular limitations and exclusions on
the policies entitled appellants to refuse to defend WSBA;
and that WSBA's failure to disclose the underlying claims at
the time it took out the subject insurance policies exonerated
appellants from any obligation to defend WSBA and barred
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3
CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
CNA, as subrogee, from obtaining any contribution for that
defense. In addition, Pacific contends that the evidence failed
to establish that it had issued an insurance policy of the kind
found by the trial court; that it was absolved from any duty
to defend WSBA both by CNA's failure to tender a formal
demand that Pacific share in that defense and by WSBA's
failure to notify Pacific of threats of litigation occurring after
issuance of Pacific's policy; and that CNA was not entitled to
any defense costs incurred after the trial below.
CNA has cross-appealed from the judgment, contending
that the trial court's method of apportioning the parties'
individual contributions to the costs of defense was not
equitable, and that CNA itself was entitled to *604 receive
its own attorneys' fees incurred in this action for equitable
contribution.
I
In 1966, a number of major California banks formed
WSBA to act as the regional clearinghouse for the
Master Charge credit card system. Beginning in 1966
and continuing through 1977, Marsh & McLellan, Inc.,
insurance brokers, obtained for WSBA an extensive insurance
program involving several insurance policies issued by a
number of insurance companies. Among these insurance
companies were appellants. The comprehensive general
liability insurance policy of Pacific covered the period from
1966 to 1969; that of INA was for the period from 1969
to 1975; and CNA picked up the coverage in 1975. The
Seaboard policy, which had a somewhat different focus of
coverage, ran concurrently with the others from January 1967
to October 1977.
On March 21, 1977, Electronic Currency Corporation and
Melvin Salveson filed suit in federal district court against
WSBA, alleging an antitrust cause of action for violation of
the Sherman and Clayton Acts and a second cause of action
for intentional interference with contractual relationships
(Electronic Currency Corporation et al. v. Western States
Bankcard Association et al. (N.D.Cal.) No. C-772077-SW
[the Salveson lawsuit]). An amended complaint was filed on
March 3, 1978. On May 24, 1978, the federal district judge
dismissed the pendent second cause of action for lack of
federal subject matter jurisdiction.
WSBA tendered the defense of the amended complaint to
INA, Pacific, and CNA on July 10, 1978, and to Seaboard
on October 2, 1978. INA, Seaboard and Pacific declined
to undertake WSBA's defense. CNA, however, accepted the
tender of defense. CNA incurred a major portion of defense
costs, amounting to nearly $150,000 as of October 15, 1979.
It then filed the present declaratory relief action on December
18, 1979, seeking contribution from appellants for the costs
incurred in defending WSBA in the federal action.
On May 7, 1981, the federal court granted summary judgment
for WSBA on the remaining antitrust cause of action in
the Salveson lawsuit. Two months later, in July 1981, the
instant action came to trial. On December 30, 1982, the trial
court filed a statement of decision finding that appellants all
had a duty to defend WSBA in the Salveson lawsuit; and
it entered judgment ordering appellants to reimburse CNA
for its post-tender costs of *605 defense in the ratio that
appellants' separate policy limits bear to the total limits of all
four policies.
II
All the appellants join in arguing that the Salveson lawsuit
against WSBA was purely a federal antitrust action, that their
respective insurance policies do not provide coverage for
such an action, and that they therefore had no duty to defend
WSBA. We disagree.
([1])The duty to defend is much broader than the duty to
indemnify. An insurer's duty to defend must be analyzed and
determined on the basis of any potential liability arising from
facts available to the insurer from the complaint or other
sources available to it at the time of the tender of defense. If
the insurer is obliged to take up the defense of its insured, it
must do so as soon as possible, both to protect the interests
of the insured, and to limit its own exposure to loss. Unlike
the duty to indemnify, which is only determined after liability
is finally established, the duty to defend must be assessed at
the outset of the case. ( Gray v. Zurich Insurance Co. (1966)
65 Cal.2d 263, 275-277 [54 Cal.Rptr. 104, 419 P.2d 168];
Central Mutual Ins. Co. v. Del Mar Beach Club Owners Assn.
(1981) 123 Cal.App.3d 916, 927-928 [176 Cal.Rptr. 895];
Fresno Economy Import Used Cars, Inc. v. United States
Fid. & Guar. Co. (1977) 76 Cal.App.3d 272, 278-279 [142
Cal.Rptr. 681]; Mullen v. Glens Falls Ins. Co. (1977) 73
Cal.App.3d 163, 173-174 [140 Cal.Rptr. 605].) Thus, we are
not dealing with the question of whether the insurers were
actually liable to indemnify WSBA for the wrongs alleged
in the Salveson lawsuit, but rather with their duty to defend
WSBA against Salveson's claims as of the time that lawsuit
was filed. This distinction is critical. 1 *606
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CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
1
“The duty to defend is, of course, broader than the duty
to indemnify. [Citation.] Where there is doubt as to
whether the duty to defend exists, the doubt should be
resolved in favor of the insured and against the insurer.
[Citations.] ” ( Eichler Homes, Inc. v. Underwriters at
Lloyd's, London (1965) 238 Cal.App.2d 532, 538 [47
Cal.Rptr. 843].) “The rule is well established that an
insurer's obligation to defend is broader than its duty
to indemnify. [Citations.] The duty of an insurer to
indemnify is determined, measured, and limited by the
terms of the insurance contract [citation], and depends
upon an ultimate adjudication of coverage. [Citation.]
In contrast, the duty of an insurer to defend depends
upon the facts known to the insurer at the inception of
the third party's suit against its insured. 'An insurer ...
bears a duty to defend its insured whenever it ascertains
facts which give rise to the potential of liability under
the policy.' [Citations.]” ( Walters v. Marler (1978)
83 Cal.App.3d 1, 28 [147 Cal.Rptr. 655], italics added
by the Walters court, disapproved on other grounds
in Gray v. Don Miller & Associates, Inc. (1984) 35
Cal.3d 498, 507 [198 Cal.Rptr. 551, 674 P.2d 253,
44 A.L.R.4th 763].) “[T]he duty to defend is broader
than the obligation to indemnify. This results from the
difficulty in determining whether the third party suit falls
within the indemnification coverage before the suit is
resolved. To solve this problem, the courts have imposed
a duty to defend whenever the insurer ascertains facts
which give rise to the possibility or 'potential' of liability
to indemnify [citation].” ( Fresno Economy Import Used
Cars, Inc. v. United States Fid. & Guar. Co., supra., 76
Cal.App.3d at p. 278.)
([2])The insurer's obligation to defend is not dependent on
the facts contained in the complaint alone; the insurer must
furnish a defense when it learns of facts from any source
that create the potential of liability under its policy. ( Gray
v. Zurich Insurance Co., supra., 65 Cal.2d at pp. 275-277;
Giddings v. Industrial Indemnity Co. (1980) 112 Cal.App.3d
213, 217 [169 Cal.Rptr. 278]; Mullen v. Glens Falls Ins. Co.,
supra., 73 Cal.App.3d at pp. 169-170; Fireman's Fund Ins.
Co. v. Chasson (1962) 207 Cal.App.2d 801, 804-805, 807 [24
Cal.Rptr. 726].) Indeed, the duty to defend is so broad that as
long as the complaint contains language creating the potential
of liability under an insurance policy, the insurer must defend
an action against its insured even though it has independent
knowledge of facts not in the pleadings that establish that the
claim is not covered. ( [3])In this case, each of the insurance
policies at issue required the insurer to defend WSBA in any
suit alleging an injury under the respective policy even if the
suit is “'... groundless, false or fraudulent.' Under such a clause
it is the duty of the insurer to defend the insured when sued in
any action where the facts alleged in the complaint support a
recovery for an 'occurrence' covered by the policy, regardless
of the fact that the insurer has knowledge that the injury is not
in fact covered. [Citations.]” ( Remmer v. Glens Falls Indem.
Co. (1956) 140 Cal.App.2d 84, 90 [295 P.2d 19, 57 A.L.R.2d
1379]; see Fireman's Fund Ins. Co. v. Chasson, supra., 207
Cal.App.2d at pp. 805-807.)
In the seminal 1966 case of Gray v. Zurich Insurance
Co., supra., 65 Cal.2d 263, the Supreme Court established
the principles that we must follow in reviewing appellants'
refusal to undertake their insured's defense. As here, the
insurer in Gray argued that it did not need to defend an
action “in which the complaint reveals on its face that the
claimed ... injury does not fall within the indemnification
coverage ....” ( Id., at p. 268, fn. omitted.) In rejecting the
insurer's position, the Supreme Court held that the insurer's
duty is not measured by the technical legal cause of action
pleaded in the underlying third party complaint, but rather
by the potential for liability under the policy's coverage as
revealed by the facts alleged in the complaint or otherwise
known to the insurer. 2 “[Even] if we ... define the *607
duty to defend by measuring the allegations in the [third party
complaint] against the carrier's liability to indemnify, ... the
carrier must defend a suit which potentially seeks damages
within the coverage of the policy .... [¶] Defendant cannot
construct a formal fortress of the third party's pleadings
and retreat behind its walls. The pleadings are malleable,
changeable and amendable .... [C]ourts do not examine only
the pleaded word but the potential liability created by the
suit .... [¶] To restrict the defense obligation of the insurer to
the precise language of the pleading would not only ignore
the thrust of the cases but would create an anomaly for the
insured. Obviously, ... the complainant in the third party
action drafts his [or her]complaint in the broadest terms; he
[or she] may very well stretch the action which lies in only
nonintentional conduct to the dramatic complaint that alleges
intentional misconduct. In light of the likely overstatement of
the complaint and of the plasticity of modern pleading, we
should hardly designate the third party as the arbiter of the
policy's coverage. [¶] Since modern procedural rules focus
on the facts of a case rather than the theory of recovery in
the complaint, the duty to defend should be fixed by the facts
which the insurer learns from the complaint, the insured, or
other sources. An insurer, therefore, bears a duty to defend
its insured whenever it ascertains facts which give rise to the
potential of liability under the policy.” ( Id., at pp. 275-277,
fn. omitted.)
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CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
2
The Supreme Court's decision in Gray is based on
the additional, alternative grounds that the insurer bore
an obligation to defend because the language of the
policy led the insured reasonably to expect such a
defense, and that an exclusionary clause in the policy
purporting to bar defense coverage of claims such as
those alleged in the complaint was ambiguous and not
sufficiently conspicuous, plain and clear. Appellants
attempt to distinguish Gray, arguing that there is no
exclusionary clause at issue in this case, that the principle
of adhesion contracts is not applicable because of the
greater bargaining equality of the parties here, and that
WSBA had no “reasonable expectation” of coverage for
the defense of the Salveson lawsuit under the policies at
issue. We need not address these contentions, however,
because we find that Gray is controlling here on the basis
of its alternative ground that the insurer's duty to defend
arises whenever the insurer ascertains facts which give
rise to the potential of liability under the policy. ( Mullen
v. Glens Falls Ins. Co., supra., 73 Cal.App.3d at p. 172.)
([4a])Looking to the facts alleged in the Salveson complaint
rather than the formal theory of liability or cause of action
pleaded, and bearing in mind that where there is doubt as to
whether the duty to defend exists, the doubt must be resolved
in favor of the insured ( Eichler Homes, Inc. v. Underwriters
at Lloyd's, London, supra., 238 Cal.App.2d at p. 538), we
conclude that those facts “give rise to the potential of liability”
under appellants' policies, and appellants therefore bore the
duty to defend WSBA.
The amended Salveson complaint was filed on March 3,
1978. Although it stated two causes of action, the second,
for “intentional interference” with contractual and business
relationships, was dismissed for lack of federal subject matter
jurisdiction before WSBA tendered the defense of the lawsuit
to appellants in July 1978. The remaining cause of action
was entitled “antitrust.” Appellants focus on this fact, and
on the federal judge's *608 ultimate ruling that the entire
Salveson lawsuit was barred by the federal antitrust statute of
limitations, in arguing that they had no duty to defend WSBA
from an antitrust action which was not within the coverage
of their policies. However, the first cause of action of the
amended Salveson complaint also contained specific factual
allegations in subparagraphs (i), (m), (o) and (q) of paragraph
21 which cannot so easily be discounted. 3
3
The relevant factual allegations of the Salveson amended
complaint are as follows: “[D]efendants have done the
following acts among others: ...
“(i) Knowingly misappropriated, stole and misused
property interests and trade secrets of plaintiffs
respecting their general purpose commercial transaction
card systems ....
“(m) Intentionally issued and caused the issuance of
statements misrepresenting the business, property and
rights possessed by plaintiffs to persons with whom
plaintiffs did business in an effort to disrupt and prevent
the relationships and reasonably anticipated relationships
between plaintiffs and said persons ....
“(o) ... [M]ade intentional misrepresentations of fact to
plaintiffs in an effort to further eliminate the competition
of plaintiffs and for the express purpose of fraudulently
delaying and obstructing plaintiffs' access to legal
remedy ....
“(q) Agreed to file and caused the filing of false,
frivolous and sham counterclaims in this action for
the purpose of punishing plaintiffs and further securing
and maintaining the monopoly position now enjoyed
by defendants in the general purpose commercial
transaction card business ....”
Subparagraphs 21 (i) and (o) charged that WSBA
misappropriated, stole and misused property interests
and trade secrets and made misrepresentations to the
Salveson plaintiffs “in an effort to further eliminate the
competition of plaintiffs.” These charges are arguably within
Seaboard's coverage for piracy, unfair competition and
idea misappropriation, particularly since these terms are
undefined in Seaboard's policy, and must therefore be
construed against the insurance carrier. ( Insurance Co.
of North America v. Sam Harris Constr. Co. (1978) 22
Cal.3d 409, 412-413 [149 Cal.Rptr. 292, 583 P.2d 1335]; 61
Cal.Jur.3d (rev. 1980) Unfair Competition, § 7, pp. 26-28.)
Similarly, Seaboard's unfair competition provision and the
provisions in the INA and Pacific insurance policies for
libel, slander, or other defamatory or disparaging material
potentially covered allegations in subparagraph 21 (m) that
WSBA misrepresented “the business, property and rights
possessed by [the Salveson] plaintiffs to persons with whom
plaintiffs did business in an effort to disrupt and prevent”
the business relationships between those persons and the
plaintiffs. (Civ. Code, § 1770; Gudger v. Manton (1943)
21 Cal.2d 537, 541 [134 P.2d 217], disapproved on other
grounds in Albertson v. Raboff (1956) 46 Cal.2d 375, 381
[295 P.2d 405]; Phillips v. Glazer (1949) 94 Cal.App.2d 673,
677 [211 P.2d 37]; Davis v. Wood (1943) 61 Cal.App.2d 788
[143 P.2d 740]; 6 Cal.Jur.3d (rev. 1973) Assault and Other
Wilful Torts, § 158, pp. 367-370.) Finally, the complaint's
allegation in subparagraph 21 (q) that WSBA filed “false,
frivolous and sham counterclaims” in the Salveson action
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CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
raised at least the possibility *609 of liability under the
malicious prosecution coverage contained in the insurance
policies of INA and Pacific. 4 The trial court did not err in
finding that these factual allegations gave rise to the potential
of WSBA's liability under appellants' respective policies, and
that appellants therefore bore the obligation to defend their
insured, no matter how unmeritorious these claims may have
been.
4
INA argues that this allegation in the Salveson complaint
regarding “false, frivolous and sham counterclaims”
could not possibly be covered by the malicious
prosecution provision in its policy, because any cause
of action for malicious prosecution requires a prior
termination of the earlier proceeding in favor of the
party alleging malicious prosecution. However, when
presented with a tender of a defense, it is not insurer's
place to analyze and evaluate the underlying claim of
liability in order to reject the defense of any claim that
is not meritorious. To the contrary, INA's own policy
provides that it shall have the “duty to defend any
suit against the Insured seeking damages on account of
such ... injury [including injury arising out of a malicious
prosecution] even if any of the allegations of the suit are
groundless, false or fraudulent ....” (Italics added.) The
fact that INA may have known of a good defense, even
an ironclad one, to the malicious prosecution claim did
not relieve it of its obligation to defend its insured.
III
Appellants contend that the federal court's dismissal of the
Salveson complaint's second cause of action for intentional
interference with contractual and business relationships on
grounds of lack of federal subject matter jurisdiction, and
subsequent dismissal of the remainder of the action on
grounds of the antitrust statute of limitations, have collaterally
estopped or otherwise barred CNA from asserting that the
Salveson lawsuit sounded in anything but antitrust, contained
potential common law tort claims covered by appellants'
policies, or could be amended to allege any such causes of
action. The contention is without merit.
The federal court's dismissal of the Salveson lawsuit's second
cause of action in May 1978, prior to the tender of the defense
to appellants, had no effect on appellants' duty to defend
for several reasons. First, the alleged facts which triggered
appellants' obligation to defend were contained within the
first cause of action itself. It makes no difference that for
strategic adversarial reasons this cause of action was labelled
“antitrust”; as established by Gray v. Zurich Insurance Co.,
supra., 65 Cal.2d at pages 275-277, it is not the form or title of
a cause of action that determines the carrier's duty to defend,
but the potential liability suggested by the facts alleged or
otherwise available to the insurer. Since this potential liability
was apparent from the allegations of the first cause of action in
the complaint presented to appellants, it was immaterial that
the second cause of action had already been dismissed. *610
Second, none of the appellants conducted any investigation
into the allegations of the Salveson lawsuit after the tender
of defense. ([5]) “[B]efore an insurer may rightfully reject
a tender of defense, it must investigate and evaluate the
facts expressed or implied in the third party complaint as
well as those which it learns from its insured and any
other sources [citation].” ( Fresno Economy Import Used
Cars, Inc. v. United States Fid. & Guar. Co., supra., 76
Cal.App.3d at pp. 278-279; see also Mullen v. Glens Falls
Ins. Co., supra., 73 Cal.App.3d at pp. 173-174.) Having
utterly failed to investigate their potential liability despite the
facts alleged on the Salveson complaint giving rise to that
potential, appellants were barred from denying their insured
the tendered defense. 5
5
Pacific argues, at some length, that WSBA violated
its duty of good faith and fair dealing by failing to
inform appellants of the dismissal of the pendent second
cause of action for “intentional interference,” and that
CNA is therefore estopped, as subrogee, from arguing
that the carriers should have investigated the Salveson
lawsuit to ascertain if it was covered by their policies.
The contention is meritless. As seen, any such failure
on the part of WSBA could have had no prejudicial
effect on appellants because the allegations giving rise
to the potential liability under appellants' policies were
all contained in the undismissed first cause of action
tendered to them. The dismissal of the “intentional
interference” cause of action simply had no effect on the
potential liability arising from the rest of the Salveson
complaint, and was therefore ultimately immaterial to the
question of appellants' defense obligation.
Third, contrary to appellants' speculative assertion, at the
time of tender appellants had no grounds for concluding
that the Salveson lawsuit was “incapable of amendment” to
set forth explicit causes of action for malicious prosecution,
libel, slander, defamation, disparagement, trade “piracy,”
unfair competition, or idea misappropriation. Appellants'
argument that the federal judge would not have permitted
any amendments is primarily based on hindsight, in light
of the ultimate dismissal of the Salveson lawsuit under the
antitrust statute of limitations. ([6])The duty to defend cannot
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CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
be adjudged on the basis of hindsight. It must be determined
from the facts and inferences known to an insurer from the
pleadings, available information and its own investigations at
the time of the tender of defense. ( Gray v. Zurich Insurance
Co., supra., 65 Cal.2d at pp. 271-272, 275-277; Fresno
Economy Import Used Cars, Inc. v. United States Fid. &
Guar. Co., supra., 76 Cal.App.3d at pp. 278-279; Mullen v.
Glens Falls Ins. Co., supra., 73 Cal.App.3d at pp. 173-174.) 6
*611
6
The case of California Union Ins. Co. v. Club Aquarius,
Inc. (1980) 113 Cal.App.3d 243, 247 [169 Cal.Rptr.
685], on which Pacific relies heavily, is not applicable.
That was an action by an insurer for declaratory relief on
the issue of its obligation to defend, filed after a full trial
on the underlying third party claim and the issuance of
findings of fact making if clear that the lawsuit did not
involve the limited risks set forth in the insurance policy.
Here, appellants never took the step of undertaking the
defense with a reservation of rights and then filing a
declaratory relief action to determine if they were obliged
to defend. The Salveson lawsuit never even reached the
trial stage. The federal court's dismissal of the second
cause of action did not constitute any sort of definitive
finding that WSBA would not be found liable for any
acts actually covered by appellants' insurance policies.
Moreover, even though the insurer received a declaratory
judgment in its favor in California Union Ins. Co v.
Club Aquarius, Inc., it was not retroactively relieved
of its defense obligations; and it continued to have a
defense duty until the declaratory judgment itself was
final on appeal. ( Fireman's Fund Ins. Co. v. Chasson,
supra., 207 Cal.App.2d at p. 807 [“[T]he insurer had
the duty to defend the personal injury actions and ...
the determination in the declaratory relief action of no
liability under the policy did not have the effect of
retroactively relieving the insurer of such duty to defend.
However, once the judgment in the declaratory relief
action becomes final (in this case upon the determination
of this appeal), the insurer's duty to defend such actions
shall cease since the duty to defend does not continue
beyond the final determination that the claim is not
within the coverage of the policy. [Citations.]”].)
At the time of tender, despite the federal court's dismissal of
the pendent second cause of action, the possibility that the
complaint could still be amended had not been precluded.
Federal antitrust complaints are frequently amended
to include causes of action for defamation, malicious
prosecution, trade disparagement, unfair competition or idea
misappropriation. ( Mayview Corp. v. Rodstein (9th Cir.
1980) 620 F.2d 1347, 1349-1350 [62 A.L.R.Fed. 713]; Ernest
W. Hahn, Inc. v. Codding (9th Cir. 1980) 615 F.2d 830,
834; Breier v. Northern California Bowling Proprietors'
Ass'n. (9th Cir. 1963) 316 F.2d 787, 789-791; Star Lines,
Ltd. v. Puerto Rico Maritime Ship. A. (S.D.N.Y. 1978) 442
F.Supp. 1201, 1203-1204; Landon v. Twentieth CenturyFox Film Corporation (S.D.N.Y. 1974) 384 F.Supp. 450,
452; Peerless Dental Supply Co. v. Weber Dental Mfg. Co.
(E.D.Pa. 1969) 299 F.Supp. 331, 332-336.) As stated by
one federal court: “Where antitrust litigation is involved,
allowance of amendments to complaints is perhaps especially
proper for at least two reasons. First, antitrust litigation often
involves complex legal issues and voluminous facts, most
of which are usually in the possession of the defendant.
As a result, it is not unusual that a plaintiff in such case
should find it necessary to adjust his [or her] position and
contentions as the case and its discovery proceed. Second, ...
Congress has determined that private litigation serves a useful
and valuable role in the antitrust field, and the courts if at
all possible should not impair this role of private litigation
by placing unnecessarily strict pleading requirements on the
parties involved. [Citation.]” ( Penn Galvanizing Company v.
Lukens Steel Company (E.D.Pa. 1974) 65 F.R.D. 80, 81.) In
light of this federal policy of liberal amendment of antitrust
lawsuits, appellants could not assume at the time WSBA
tendered defense of the Salveson lawsuit that the federal court
would not permit any amendment to the complaint.
The instant case is remarkably similar to the recent New
York case of Ruder & Finn v. Seaboard Sur. (1981) 52
N.Y.2d 663 [439 N.Y.S.2d 858,422 N.Ed.2d 518]. As in
the instant case, the underlying federal lawsuit against the
insured in Ruder & Finn purported to state a cause of
action in antitrust and based federal jurisdiction on the
Sherman and Clayton antitrust *612 acts. At the same
time, the complaint included allegations that the insured
“unfavorably represented and falsely desparaged [sic]” the
plaintiff's products. The insurance carrier, Seaboard, rejected
its insured's demand that it assume the defense of the
lawsuit. Subsequently, the insured obtained a dismissal of
the federal lawsuit on grounds of lack of subject matter
jurisdiction. The insured then sued Seaboard to recover
expenses incurred in defending the lawsuit. Seaboard argued
that “two solitary, unsubstantiated words” that were part of
a “patently groundless and 'shotgun allegation' in the middle
of ... a completely unrelated federal antitrust cause of action
which was, itself, undisputedly not covered” by Seaboard's
policy could not possibly evoke a duty to defend the insured.
Although the trial court agreed, the New York Court of
Appeals did not. It held that as a result of the allegation
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CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
of “false disparagement,” Seaboard had a duty to defend its
insured under its policy's coverage for defamation and unfair
competition. 7
7
“It is a well-established legal principle that the duty of an
insurer to defend is broader than its duty to pay [citation].
The duty to defend arises whenever the allegations in
the complaint fall within the risk covered by the policy.
It therefore includes the defense of those actions in
which alternative grounds are asserted, even if some
are without the protection purchased. Further, a policy
protects against poorly or incompletely pleaded cases
as well as those artfully drafted. Thus the question is
not whether the complaint can withstand a motion to
dismiss for failure to state a cause of action. Nor is the
insured's ultimate liability a consideration. If, liberally
construed, the claim is within the embrace of the policy,
the insurer must come forward to defend its insured
no matter how groundless, false or baseless the suit
may be [citations] .... [¶] ... While in [the federal] case
the complaint's first cause of action was couched in
terms of restraint of trade, it went on to allege that
those whom it had joined as defendants were engaged
in 'false disparagement'.... These facts, though found
deficient to sustain the Federal antitrust claim, painted a
picture which, had it been established, conceivably could
have subjected defendant's insured and its codefendants
to liability for commercial disparagement. Albeit the
policy speaks in terms of 'defamation' rather than
'disparagement', we find the tort to which it refers
within the scope of the insuring clause's protection. The
conceptual similarities between these torts, the semantic
sameness which laymen might ascribe to them (compare
'defamation' with 'disparagement' as defined in Webster's
Third New International Dictionary) and, again, the rule
of construction resolving ambiguities against the insurer
all support this position. [¶] ... [T]he absence of an
element of a properly pleaded cause of action is of
no moment in determining Seaboard's duty to defend.
For that matter, neither did the fact that there was no
colorable basis for Federal jurisdiction relieve Seaboard
of its obligation. Rather, the latter merely provided the
insurer with what in fact turned out to be a sure-fire
defense in the Federal District Court.” ( Ruder & Finn
v. Seaboard Sur., supra., 52 N.Y.2d at pp. 669-670, 672
[439 N.Y.S.2d at pp. 861-863].)
We find this reasoning persuasive. Indeed, the Salveson
complaint made far more specific factual allegations
potentially covered by the insurance policies at issue here
than the “two words” in the underlying complaint in Ruder
& Finn. ([4b])We therefore hold that the trial court did not
err in finding that the Salveson complaint alleged facts which
gave rise to potential liability covered by the policies of all
three appellants, and that appellants therefore owed a duty to
defend their insured, WSBA. *613
IV
Appellants argue that certain limitations and exclusions in
their respective policies entitle them to refuse to defend
WSBA in the Salveson action. We disagree.
First, INA points to an exclusion in its policy stating that it
does not apply to personal injury arising out of a defamatory
or disparaging publication or utterance, “if the first injurious
publication or utterance of the same or similar material by
or on behalf of the Named Insured [WSBA] was made prior
to the effective date of this insurance ....” INA contends that
because the Salveson lawsuit alleges that WSBA's illegal and
tortious activities began “at a time unknown to plaintiffs but
at least as early as 1966,” and because the effective date of
INA's coverage was in November 1969, any claim set forth
in the complaint potentially within its libel, slander, or “other
defamatory or disparaging material” provisions is excluded.
However, the Salveson complaint merely alleges that
WSBA's entire course of conduct commenced “as early as
1966.” It then proceeds to list a series of alleged wrongful acts
committed by WSBA in 18 paragraphs, without indicating
exactly when any of these specific acts occurred. The
trial court below correctly concluded that “it was unclear
whether the Salveson action would prove that WSBA made
disparaging misrepresentations prior to the 1969 effective
date of the INA coverage. ([7])The spirit of Gray [v. Zurich
Insurance Co., supra., 65 Cal.2d 263] would not be served if
an insurer could decline a defense where the application of an
exclusion was only a possibility.”
Seaboard argues that it was entitled to refuse WSBA's tender
of defense because its policy was limited to coverage of
enumerated wrongful acts “committed or alleged to have
been committed in any advertisement, publicity article,
broadcast or telecast and arising out of the Insured's
advertising activities.” The term “advertising” is not defined
in Seaboard's policy, and therefore must be construed strictly
against the carrier. ( Insurance Co. of North America v.
Sam Harris Constr. Co., supra., 22 Cal.3d at pp. 412-413.)
Even if we accept Seaboard's definition of “advertising”
as “'the action of calling something ... to the attention of
the public especially by means of printed or broadcast paid
announcements ...,”' it is clear that the factual allegations
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CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
wrongdoing.... [T]he statutes 'establish a public policy
to prevent insurance coverage from encouragement of
wilful tort.' ... [I]f an insurer's obligation to pay a
judgment based on wilful conduct results from an
estoppel after the conduct, the obligation could not
have previously encouraged the conduct. Similarly,
the present contract does not offend the statute; a
contract to defend an assured upon mere accusations
of a wilful tort does not encourage such wilful
conduct.” ( Id., at pp. 277-278.) In any event, Seaboard's
obligation to defend WSBA does not arise from the
antitrust charges in the complaint, but rather from the
charges relating to defamation, unfair competition, and
idea misappropriation, as to which Seaboard's policy
expressly agreed to provide a defense.
in the Salveson complaint referred at least potentially to
misrepresentations, defamations and disparagements made
to the public. Part of WSBA's function was to serve as the
advertising arm of its member banks, and the entire question
of the use or misuse of the Mastercard “service mark” was
central to the Salveson lawsuit. Once again, the duty to *614
defend is broader than the duty to indemnify, and Seaboard
was obligated to defend WSBA because the allegations of
the Salveson lawsuit created at least the potential of liability
covered by Seaboard's policy, even though that policy was
limited to advertising. ( Miller v. Elite Ins. Co. (1980) 100
Cal.App.3d 739, 752-753 [161 Cal.Rptr. 322].)
([8])Seaboard also urges that the claims made in the Salveson
complaint were specifically barred by an exclusion in its
policy excluding coverage for “any claim or suit based
upon or arising out of alleged false, misleading, deceptive,
fraudulent or misrepresenting advertising or to any claim
or suit for unfair competition based thereon ....” However,
this exclusion is ambiguous on its face. It would appear to
exclude coverage for virtually any claim made under the
Seaboard policy, which purports to provide indemnification
for damages resulting from libel, slander, defamation, piracy,
unfair competition or idea misappropriation committed or
alleged to have been committed in an advertising context.
Any ambiguity in an exclusionary clause will be strictly
interpreted against the insurer, and reasonable doubts as to
uncertain language must be resolved in favor of the insured. (
Crane v. State Farm Fire & Cas. Co. (1971) 5 Cal.3d 112, 115
[95 Cal.Rptr. 513, 485 P.2d 1129, 48 A.L.R.3d 1089]; Gray
v. Zurich Insurance Co., supra., 65 Cal.2d at pp. 269-274;
Miller v. Elite Ins. Co., supra., 100 Cal.App.3d at p. 751.) A
literal interpretation of the exclusionary clause at issue would
unreasonably restrict the coverage of Seaboard's policy. We
therefore find this exclusionary provision inapplicable to the
facts of this case. 8
8
Citing Insurance Code section 533 and Civil Code
section 1668, which establish a public policy against
insurance coverage or indemnification for liability for
wilful tort, Seaboard argues that “[i]f the Salveson
complaint, as tendered for defense, could by any stretch
of the imagination come within the terms of the Seaboard
advertiser's liability policy, Seaboard would violate the
public policy of this State if it undertook to defend or to
indemnify the accused WSBA.” This precise argument
was made by the insurer in Gray v. Zurich Insurance Co.,
supra., 65 Cal.2d 263, and was there rejected. “In the first
place, the statutes forbid only contracts which indemnify
for 'loss' or 'responsibilityility y y' resulting from wilful
V
All three appellants argue that WSBA concealed material
facts concerning the history of Salveson's dispute with the
banks who were members of *615 WSBA, and that CNA, as
WSBA's subrogee, is therefore estopped under the Insurance
Code from claiming any coverage under appellants' policies,
including any duty to defend. 9
9
The following provisions of the Insurance Code are
relevant: “Neglect to communicate that which a party
knows, and ought to communicate, is concealment.” (Ins.
Code, § 330.)
“Concealment, whether intentional or unintentional,
entitles the injured party to rescind insurance.” (Ins.
Code, § 331.)
“Each party to a contract of insurance shall communicate
to the other, in good faith, all facts within his [or her]
knowledge which are or which he [or she] believes to be
material to the contract and as to which he [or she] makes
no warranty, and which the other has not the means of
ascertaining.” (Ins. Code, § 332.)
“Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due,
in forming his [or her] estimate of the disadvantages
of the proposed contract, or in making his [or her]
inquiries.” (Ins. Code, § 334.)
We have some doubt as to whether CNA, as the sole insurance
company which recognized its obligation to defend WSBA
and which consequently incurred all the cost of defense, can
be saddled with all the defenses appellants may have against
WSBA itself. ( Clemmer v. Hartford Insurance Co. (1978)
22 Cal.3d 865, 876 [151 Cal.Rptr. 285, 587 P.2d 1098];
Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 942-944
[132 Cal.Rptr. 424, 553 P.2d 584]; Barrera v. State Farm
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
10
CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
Mut. Automobile Ins. Co. (1969) 71 Cal.2d 659, 670-673
[79 Cal.Rptr. 106, 456 P.2d 674] [in an action by injured
third party claimant, misrepresentations by the insured held
not to constitute a defense for an insurer who failed to
investigate insurability promptly].) Setting this concern to
one side, however, we conclude that substantial evidence
supports the trial court's finding that there was no material
concealment by WSBA sufficient to void appellants' duties
to defend. Although WSBA did not inform its insurers of
its past disputes with Salveson until after the lawsuit was
filed, the evidence showed that those disputes had actually
been between Salveson and individual banks, for the most
part had occurred prior to the creation of WSBA, and had
been completely resolved by a settlement agreement in March
1967, shortly after WSBA came into existence. Salveson
made no claims or threats against WSBA during the entire
10-year period between his settlement agreement with WSBA
and the filing of the lawsuit in March 1977.
([9])The issue of whether WSBA committed a “material
concealment” under the Insurance Code is a question of
fact to be decided by the trial court on the basis of the
evidence. ( Horn v. Guaranty Chevrolet Motors (1969)
270 Cal.App.2d 477, 482-483 [75 Cal.Rptr. 871]; Joyce
v. United Ins. Co. (1962) 202 Cal.App.2d 654, 662 [21
Cal.Rptr. 361, 17 A.L.R.3d 517]; Olson v. Standard Marine
Ins. Co. (1952) 109 Cal.App.2d 130, 137-138 [240 P.2d
379].) ( [10])On appeal, the judgment must be upheld if it
*616 was supported by any substantial evidence, even if
it is against the weight of other contradictory evidence. (
Campbell v. Southern Pacific Co. (1978) 22 Cal.3d 51, 60
[148 Cal.Rptr. 596, 583 P.2d 121]; Chodos v. Insurance Co. of
North America (1981) 126 Cal.App.3d 86, 97 [178 Cal.Rptr.
831].) This court must examine the record in the light most
favorable to the prevailing party, giving it the benefit of every
reasonable inference, and resolving all conflicts in support
of the judgment. ( Board of Education v. Jack M. (1977) 19
Cal.3d 691, 697 [139 Cal.Rptr. 700, 566 P.2d 602]; Estate
of Teel (1944) 25 Cal.2d 520, 527 [154 P.2d 384].) Where
evidence is undisputed, but different inferences may be drawn
therefrom, we are not at liberty to make our own inferences
and decide the case accordingly; the conclusion of the trial
judge must be accepted, since it is for the trier of fact to
resolve such conflicting inferences in the absence of a rule of
law specifying the inference to be drawn. ( McKinney v. Kull
(1981) 118 Cal.App.3d 951, 955 [173 Cal.Rptr. 696]; Curtis
v. Mendenhall (1962) 208 Cal.App.2d 834, 839 [25 Cal.Rptr.
627].)
Here, the trial court's finding that respondents failed to
establish material concealment by WSBA is supported
by substantial evidence that was of “'ponderable legal
significance,”' “'reasonable in nature, credible, and of solid
value ....”' ( United Professional Planning, Inc. v. Superior
Court (1970) 9 Cal.App.3d 377, 392-393 [88 Cal.Rptr. 551];
Estate of Teed (1952) 112 Cal.App.2d 638, 644 [247 P.2d
54].) There was no error.
VI
We now turn to the arguments raised by Pacific alone. It
contends that CNA “failed to establish” that Pacific had
issued a personal injury liability policy to WSBA, and that the
trial court erred in so finding. Once again, despite Pacific's
strained attempts to characterize it otherwise, this argument
is actually a challenge to the sufficiency of the evidence.
Indeed, Pacific concedes that the evidence on this issue was
“conflicting”; however, it insists that the real issue is the
burden of proof.
That “issue” is completely immaterial, since the trial court's
finding that Pacific did issue such a policy is supported
by substantial evidence. For the most part, this evidence
consisted of the testimony of Mr. David Cuddeback, the
account executive with Marsh & McLennan who obtained
the insurance for WSBA in 1966. Cuddeback testified on
the basis of his personal knowledge that the INA form of
personal injury endorsement was the standard form used
in the insurance industry, and that Pacific used that form.
Pacific's own witness, Francis Culhane, agreed that there was
a standard form of personal injury endorsement used in the
industry and that *617 Pacific used that standard form. This
evidence alone was substantial and sufficient to support the
trial court's findings on this issue. ( Campbell v. Southern
Pacific Co., supra., 22 Cal.3d at p. 60; In re Marriage of Mix
(1975) 14 Cal.3d 604, 614 [122 Cal.Rptr. 79, 536 P.2d 479].)
VII
Next, Pacific contends that it was absolved from its
responsibility to defend because WSBA failed to give it
prompt notice of Salveson's claims after issuance of the
policy, and because CNA failed to tender a formal demand
for a defense prior to incurring litigation expense in defending
the Salveson lawsuit. These contentions are without merit.
The evidence in the record supports the trial court's
finding that Pacific had adequate notice of potential liability
to prevent any substantial prejudice to its interests, and
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11
CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
that CNA should therefore not be estopped from seeking
reimbursement. At WSBA's request, Marsh & McLennan
notified Pacific in July 1978 of the Salveson lawsuit and
WSBA's tender of the defense thereof. Pacific promptly
denied the tender on the grounds that its policy provided no
coverage. It was clearly not prejudiced by any subsequent
failure on CNA's part to make a formal demand to share in
the defense.
396]; Redevelopment Agency v. City of Berkeley (1978) 80
Cal.App.3d 158, 167 [143 Cal.Rptr. 633]; 9 Witkin, Cal.
Procedure, supra., Appeal, § 315, pp. 326-327.) The issue
presented, although apparently based on uncontroverted facts,
is not of the above description. ( [13])(See fn. 11.) We
therefore decline to consider it. ( Zito v. Firemen's Ins. Co.
(1973) 36 Cal.App.3d 277, 283 [111 Cal.Rptr. 392].) 11
10
In its reply brief, Pacific asserts in a footnote that it
did raise this issue in a letter to the trial judge dated
November 22, 1982. A copy of the letter is attached to the
reply brief. Pacific states that it was “inexplicably” not
included in the clerk's transcript. Pacific owes this court
more than this gratuitously empty excuse in explanation
for its total failure to include in the record the only scrap
of evidence indicating its objection to the trial court's
award of post-trial defense costs. Such references to
matters outside the record on appeal are not reviewable
or cognizable by this court and are not in compliance
with the Rules of Court. (Cal. Rules of Court, rule 15(a);
9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, §§ 250,
475, pp. 256-257, 467-468.) In any event, the letter
only professes to offer “observations” for the court's
“thoughtful consideration.” On its face, it makes no
actual objection to the award of post-trial defense costs
attacked for the first time on appeal. Such a letter hardly
constitutes an appropriate or adequate method in which
to raise an objection for the trial court's consideration.
11
We note that despite the federal trial court's grant of
the motion for summary judgment with regard to the
Salveson lawsuit in February 1981, the decision was
appealed to the Ninth Circuit Court of Appeals and was
still on appeal at the time of the trial in the instant case.
The judgment at issue was filed and entered on December
30, 1982. The Ninth Circuit's decision affirming the
Salveson summary judgment was not filed until March
1983. Thus, for purposes of Pacific's obligation to
defend WSBA, the judgment in the Salveson lawsuit
was not final at the time of the trial court's award of
defense expenses in this case. Under California law,
the insurer's duty to defend does not cease until the
final determination of the underlying action on appeal.
( Fireman's Fund Ins. Co. v. Chasson, supra., 207
Cal.App.2d at p. 807.)
Pacific also asserts that it was relieved from its obligation to
defend by WSBA's failure to inform it of certain threats made
by Salveson after issuance of Pacific's policy, just before
the settlement agreement of March 1967. ([11])“'The law is
established that where an insurance company denies liability
under a policy which it has issued, it waives any claim that
the notice provisions of the policy have not been complied
with.' [Citation.]” ( Lagomarsino v. San Jose etc. Title Ins.
Co. (1960) 178 Cal.App.2d 455, 460 [3 Cal.Rptr. 80]; cf.
Clemmer v. Hartford Insurance Co., supra., 22 Cal.3d at pp.
881-883.) Having denied all liability under its policy, Pacific
thus waived any claim it might have that WSBA forfeited its
right to a defense by failing to notify Pacific of Salveson's
claims.
VIII
Pacific's final contention is that the trial court erred in
awarding CNA its defense costs incurred after trial below
in July 1981. By that time, appellants had acquired actual
knowledge of the dismissal of the second cause of action of
the Salveson complaint (the “intentional interference” cause
of action), and of the granting of the motion for summary
judgment as to the remainder of the Salveson lawsuit in
February 1981 on statute of limitations grounds. Pacific
argues that as a result of these actions by the court, any *618
duty to defend WSBA ended and CNA could have no rights
to reimbursement for defense costs thereafter.
Pacific raises this contention for the first time on appeal. 10
([12])As a general rule, issues not properly raised at trial
will not be considered on appeal. (9 Witkin, Cal. Procedure,
supra., Appeal, § 311, pp. 321-322.) An appellate court
may in its discretion consider an issue not properly raised
in the trial court if the issue presents a pure question of
law on undisputed evidence regarding either a noncurable
defect of substance, such as lack of jurisdiction or complete
failure to state a cause of action, or a matter affecting the
public interest or the due administration of justice. ( Wilson
v. Lewis (1980) 106 Cal.App.3d 802, 805 [165 Cal.Rptr.
IX
We now turn to CNA's cross-appeal. CNA raises two issues:
first, whether the trial court's apportionment of the costs
of WSBA's defense among *619 the four insurers was
equitable; and second, whether CNA was entitled to receive
its own attorneys' fees in bringing the instant action.
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12
CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
A
All the insurers before this court were jointly responsible
for defending WSBA in the Salveson lawsuit. ( Continental
Cas. Co. v. Zurich Ins. Co. (1961) 57 Cal.2d 27, 37 [17
Cal.Rptr. 12, 366 P.2d 455].) ([14])The costs of defense
must be apportioned on the basis of equitable considerations
not found in the insurers' own contracts, since the insurance
companies who must share the burden do not have any
agreements among themselves. The courts have expressly
declined to formulate any definitive rules for allocating
defense costs among carriers, because of the “varying
equitable considerations which may arise, and which affect
the insured and the ... carriers, and which depend upon the
particular policies of insurance, the nature of the claim made,
and the relation of the insured to the insurers. [Citation.]” (
Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d
359, 369 [165 Cal.Rptr. 799, 612 P.2d 889, 19 A.L.R.4th 75].)
Here, the trial court apportioned the costs of defense among
the four insurers on the basis of the relative limits of coverage
set by their respective policies. Thus, because CNA, INA and
Pacific each had policy limits of $300,000, while Seaboard's
policy limits were only $100,000, the court determined
that CNA, INA and Pacific would each be responsible for
30 percent of the cost of defense and Seaboard would be
responsible for 10 percent.
CNA argues that this method of allocation employed by the
trial court was inadequate. It contends that simple allocation
of the costs of defense by relative policy limits does not
equitably take into account the fact that the policies of the four
insurers were both concurrent and consecutive and covered
entirely different periods of time, while the risk of liability
itself, measured by the terms of the underlying complaint,
was not limited to specific times and dates but instead was
continuous over a broad time span from 1966 through 1978.
CNA urges that in this case, the most equitable method of
allocating defense costs is to multiply the number of years of
coverage of each insurance policy, or any fraction thereof, by
the per year aggregate liability limits stated in that policy, and
then to compare the resulting product for each insurer against
the total coverage available to WSBA in order to determine
that insurer's pro rata percentage share of the defense costs. As
set forth in CNA's brief on its cross-appeal, the approximate
pro rata percentage shares *620 of defense costs calculated
in this way are: Pacific, 20.7 percent; INA, 42 percent; CNA,
12.6 percent, and Seaboard, 24.7 percent.
The trial court below concluded that the method of allocating
defense costs among the contributing insurers suggested by
CNA was not supported by California case law. We agree
by virtue of the numerous appellate decisions supporting the
trial court's procedure of prorating defense costs, and the
complete absence of any California cases adopting CNA's
proposed approach. It is an accepted principle of California
law that “[w]here two insurers cover the same risk, defense
costs must also be shared between them pro rata in proportion
to the respective coverage afforded by them to the insured.
[Citation.]” ( Continental Ins. Co. v. Morgan, Olmstead,
Kennedy & Gardner, Inc. (1978) 83 Cal.App.3d 593, 608
[148 Cal.Rptr. 57]; accord Signal Companies, Inc. v. Harbor
Ins. Co., supra., 27 Cal.3d 359; Travelers Indem. Co. v.
Reliance Ins. Co. (1974) 12 Cal.3d 133 [115 Cal.Rptr. 232,
524 P.2d 360]; Continental Cas. Co. v. Zurich Ins. Co.,
supra., 57 Cal.2d 27; Hartford Acc. & Indem. Co. v. Pacific
Indem. Co. (1967) 249 Cal.App.2d 432 [57 Cal.Rptr. 492];
Government Employees Ins. Co. v. St. Paul Fire etc. Ins. Co.
(1966) 243 Cal.App.2d 186 [52 Cal.Rptr. 317]; Oil Base, Inc.
v. Transport Indem. Co. (1956) 143 Cal.App.2d 453 [299 P.2d
952].) The method of allocation employed by the trial court
was, on the whole, fair and reasonable. We decline to reverse
the court for using a procedure adopted in every California
case on point.
CNA argues, however, that these decisions do not stand for
a particular method of allocation to be used in every case. It
points out that recent decisions have repeatedly emphasized
the contrary principle in these cases that there is no definitive
rule universally applicable in all situations; instead, courts
must apply equitable considerations in allocating defense
costs on a case-by-case basis. ( Signal Companies, Inc. v.
Harbor Ins. Co., supra., 27 Cal.3d at p. 369.) We agree that in
given cases, the true scope of an insured's “coverage” might
not be confined to the liability limits of a given policy; it
may also include the period of time covered by the policy
and the interrelation between the terms of the policy and
the wrongs alleged against the insured by a claimant. In this
case, however, the trial court did not abuse its discretion in
assessing damages according to the formula followed by an
overwhelming weight of authority.
B
([15])We are not persuaded by CNA's final argument that it
was entitled to receive its attorneys' fees incurred in bringing
the instant action. CNA argues that since it was equitably
subrogated to the rights of WSBA, it *621 should recover
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
13
CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598 (1986)
222 Cal.Rptr. 276
its attorneys' fees just as WSBA assertedly would have had
the latter sued INA, Seaboard and Pacific for breach of the
covenant of good faith and fair dealing.
On its face, this contention is based entirely on hypotheticals
with no foundation in fact. WSBA did not assert any
claim against INA, Seaboard and Pacific arising out of the
underlying Salveson lawsuit. WSBA is not even a party to this
action. The defense costs at issue here were those incurred on
WSBA's behalf in the Salveson lawsuit; WSBA has suffered
no loss in this case. There was no finding that any of the
insurers breached the covenant of good faith and fair dealing
with WSBA or that their conduct in this matter was tortious;
nor was this an issue here. CNA itself has no contractual
relationship with the other insurers and thus no standing to
assert a breach of the covenant of good faith and fair dealing
in its own right. Thus, CNA has no standing to recover its
attorneys' fees in this action. 12
12
Prior to Brandt v. Superior Court (1985) 37 Cal.3d 813
[210 Cal.Rptr. 211, 693 P.2d 796], WSBA would not
have been entitled to attorneys' fees from the insurers
even if it had in fact sued them for breach of the covenant
of good faith and fair dealing, and won. The established
rule was that in the absence of an agreement between
the parties, attorneys' fees were not recoverable in a
bad faith action against an insurance company. (Code
Civ. Proc., § 1021; Moore v. American United Life Ins.
Co. (1984) 150 Cal.App.3d 610, 644-645 [197 Cal.Rptr.
878]; Austero v. Washington National Ins. Co. (1982)
132 Cal.App.3d 408, 411-417 [182 Cal.Rptr. 919].)
However, in Brandt v. Superior Court, supra., 37 Cal.3d
End of Document
at page 815, the Supreme Court held that “[w]hen an
insurer tortiously withholds benefits, ... attorney's fees,
reasonably incurred to compel payment of the policy
benefits, [are] recoverable as an element of the damages
resulting from such tortious conduct ....” (Fn. omitted.)
The court determined that attorney's fees were not
recoverable qua attorney's fees, but rather as an element
of the damages proximately caused by the insurer's
tortious breach of the covenant of good faith and fair
dealing. ( Id., at pp. 815-818.) The case is not applicable
here, where tortious conduct by the insurers or bad faith
was never alleged, argued, proven, or determined. As
the Supreme Court itself points out in Brandt, “'[A]n
erroneous interpretation of an insurance contract by an
insurer does not necessarily make the insurer liable in
tort for violating the covenant of good faith and fair
dealing; to be liable in tort, the insurer's conduct must
also have been unreasonable. [Citations.] When no bad
faith has been alleged and proved, [previously decided
cases] preclude the award of attorney's fees incurred in
obtaining benefits that the insurer erroneously, but in
good faith, withheld from the insured ....' [Citation.]” (
Id., at p. 819, original italics).
The judgment is affirmed. Respondent and cross-appellant
CNA is awarded its costs on appeal.
Scott, Acting, P. J., and Merrill, J., concurred.
Petitions for a rehearing were denied February 13, 1986, and
the petitions of defendants and appellants for review by the
Supreme Court were denied April 17, 1986. *622
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© 2014 Thomson Reuters. No claim to original U.S. Government Works.
14
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
KeyCite Yellow Flag - Negative Treatment
Distinguished by Lockheed Corp. v. Continental Ins. Co.,
Dist.,
November 22, 2005
Cal.App. 6
100 Cal.App.4th 1017, 123 Cal.Rptr.2d 256, 02 Cal.
Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
ATLANTIC MUTUAL INSURANCE
COMPANY, Plaintiff and Respondent,
v.
J. LAMB, INC., Defendant and Appellant.
ATLANTIC MUTUAL INSURANCE
COMPANY, Plaintiff and Respondent,
v.
GRANITE STATE INSURANCE
COMPANY, Defendant and Appellant.
No. B150674., No. B151708.
Court of Appeal, Second
District, Division 3, California.
Aug. 1, 2002.
SUMMARY
A commercial liability insurer brought an action against
its insured and a prior insurer for a declaratory judgment
that it owed no duty to defend a claim against the insured
arising out of the insured's allegedly false statements to
a competitor's customers. The competitor alleged that the
insured intentionally communicated with the competitor's
customers and falsely stated to them that the competitor was
unlawfully selling them products that were subject to the
insured's prior patent claim and that the insured intended
to sue those customers who continued to purchase products
from the competitor. The policies covered personal injury,
including oral or written publication of material that slandered
or libeled a person or organization or disparaged a person's or
organization's goods, products, or services. The prior insurer
had settled with the insured. The trial court entered summary
judgment in favor of plaintiff insurer. (Superior Court of Los
Angeles County, No. BC230791, Cesar C. Sarmiento, Judge.)
The Court of Appeal reversed and remanded for further
proceedings. The court held that the policies covered
the competitor's suit against the insured. The term
“disparagement” includes statements about a competitor's
goods that are untrue or misleading and are made to influence
potential purchasers not to buy. Thus, the court held, both
insurers had a duty to defend the suit against the insured,
since it was not established when the first publication of the
disparaging statements was made, and therefore which policy
was then in effect. The duty to defend arises when there is a
potential for coverage. Accordingly, the settling insurer was
entitled to contribution from plaintiff insurer, but any liability
for indemnity depended on the determination on remand of
which policy was in effect at the relevant time. (Opinion by
Croskey, J., with Klein, P. J., and Aldrich, J., concurring.)
HEADNOTES
Classified to California Digest of Official Reports
(1)
Summary Judgment § 3--Propriety.
The purpose of a summary judgment motion is to expedite
litigation and eliminate needless trials. It may be granted only
if all the papers submitted show that there is no triable issue
as to any material fact and that the moving party is entitled
to a judgment as a matter of law. After examining documents
supporting a summary judgment motion in the trial court, the
reviewing court independently determines their effect as a
matter of law.
(2)
Summary Judgment § 19--Hearing and Determination-Burden of Proof.
From commencement to conclusion, the party moving for
summary judgment bears the burden of persuasion that there
is no triable issue of material fact and that he or she is entitled
to judgment as a matter of law. There is a triable issue of
material fact if, and only if, the evidence would allow a
reasonable trier of fact to find the underlying fact in favor
of the party opposing the motion in accordance with the
applicable standard of proof. An issue of fact becomes one of
law and loses its triable character only if the undisputed facts
leave no room for a reasonable difference of opinion.
(3)
Summary Judgment § 11--Affidavits--Sufficiency--Moving
Defendant.
A defendant moving for summary judgment bears a burden
of production to make a prima facie showing, by declarations
and/or other evidence, that there is a complete defense to
the plaintiff's action or an absence of an essential element of
plaintiff's case. Once the defendant has met that burden, the
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
1
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
burden shifts to the plaintiff to show that a triable issue of
one or more material facts exists as to that cause of action or
a defense thereto. The plaintiff may not rely upon the mere
allegations or denials of its pleadings to show that a triable
issue of material fact exists but, instead, must set forth the
specific facts showing that a triable issue of material fact
exists as to that cause of action or a defense thereto.
(4)
Insurance Contracts and Coverage § 11--Interpretation of
Contracts-- Question of Law.
Absent a factual dispute as to the meaning of insurance policy
language, the interpretation, construction, and application of
an insurance contract is strictly an issue of law that can
be resolved in accordance with general summary judgment
principles.
(5)
Insurance Contracts and Coverage § 107--Liability of
Insurer--Liability and Indemnity Insurance--Duty to Defend.
A liability insurer's duty to defend will arise when a suit
against an insured potentially seeks damages within the
coverage of the policy. An insurer, however, need not defend
if the third party complaint cannot, by any conceivable theory,
raise a single issue which would bring it within policy
coverage. Thus, where a pleading against the insured raises
the potential for coverage, the insurer must provide a defense.
In order to prevail on a motion for the summary adjudication
of the duty to defend, the insured need only show that the
underlying claim may fall within coverage; the insurer must
prove it cannot.
(6)
Insurance Contracts and Coverage § 79--Coverage
of Contracts--Risks Covered by Liability Insurance-Commercial--Personal Injury.
Coverage for personal injury in a business liability policy is
not determined by the nature of the damages sought in the
action against the insured, but by the nature of the claims
made against the insured in that action. Under the personal
injury policy provision, coverage is triggered by the offense,
not the injury or damage that a plaintiff suffers. Unlike
coverage for bodily injury and property damage, which is
occurrence based, there is no requirement for personal injury
coverage that there be an accidental occurrence. All that is
required is that the injury arise out of the conduct of the
insured's business. Thus, even an intentional tort may be
covered. The triggering event is the insured's wrongful act,
not the resulting injury to the third party claimant. Indeed,
coverage will exist for a personal injury offense committed
during the term of the policy, even if the injury occurs after
the policy expires.
(7)
Insurance Contracts and Coverage § 107--Liability of
Insurer--Liability and Indemnity Insurance--Duty to Defend-Scope.
A liability insurer owes a broad duty to defend its insured
against claims that create a potential for indemnity. The
carrier must defend a suit that potentially seeks damages
within the coverage of the policy. Implicit in this rule is
the principle that the duty to defend is broader than the
duty to indemnify; an insurer may owe a duty to defend
its insured in an action in which no damages ultimately are
awarded. The determination whether the insurer owes a duty
to defend usually is made in the first instance by comparing
the allegations of the complaint with the terms of the policy.
Facts extrinsic to the complaint also give rise to a duty to
defend when they reveal a possibility that the claim may
be covered by the policy. For an insurer, the existence of
a duty to defend turns not upon the ultimate adjudication
of coverage under its policy of insurance, but upon those
facts known by the insurer at the inception of a third party
lawsuit. Hence, the duty may exist even where coverage is
in doubt and ultimately does not develop. The defense duty
is a continuing one, arising on tender of defense and lasting
until the underlying lawsuit is concluded, or until it has been
shown that there is no potential for coverage.
(8)
Insurance Contracts and Coverage § 107--Liability of
Insurer--Liability and Indemnity Insurance--Duty to Defend-Scope.
An insurer has a duty to defend an insured if it becomes aware
of, or if the third party lawsuit pleads, facts giving rise to
the potential for coverage under the insuring agreement. This
duty, which applies even to claims that are groundless, false,
or fraudulent, is separate from and broader than the insurer's
duty to indemnify. The scope of the duty does not depend
on the labels given to the causes of action in the third party
complaint; instead it rests on whether the alleged facts or
known extrinsic facts reveal a possibility that the claim may
be covered by the policy.
(9)
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
2
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
Insurance Contracts and Coverage § 107--Liability of
Insurer--Liability and Indemnity Insurance--Duty to Defend-Scope--Rebuttal.
Once the possibility of coverage under a liability policy has
been raised, then the insurer may defeat the claim of coverage
by extrinsic evidence, but only where such evidence presents
undisputed facts that conclusively eliminate a potential for
liability. Any doubt as to whether the facts establish or
defeat the existence of the defense duty must be resolved
in the insured's favor. Once the insured has established
potential liability by reference to the factual allegations of the
complaint, the terms of the policy, and any extrinsic evidence
upon which the insured intends to rely, the insurer must
assume its duty to defend unless and until it can conclusively
refute that potential. Necessarily, an insurer will be required
to defend a suit where the evidence suggests, but does not
conclusively establish, that the loss is not covered. A carrier
remains free to seek declaratory relief if undisputed facts
conclusively show, as a matter of law, that there is no potential
for liability.
(10a, 10b, 10c)
Insurance Contracts and Coverage § 79--Coverage
of Contracts--Risks Covered by Liability Insurance-Commercial--Personal Injury-- Trade Libel.
A business liability policy covering personal injury, including
oral or written publication of material that slandered or
libeled a person or organization or disparaged a person's or
organization's goods, products, or services, covered a suit
against the insured by a competitor alleging that the insured
intentionally communicated with the competitor's customers
and falsely stated to them that the competitor was unlawfully
selling them products that were subject to the insured's prior
patent claim and that the insured intended to sue those
customers who continued to purchase products from the
competitor. The term “disparagement” includes statements
about a competitor's goods that are untrue or misleading and
are made to influence potential purchasers not to buy.
[See 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, §
1136A; West's Key Number Digest, Insurance
2311.]
(11)
Insurance
Contracts
and
Coverage
§
79-Coverage of Contracts--Risks Covered by Liability
Insurance--CommercialPersonal
Injury--Trade
Libel-Definition:Words, Phrases, and Maxims--Trade Libel.
Trade libel is defined as an intentional disparagement of
the quality of property that results in pecuniary damage to
plaintiff. Injurious falsehood or disparagement may consist of
the publication of matter derogatory to the plaintiff's title to
property, or its quality, or to his or her business in general.
The plaintiff must prove in all cases that the publication has
played a material and substantial part inducing others not to
deal with him or her, and that as a result he or she has suffered
special damages. Usually, the damages claimed consist of loss
of prospective contracts with the plaintiff's customers.
(12)
Statutes § 34--Construction--Language--Words and Phrases-Ejusdem Generis.
The principle of ejusdem generis provides that where general
words follow the enumeration of particular classes of persons
or things, the general words will be construed as applicable
only to persons or things of the same general nature or class
as those enumerated.
(13)
Insurance Contracts and Coverage § 107--Liability of
Insurer-- Liability and Indemnity Insurance--Duty to
Defend--Rebuttal--Sufficiency.
An exclusion in a business liability policy excluding from
coverage personal injury or advertising injury arising out
of oral or written publication of slanderous, libelous, or
disparaging material, the first publication of which took place
before the beginning of the policy period, did not foreclose the
insurer's duty to defend an otherwise covered claim against its
insured for certain false statements it allegedly made against a
competitor, where, at the time the defense was tendered, there
was no evidence as to when the first publication occurred
and whether it was within the policy period. A declaration
by the insurer's claims adjuster providing a date for the first
publication was vague and ambiguous. An insurer may only
defeat an existing potential for coverage by undisputed facts
that conclusively negate such coverage. This is particularly
true where the insurer seeks to defeat coverage by reliance on
an exclusion.
(14)
Insurance Contracts and Coverage § 120--Subrogation,
Contribution, and Apportionment--Contribution.
In the context of insurance law, the doctrine of equitable
contribution provides that where two or more insurers
independently provide primary insurance on the same risk for
which they are both liable for any loss to the same insured,
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
3
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
the insurance carrier who pays the loss or defends a lawsuit
against the insured is entitled to equitable contribution from
the other insurer or insurers. The right to contribution depends
upon the existence of an obligation owed to a common
insured. The right arises when one of two or more insurers
are obligated to indemnify or defend the same loss or claim
and one of those insurers has paid more than its share of the
loss or defended the action without participation from the
others. Equitable contribution permits reimbursement to the
insurer that paid on the loss for the excess it paid over its
proportionate share of the obligation, on the theory that the
debt it paid was equally and concurrently owed by the other
insurers and should be shared by them pro rata in proportion to
their respective coverage of the risk. The purpose of this rule
of equity is to accomplish substantial justice by equalizing
the common burden shared by coinsurers, and to prevent one
insurer from profiting at the expense of others.
cover the same risk, so that each pays its fair share and one
does not profit at the expense of the others.
(15)
Insurance Contracts and Coverage § 120--Subrogation,
Contribution,
and
Apportionment--Contribution--Two
Insurers on Same Risk.
Where two insurers provided liability coverage to the same
insured for the same risk, although for different policy
periods, and both had a duty to provide a defense, as it could
not be determined at the time the insured tendered defense
to both of them, which policy applied, the insurer which
provided the defense was entitled to equitable contribution
from the other insurer. However, only one of the insurers
could be liable for indemnifying the insured for the payment
it made to settle the insured claim against it.
1
[See Croskey et al., Cal. Practice Guide: Insurance Litigation
(The Rutter Group 2001) ¶¶ 8:73.20-8:73.32.]
(16)
Insurance
Contracts
and
Coverage
§
120-Subrogation,
Contribution,
and
Apportionment-Contribution--Subrogation--Distinction.
The different equitable principles on which contribution and
subrogation are based are reflective of different underlying
public policies. The aim of equitable subrogation is to
place the burden for a loss on the party ultimately liable
or responsible for it and by whom it should have been
discharged, and to relieve entirely the insurer or surety that
indemnified the loss and that in equity was not primarily liable
therefor. On the other hand, the aim of equitable contribution
is to apportion a loss between two or more insurers which
COUNSEL
The Soni Law Firm, Surjit P. Soni, Leo E. Lundberg, Jr., and
Glenn H. Johnson for Defendant and Appellant J. Lamb, Inc.
McCormick, Barstow, Sheppard, Wayte & Carruth, James P.
Wagoner and Todd W. Baxter for Defendant and Appellant
Granite State Insurance Company.
Knapp, Petersen & Clarke and Gwen Freeman for Plaintiff
and Respondent Atlantic Mutual Insurance Company.
CROSKEY, J.
The primary issue presented by these consolidated appeals 1
concerns the existence of coverage under a liability policy for
a claim based upon disparaging statements allegedly made by
the insured about a third party's business and products.
On our own motion, we have consolidated case Nos.
B150674 and B151708 for resolution in a single opinion.
The plaintiff and respondent, Atlantic Mutual Insurance
Company (Atlantic Mutual), filed this action for declaratory
relief seeking a determination that there was no coverage
under its policy. The trial court agreed with Atlantic Mutual's
position and the defendants and appellants, J. Lamb, Inc.
(Lamb), and Granite State Insurance Company (Granite
State), appeal from *1024 the summary judgment entered
against them. Lamb was the insured in successive years under
policies issued by Atlantic Mutual and Granite State and
claims that it is entitled to recover under the Atlantic Mutual
policy even though it has already settled the same claim with
Granite State. Granite State, on the other hand, claims that
Atlantic Mutual is liable to it for equitable contribution and/
or subrogation and such claim is not precluded by its prior
settlement with Lamb.
Because we conclude that the disparaging statements
published by Lamb fall within the very broad “personal
injury” coverage provided in Atlantic Mutual's policy, we
reverse the summary judgment entered in Atlantic Mutual's
favor. In so doing, we distinguish this case from our earlier
decision in Truck Ins. Exchange v. Bennett (1997) 53
Cal.App.4th 75 [61 Cal.Rptr.2d 497] (Bennett), based on the
more expansive policy language before us that compels us
to conclude that personal injury coverage was intended for
disparaging publications in addition to those that were solely
defamatory. We also conclude that there was a potential
for coverage under the policies of both Atlantic Mutual and
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
4
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
potential customers in bad faith and without any intention
of enforcing the '642 patent against those customers or
potential customers. On information and belief, Lamb
intentionally misled Continental Quilting's customers
about the nature of Continental Quilting's products. [¶] ...
[¶]
“71. On information and belief, Lamb contacted and
continues to contact Continental Quilting's customers
and potential customers and threatened them with the
'642 patent, which Lamb knew or should have known
was invalid. On information and belief, Lamb threatened
to bring a patent infringement action against Continental
Quilting's customers and potential customers and made
other threats and harassing statements in bad faith and
without any intention of bringing such action. Lamb
contacted those customers and potential customers with
the intention of interfering with Continental Quilting's
business expectancies with those customers and potential
customers so as to deprive Continental Quilting of
realizing any financial benefit from those expectancies.”
Granite State, and thus both insurers owed Lamb a defense of
the third party suit filed against it, even though only one will
have a duty to indemnify. Determining under which policy
actual coverage will fall is a task for the trial court upon
remand. Such determination, when made, will provide a basis
for the trial court to resolve the remaining issues between the
parties.
Factual and Procedural Background 2
This coverage litigation arises out of a complaint filed
against Lamb in the underlying federal action by Continental
Quilting Co., Inc. (Continental), on May 3, 1999. In that
complaint, Continental sought a declaration that a patent
claimed by Lamb, a competitor of Continental, was invalid
and unenforceable. The complaint also contained causes of
action for statutory and common law unfair competition
and tortious interference with prospective advantage. In
essence, and as is relevant to the issues raised in this matter,
Continental alleged that Lamb had communicated with a
number of Continental's customers and falsely stated that
Continental was infringing a patent owned by Lamb and
that Lamb would pursue legal action against those customers
who continued to purchase the infringing products sold by
Continental. 3
2
3
The facts recited are not in dispute and are established
by the appellate record before us. The issues we resolve
are legal in nature.
Specifically, Continental pled the following allegations
in its complaint that are relevant to the coverage issue
before us:
“61. Lamb has contacted and continues to
contact Continental Quilting's customers and potential
customers and has asserted the '642 patent against them
in spite of knowing that the '642 patent is invalid and
unenforceable.
“62. On information and belief, Lamb's communications
with Continental Quilting's customers and potential
customers have included improper threats, and are
made with the intent to mislead those customers
and potential customers with respect to Continental
Quilting's products.
“63. Lamb communicated with Continental Quilting's
customers to induce those customers and potential
customers to discontinue or refrain from purchasing
Continental Quilting's products and to instead purchase
Lamb's products.
“64. On information and belief, Lamb asserted the
'642 patent against Continental Quilting's customers and
On June 15, 1999, Lamb tendered defense of Continental's
action to both Atlantic Mutual and Granite State. Both
denied coverage and refused to *1025 provide a defense.
Atlantic Mutual's policy covered the period December 2,
1998, to December 2, 1999. Granite State's policy covered the
preceding two years, December 2, 1996, to December 2, 1998.
The policies of both insurers were substantially identical with
respect to the relevant policy provisions. 4 Lamb contends
there is coverage under both the “personal injury” clause as
well as the “advertising injury” provision. 5 *1026
4
The relevant insuring and definitional clauses of the
policies of both insurers are based on standard ISO forms
and provide as follows:
“1. Insuring Agreement [¶] We will pay those sums that
the insured becomes legally obligated to pay as damages
because of 'personal injury' or 'advertising injury' to
which this insurance applies. We will have the right and
duty to defend any 'suit' seeking those damages.... [¶] ...
This insurance applies to: (1) 'Personal injury' caused
by an offense arising out of your business, excluding
advertising, publishing, broadcasting or telecasting done
by or for you; (2) 'Advertising injury' caused by an
offense committed in the course of advertising your
goods, products or services; but only if the offense was
committed in the 'coverage territory' during the policy
period. [¶] 2. Definition [¶] 'Advertising injury' means
injury arising out of one or more of the following
offenses: Oral or written publication of material that
slanders or libels a person or organization or disparages a
person's or organization's goods, products or services; ...
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
5
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
[¶] ... 'Personal injury' means injury other than 'bodily
injury,' arising out of one or more of the following
offenses: ... [¶] ... oral or written publication of material
that slanders or libels a person or organization or
disparages a person's or organization's goods, products
or services; ...” (Italics added.)
5
For the reasons set out in footnote 12, post, we need only
consider and discuss the coverage of the insurers under
the “personal injury” provision.
Both insurers based their denial of coverage on the ground
that the allegations of the Continental complaint established
that there was no potential for coverage as no claim for either
“personal injury” or “advertising injury” was asserted. In
addition, Atlantic Mutual contended that whatever acts may
have been committed by Lamb, they did not occur during
the policy period as required by the insuring clause. Atlantic
Mutual also argued that its “first publication” exclusion
applied to preclude coverage. 6
6
Atlantic Mutual's policy provided that: “This insurance
does not apply to: 'Personal Injury' or 'Advertising
Injury': Arising out of oral or written publication of
material whose first publication took place before the
beginning of the policy period; ...” (Italics added.)
Denied coverage under its liability policies, Lamb entered
into negotiations with Continental to settle the underlying
action. On August 23, 1999, a settlement was reached
whereby Lamb paid $65,000 to Continental in exchange for
a dismissal of the underlying action. 7 In addition, Lamb
incurred $89,455 in defense costs and attorney's fees in
reaching this resolution of the matter.
7
Lamb did not actually pay $65,000 in cash to
Continental, but rather agreed to provide to Continental
20,000 units of crib mattress pads at $2.50 per unit.
Lamb claims that its customary charge per unit for
such pad was $5.75. The $3.25 difference multiplied by
20,000 resulted in what Lamb claimed was settlement
consideration of $65,000. It appears, however, that a
factual dispute exists as to whether this settlement
consideration provided to Continental had an actual
value of $65,000.
Thereafter, Lamb wrote to both Atlantic Mutual and Granite
State, advised them of the settlement of the Continental action
and requested that they reconsider their denial of coverage.
Atlantic Mutual refused to change its position, but Granite
State was persuaded to do so and entered into negotiations
with Lamb. On or about March 14, 2000, a settlement was
reached whereby Granite State agreed to pay Lamb $120,000
in exchange for a full release of all liability arising from the
Continental claim. 8 *1027
8
The relevant portions of the settlement and release
agreement between Lamb and Granite State provide:
“This Settlement Agreement and Mutual Release
('Release') is entered into by and between J. Lamb,
Inc. (hereinafter 'Releasor') and Granite State Insurance
Company (hereinafter 'Releasee'), collectively referred
to herein as 'The Parties,' pursuant to the following:
[¶] Recitals [¶] A. Releasee issued to Releasor
general liability policies number CPP 512-43-96 and
CPP 512-43-9697 ('the policies'). [¶] B. On or
about May 3, 1999, an action was filed entitled
Continental Quilting Company, Inc. v. J. LAMB, Inc.,
United States District Court Case No. 99-04767 ('the
Continental Quilting Action.') [¶] C. Releasor tendered
the Continental Quilting Action to Releasee for defense
and indemnification. Releasee initially declined to
provide a defense to Releasor in the Continental Action.
[¶] D. Subsequently, Releasor settled the Continental
Quilting Action incurring attorneys' fees and costs in
the amount of $89,455.18. Resolution of the Continental
Quilting Action also involved Releasor sending product
to Continental Quilting at a reduced price suffering loss
of $65,000.00. [¶] E. Releasor requested that Releasee
reconsider its denial, which Releasee agreed. [¶] The
Parties now desire to settle all claims, disputes, duties,
and all other obligations between them arising out of
or in any way connected with any claims arising from
the Continental Quilting Action. [¶] Now Therefore, in
consideration of the respective covenant by and between
The Parties, as set forth below, The Parties do hereby
agree as follows: [¶] 1. Affirmative Covenant: [¶] A.
Releasee will deliver to Releasor's attorney a draft in
the amount of $120,000.00 made payable to 'The Soni
Law Firm Trust Account for the Benefit of J. Lamb,
Inc.' [¶] 2. Release [¶] A. For and in consideration
of the above affirmative covenant, Releasor hereby
releases and forever discharges Releasee of and from
any liability, duty or obligation under the Policies
(including, without limitation, any duty to investigate,
defend or indemnify) related to any and all past, pending
or future claims made as a result of the Continental
Quilting Action. Neither party releases, waives, or
otherwise modifies its rights or obligations under the
policy with respect to any other claim, whether such
claim has manifested or not, except all claims arising
from, or obligations under, the policy with respect to
any other claim, whether such claim has manifested
or not, except all claims arising from the Continental
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
6
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
Quilting Action [¶] ... [¶] D. Whole Agreement [¶]
This Release contains the entire agreement between
The Parties relating to the transactions contemplated
hereby and all prior or contemporaneous agreements,
understandings, representations and statements, oral or
written, are merged into this Release.”
Shortly after March 14, 2000, Granite State advised Atlantic
Mutual that it had also insured Lamb and that it had paid
all of the defense costs (i.e., $89,455) incurred by Lamb
in defending the Continental action, as well as a part of
the settlement costs allegedly expended by Lamb. This was
apparently the first time that Atlantic Mutual learned that
another insurer was involved in the matter. Granite State
demanded that Atlantic Mutual share, on an equitable basis,
the $120,000 it had paid to Lamb to cover the above described
expenses.
About the same time, Lamb also made a separate demand
on Atlantic Mutual. Lamb took the position that Granite
State's payment to it was not for defense or settlement of
the Continental action, but rather was a “claim buyout” in
which Lamb agreed to release its bad faith claim against
Granite State and to accept a novation of the Granite State
policy “to exclude past, present or future coverage relating to”
the Continental action. Lamb demanded that Atlantic Mutual
pay Lamb the full amount of its total defense and settlement
expense ($154,455) which it claims to have incurred in the
Continental action.
Atlantic Mutual rejected this demand and advised Lamb's
counsel that Lamb had no right to be paid twice for the
claim. Facing claims from both Lamb and Granite State for
substantially the same money, and believing it owed nothing
to either party, Atlantic Mutual, on May 30, 2000, filed this
action against them for declaratory relief to determine the
issue of coverage under its policy and its liability, if any, to
either party. 9 *1028
9
In its complaint, Atlantic Mutual described its position
in this dispute as follows: “Atlantic Mutual contends that
if it had a duty to defend and/or indemnify then Granite
State is equitably subrogated to the right of the insured
as to any claim against Atlantic Mutual, and/or Granite
State is the sole possessor of a right of contribution
against Atlantic Mutual. Atlantic Mutual desires to settle
the disputed claim with Granite State but is prevented
from doing so by such competing, inconsistent claim
from Lamb. Both Lamb and Granite State have made
competing and inconsistent claims for the same sums
by way of subrogation, contribution, and/or indemnity
from Atlantic Mutual. The combined sum sought is
in excess of the total amount expended by Lamb in
defending and settling the underlying action. Atlantic
Mutual is informed and believes that all defendants
contend otherwise in whole or in part. Atlantic Mutual
also denies any potential liability for breach of the
covenant of good faith and fair dealing.”
On July 20, 2000, Lamb filed a cross-complaint that included
claims against Atlantic Mutual for breach of contract and
bad faith and for declaratory relief against Granite State as
to the meaning, purpose and legal effect of the settlement
and release agreement of March 14, 2000 (hereafter the
Settlement Agreement). Granite State also filed a crosscomplaint against Atlantic Mutual for equitable subrogation
and/or alternatively, equitable contribution.
Atlantic Mutual moved for summary judgment against both
Lamb and Granite State on the ground that there was no
coverage under its policy for the claim asserted in the
Continental action and therefore it had no liability to either
party as a matter of law. Granite State also moved for
summary judgment on its cross-complaint against Lamb.
Lamb filed cross-motions for summary judgment against both
Atlantic Mutual and Granite State. With respect to these
competing motions, the trial court, in April and May, 2001,
ruled as follows:
1. Atlantic Mutual's motion against Lamb on its complaint
and Lamb's cross-complaint was granted on the ground that
the Continental complaint had not alleged an offense that
constituted either advertising or personal injury within the
meaning of the Atlantic Mutual policy (this ruling is the
subject of the appeal in case No. B150674). 10
10
The trial court, in making this ruling, expressly did not
reach or rule upon Atlantic Mutual's contention that
coverage was precluded under the “first publication”
exclusion.
2. Atlantic Mutual's motion against Granite State was granted
on the ground that since there was no coverage for the
underlying Continental claim under the Atlantic Mutual
policy, Atlantic Mutual had no duty to Granite State under
either equitable subrogation or equitable contribution for any
sums paid with respect to the Continental claim against Lamb
(this ruling is the subject of the appeal in case No. B151708).
3. Granite State's motion against Lamb on Lamb's crosscomplaint for declaratory relief was granted on the grounds
that: (1) the Settlement Agreement between Granite State
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
7
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
and Lamb was not a novation; (2) the *1029 $120,000
paid to Lamb was to satisfy Lamb's “claim that it was
entitled to reimbursement for its defense fees and settlement
consideration in the Continental action”; and, (3) the
Settlement Agreement does not impair any rights Granite
State may have to equitable subrogation against, or equitable
contribution from, Atlantic Mutual (this ruling, which we
deem to be a summary adjudication of the claims raised by
Lamb's cross-complaint, is also the subject of the appeal in
case No. B150674). 11
11
The court also awarded Granite State attorney fees
pursuant to a fee provision in the Settlement Agreement.
Lamb has separately appealed that award in case No.
B154194. That matter is not before us.
Both Lamb (case No. B150674) and Granite State (case No.
B151708) have filed timely appeals and we have, on our
own motion, consolidated them for resolution in this single
opinion.
Contentions of the Parties
Lamb contends that the allegations of the Continental
complaint in the underlying action sufficiently allege an
offense within the meaning of the “personal injury” clause
in Atlantic Mutual's policy. Therefore, Lamb argues, there
was at least a potential for coverage and Atlantic had a
duty to provide both a defense and indemnity to Lamb for
Continental's claim.
Lamb also contends that the Settlement Agreement between
it and Granite State did not involve the reimbursement to
Lamb of its costs and expenses incurred in defending and
settling the Continental action, but rather the settlement
by Granite State of Lamb's separate bad faith claim. As a
result, Lamb argues, Granite State has no right to claim
either equitable subrogation or equitable contribution against
Atlantic Mutual. Therefore, Lamb argues, since there was
coverage under the Atlantic Mutual policy, Lamb is the party
entitled to recoup all of the costs and expense of defending
and settling the Continental action. Granite State, having paid
no part of that sum, is not entitled to any recovery from
Atlantic Mutual.
Granite State concurs with and joins Lamb's first argument
relating to the question of whether there is coverage under
Atlantic Mutual's policy. (This issue is thus necessarily
common to the appeals in both case No. B150674 and
case No. B151708.) However, Granite State disputes Lamb's
characterization of the Settlement Agreement. It is Granite
State's position that there was no agreement to settle anything
other than Lamb's coverage claim under the Granite State
policy. Granite State contends that, by the express terms of
*1030 the Settlement Agreement, it reimbursed Lamb for
all of its defense costs and expenses and a negotiated portion
of its claimed settlement expense. Granite State claims that
the amount actually “paid” by Lamb to settle the Continental
claim was subject to considerable dispute and thus the total
figure of $120,000 paid to Lamb by Granite State represented
the fruit of a negotiated compromise.
For its part, Atlantic Mutual disputes the coverage arguments
jointly advanced by Lamb and Granite State. It argues that
the claims asserted by Continental and the allegations of its
complaint in the underlying action did not, as a matter of
law, constitute an offense within the meaning of the personal
injury clause of the Atlantic Mutual policy. 12 It also argues
that it is undisputed that Lamb first published the disparaging
statements prior to the inception of the Atlantic Mutual
policy. Therefore, the “first publication” exclusion applies to
preclude coverage in any event. As a result, Atlantic Mutual
claims it has no liability, as a matter of law, to either Lamb
or Granite State.
12
The only “offense” relevant to this case appears,
in identical terms, in both the personal injury and
advertising injury clauses of the Atlantic Mutual policy:
“Oral or written publication of material that slanders or
libels a person or organization or disparages a person's
or organization's goods, products or services.” (Italics
added.)
The only difference between the two promised coverages
is that, for coverage to exist under the advertising
injury clause, the oral or written publication must have
occurred “in the course of advertising [Lamb's] goods,
products or services.” (Italics added.) Under the personal
injury clause, the offense must arise “out of [Lamb's]
business excluding advertising, publishing, broadcasting
or telecasting done by or for [Lamb].” (Italics added.) It is
not at all clear that the alleged oral or written publications
about which Continental complained occurred in any
“advertising” activity by or for Lamb, but we need not
reach that issue. The critical question before us relates
to whether such oral or written publications slandered
or libeled Continental or disparaged it or its goods,
products or services. If they did, there will be coverage
under Atlantic Mutual's policy without regard to whether
any advertising activity was involved (assuming that the
“first publication” exclusion does not apply); if they did
not, there will be no coverage, whether or not the oral
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
8
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
or written publications were uttered or communicated in
the course of an advertising activity. As a result, there
is no need for us to consider or discuss the question of
coverage under the advertising injury clause.
Discussion
1. Standard of Review
These consolidated appeals come to us after the trial court
granted Atlantic Mutual's motion for summary judgment.
([1]) The purpose of such a motion is to expedite litigation and
eliminate needless trials. (Hood v. Superior Court (1995) 33
Cal.App.4th 319, 323 [39 Cal.Rptr.2d 296].) It *1031 may
be granted only “if all the papers submitted show that there
is no triable issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” (Code
Civ. Proc., § 437c, subd. (c); Villa v. McFerren (1995) 35
Cal.App.4th 733, 741 [41 Cal.Rptr.2d 719].) After examining
documents supporting a summary judgment motion in the
trial court, this court independently determines their effect as
a matter of law. (Villa v. McFerren, supra, 35 Cal.App.4th at
p. 741.)
([2]) “[F]rom commencement to conclusion, the party
moving for summary judgment bears the burden of persuasion
that there is no triable issue of material fact and that he is
entitled to judgment as a matter of law.... There is a triable
issue of material fact if, and only if, the evidence would
allow a reasonable trier of fact to find the underlying fact in
favor of the party opposing the motion in accordance with the
applicable standard of proof.” (Aguilar v. Atlantic Richfield
Co. (2001) 25 Cal.4th 826, 850 [107 Cal.Rptr.2d 841, 24 P.3d
493] (Aguilar), fns. omitted, italics added.) An issue of fact
becomes one of law and loses its “triable” character only if the
undisputed facts leave no room for a reasonable difference of
opinion. (Preach v. Monter Rainbow (1993) 12 Cal.App.4th
1441, 1450 [16 Cal.Rptr.2d 320].)
([3]) A defendant moving for summary judgment bears a
burden of production to make a prima facie showing, by
declarations and/or other evidence, that there is a complete
defense to the plaintiff's action or an absence of an essential
element of plaintiff's case. (Aguilar, supra, 25 Cal.4th at p.
849.) “Once the defendant ... has met that burden, the burden
shifts to the plaintiff ... to show that a triable issue of one
or more material facts exists as to that cause of action or a
defense thereto. The plaintiff ... may not rely upon the mere
allegations or denials of its pleadings to show that a triable
issue of material fact exists but, instead, shall set forth the
specific facts showing that a triable issue of material fact
exists as to that cause of action or a defense thereto.” (Code
Civ. Proc., § 437c, subd. (o)(2).)
([4]) Where the facts are undisputed, the court can resolve
the question of law in accordance with general summary
judgment principles. (Adams v. Paul (1995) 11 Cal.4th
583, 592 [46 Cal.Rptr.2d 594, 904 P.2d 1205].) “Absent a
factual dispute as to the meaning of policy language, which
we do not have here, the interpretation, construction and
application of an insurance contract is strictly an issue of
law. [Citation.]” (Century Transit Systems, Inc. v. American
Empire Surplus Lines Ins. Co. (1996) 42 Cal.App.4th 121,
125 [49 Cal.Rptr.2d 567], italics in original.) *1032
([5]) A liability insurer's duty to defend will arise when a
suit against an insured potentially seeks damages within the
coverage of the policy. (La Jolla Beach & Tennis Club,
Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th 27, 43
[36 Cal.Rptr.2d 100, 884 P.2d 1048].) An insurer, however,
need not defend if the third party complaint cannot, by any
conceivable theory, raise a single issue which would bring
it within policy coverage. (Ibid.) Thus, the settled rule is
that where a pleading against the insured raises the potential
for coverage, the insurer must provide a defense. (Montrose
Chem. Corp. v. Superior Court (1993) 6 Cal.4th 287, 295
[24 Cal.Rptr.2d 467, 861 P.2d 1153] (Montrose).) In order to
prevail on a motion for the summary adjudication of the duty
to defend, “the insured need only show that the underlying
claim may fall within coverage; the insurer must prove it
cannot.” (Id. at p. 300.)
2. Principles of Personal Injury Coverage
Like advertising injury, “personal injury” is a term of art
that describes coverage for certain enumerated offenses that
are spelled out in the policy. In this case, the only relevant
“offense” under the relevant policy language is an “oral or
written publication of material that slanders or libels a person
or organization or disparages a person's or organization's
goods, products or services.” (Italics added.) ([6]) Coverage
for personal injury is not determined by the nature of the
damages sought in the action against the insured, but by the
nature of the claims made against the insured in that action.
Under the personal injury policy provision, “[c]overage ...
is triggered by the offense, not the injury or damage which
a plaintiff suffers.” (Fibreboard Corp. v. Hartford Accident
& Indemnity Co. (1993) 16 Cal.App.4th 492, 511 [20
Cal.Rptr.2d 376], italics added.) This conclusion is consistent
with the policy language which obligates the insurer to pay
“all sums that the insured becomes legally obligated to pay as
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9
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
damages because of personal injury ....” (Italics added.) (See
also Martin Marietta Corp. v. Insurance Co. of No. America
(1995) 40 Cal.App.4th 1113, 1125 [47 Cal.Rptr.2d 670].)
Unlike coverage for bodily injury and property damage,
which is “occurrence” based, there is no requirement for
personal injury coverage that there be an “accidental”
occurrence. All that is required is that the injury arise out
of the conduct of the insured's business. Thus, even an
intentional tort, such as those alleged in the Continental
complaint, may be covered. The triggering event is the
insured's wrongful act, not the resulting injury to the third
party claimant. Indeed, coverage will exist for a personal
injury “offense,” committed during the term of the policy,
even if the injury occurs after the *1033 policy expires.
(American Cyanamid Co. v. American Home Assurance Co.
(1994) 30 Cal.App.4th 969, 982 [35 Cal.Rptr.2d 920].)
3. There Was a Potential for Coverage
Under the Atlantic Mutual Policy
a. A Liability Insurer's Duty to Defend
In Montrose, supra, 6 Cal.4th 287, the Supreme Court
summarized the well-settled rules applicable to a liability
insurer's duty to defend. ([7]) “In Horace Mann Ins. Co. v.
Barbara B. (1993) 4 Cal.4th 1076 [17 Cal.Rptr.2d 210, 846
P.2d 792] (Horace Mann), we observed: '[A] liability insurer
owes a broad duty to defend its insured against claims that
create a potential for indemnity. (Gray v. Zurich Insurance
Co. [1966] 65 Cal.2d 263 [54 Cal.Rptr. 104, 419 P.2d 168]
[Gray].) As we said in Gray, ”the carrier must defend a suit
which potentially seeks damages within the coverage of the
policy. “ (Id. at p. 275, italics in original.) Implicit in this rule
is the principle that the duty to defend is broader than the duty
to indemnify; an insurer may owe a duty to defend its insured
in an action in which no damages ultimately are awarded.
[Citations.]' (Horace Mann, supra, 4 Cal.4th at p. 1081.)
[¶] 'The determination whether the insurer owes a duty to
defend usually is made in the first instance by comparing the
allegations of the complaint with the terms of the policy. Facts
extrinsic to the complaint also give rise to a duty to defend
when they reveal a possibility that the claim may be covered
by the policy. (Gray, supra, 65 Cal.2d at p. 276.)' (Horace
Mann, supra, 4 Cal.4th at p. 1081.) As one Court of Appeal
has put it, '[f]or an insurer, the existence of a duty to defend
turns not upon the ultimate adjudication of coverage under its
policy of insurance, but upon those facts known by the insurer
at the inception of a third party lawsuit. [Citation.] Hence,
the duty ”may exist even where coverage is in doubt and
ultimately does not develop.“ [Citation.]' (Saylin v. California
Ins. Guarantee Assn. (1986) 179 Cal.App.3d 256, 263 [224
Cal.Rptr. 493].) [¶] The defense duty is a continuing one,
arising on tender of defense and lasting until the underlying
lawsuit is concluded (Lambert v. Commonwealth Land Title
Ins. Co. (1991) 53 Cal.3d 1072, 1077, 1079 [282 Cal.Rptr.
445, 811 P.2d 737]), or until it has been shown that there is
no potential for coverage....' ” (Montrose, supra, 6 Cal.4th at
p. 295.)
([8]) “[A]n insurer has a duty to defend an insured if it
becomes aware of, or if the third party lawsuit pleads, facts
giving rise to the potential for coverage under the insuring
agreement. [Citations.] This duty, which applies *1034 even
to claims that are 'groundless, false, or fraudulent,' is separate
from and broader than the insurer's duty to indemnify.
[Citation.]” (Waller v. Truck Ins. Exchange, Inc. (1995) 11
Cal.4th 1, 19 [44 Cal.Rptr.2d 370, 900 P.2d 619].) The scope
of the duty does not depend on the labels given to the causes of
action in the third party complaint; instead it rests on whether
the alleged facts or known extrinsic facts reveal a possibility
that the claim may be covered by the policy. (See Hurley
Construction Co. v. State Farm Fire & Casualty Co. (1992)
10 Cal.App.4th 533, 538 [12 Cal.Rptr.2d 629].)
([9]) Once that possibility of coverage has been raised (in this
case, as we discuss below, by the allegations of Continental's
complaint) then the insurer may defeat such claim of coverage
by extrinsic evidence, but only where “ 'such evidence
presents undisputed facts which conclusively eliminate a
potential for liability.' ” (Montrose, supra, 6 Cal.4th at pp.
298-299, italics added.) “Any doubt as to whether the facts
establish [or defeat] the existence of the defense duty must
be resolved in the insured's favor.” (Id. at pp. 299-300.) The
Montrose court endorsed the following statement of the rule
that applies in this case: “ '[O]nce the insured has established
potential liability by reference to the factual allegations of the
complaint, the terms of the policy, and any extrinsic evidence
upon which the insured intends to rely, the insurer must
assume its duty to defend unless and until it can conclusively
refute that potential. Necessarily, an insurer will be required
to defend a suit where the evidence suggests, but does not
conclusively establish, that the loss is not covered.... A carrier
remains free to seek declaratory relief if undisputed facts
conclusively show, as a matter of law, that there is no potential
for liability.' ” (Id. at p. 299, quoting the opinion of the Court
of Appeal, italics added.)
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10
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
[215 Cal.Rptr. 416], where the court discussed trade libel in
b. The Allegations of Continental's Complaint
Charged an “Offense” Within the Meaning of the
Personal Injury Clause in the Atlantic Mutual Policy
As the above principles establish, Atlantic Mutual's coverage
responsibility is first evaluated by an examination of the
complaint in Continental's underlying action against Lamb.
We have previously quoted the relevant portions of that
complaint (see fn. 3, ante). ([10a]) Those allegations
are best summarized as follows: Lamb was charged
by Continental with intentionally communicating with
Continental's customers and falsely stating to them that
Continental was unlawfully selling them products that were
subject to Lamb's prior patent claim and that Lamb intended
to sue those customers who continued to purchase product
from Continental. In short, Continental alleged that Lamb
had falsely stated to Continental's customers *1035 that
Continental's products were burdened with a prior legal right
and their purchase of such products would subject them to
litigation.
Such allegations, in our view, clearly allege a disparagement
of both Continental as well as its products. The term
“disparagement” has been held to include statements about
a competitor's goods that are untrue or misleading and are
made to influence potential purchasers not to buy. (See
Sentex Systems, Inc. v. Hartford Acc. & Indem. Co. (C.D.Cal.
1995) 882 F.Supp. 930, 944.) Whether characterized as a
trade libel or product disparagement, an injurious falsehood
directed at the organization or products, goods, or services
of another falls within the coverage of the Atlantic Mutual
policy. The plain language of the Atlantic Mutual policy
includes in the definition of “personal injury” the publication
of any oral or written statement that not only slanders or
libels but also one that disparages an organization or its
goods, products, or services. This amounts to coverage for
product disparagement and trade libel as well as defamation.
(See e.g., Amerisure Ins. Co. v. Laserage Technology Corp.
(W.D.N.Y. 1998) 2 F.Supp.2d 296, 304 [where the court
construed nearly identical policy language and reached the
same conclusion].) 13
13
Because we read the Atlantic Mutual policy as
providing coverage for both defamatory and disparaging
publications and we find that the alleged statements by
Lamb constituted disparagement, we need not consider
or discuss their possible defamatory character.
([11]) The term “trade libel” was defined in Nichols v.
Great American Ins. Companies (1985) 169 Cal.App.3d 766
depth. 14 As the Nichols court explained it: “ 'Trade libel
is defined as an intentional disparagement of the quality of
property, which results in pecuniary damage to plaintiff....
”Injurious falsehood, or disparagement, then, may consist of
the publication of matter derogatory to the plaintiff's title to
his property, or its quality, or to his business in general, ....
[T]he plaintiff must prove in all cases that the publication
has played a material and substantial part inducing others
not to deal with him, and that as a result he has suffered
special damages .... Usually, ... the damages claimed have
consisted of loss of prospective contracts with the plaintiff's
customers.“ ' [Citation.]” (Id. at p. 773, quoting Erlich v.
Etner (1964) 224 Cal.App.2d 69, 73 [36 Cal.Rptr. 256], italics
added.) ( [10b]) Here, Continental's complaint alleges that
Lamb contacted Continental's customers and falsely accused
Continental's products of infringing on Lamb's patent. This
clearly constituted a “publication of matter derogatory to the
plaintiff's title to his property, or its quality, or to his business
in general.” *1036
14
As we note below, the Nichols court concluded that no
trade libel was involved in the case before it. However,
its definition of the term “trade libel” is instructive.
The difference between this case and our earlier decision
in Bennett, supra, 53 Cal.App.4th 75, upon which Atlantic
Mutual heavily relies, is that here the policy language
expressly goes beyond coverage for purely defamatory
statements to also include the disparagement of a party's
business or products. In Bennett, the policy language defining
the relevant personal injury offense was more restrictive: “
'a publication or utterance ... of a libel or slander or other
defamatory or disparaging material ....' ” (Bennett, supra,
53 Cal.App.4th at p. 83, some italics omitted.) ([12])(See fn.
15.) Applying the principles of ejusdem generis, 15 we held
that the word “disparaging,” as used in that particular policy,
was limited to the defamation of a person's reputation and
could not be extended to provide coverage for a claim of
disparagement or slander of title to property. (Bennett, at p.
86.) Given the much broader language in the policy before us,
Bennett is of no assistance to Atlantic Mutual's argument.
15
The principle of ejusdem generis provides that where
general words follow the enumeration of particular
classes of persons or things, the general words will be
construed as applicable only to persons or things of
the same general nature or class as those enumerated.
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11
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
(People v. Dyer (2002) 95 Cal.App.4th 448, 455 [115
Cal.Rptr.2d 527].)
We simply cannot rely on Bennett and adopt Atlantic Mutual's
argument that the personal injury coverage under the broader
language of its policy did not extend to the claim asserted
by Continental. To do so would ignore the very fundamental
principle that policy language be so construed as to give
effect to every term. (See, e.g., Fireman's Fund Ins. Co. v.
Superior Court (1997) 65 Cal.App.4th 1205, 1217-1218 [78
Cal.Rptr.2d 418] [a court “ 'must strive to give every term
meaning unless to do so would render the term inconsistent or
contradictory' ”]; Martin Marietta Corp. v. Ins. Co. of North
America, supra, 40 Cal.App.4th at p. 1127 [quoting Union Oil
Co. v. International Ins. Co. (1995) 37 Cal.App.4th 930, 935
[44 Cal.Rptr.2d 4], and noting that “ 'an interpretation that
gives effect to every clause is preferred over one that would
render other policy terms meaningless' ”]; AIU Ins. Co. v.
Superior Court (1990) 51 Cal.3d 807, 826-827 [274 Cal.Rptr.
820, 799 P.2d 1253] [construing the phrase “damages the
insured is legally obligated to pay” and declining to adopt
interpretation of the term “damage” that would render the
phrase “legally obligated to pay” moot].)
As Granite State emphasizes in its brief, construing the
Atlantic Mutual policy in the same manner as the policy
language in Bennett (“a libel or slander or other defamatory
or disparaging material”) would render the additional and
more expansive phrase in the Atlantic Mutual policy (“or
disparages a person or organization's goods, products or
services”) meaningless. A separate meaning of this phrase
must be recognized. To the extent that there is any ambiguity
in the language utilized in the insuring clause of *1037
Atlantic Mutual's policy (see fn. 4, ante), that ambiguity
may be resolved by construing such language in a way that
is consistent with the objectively reasonable expectations
of Lamb. (See Nissel v. Certain Underwriters at Lloyd's
of London (1998) 62 Cal.App.4th 1103, 1110-1112 [73
Cal.Rptr.2d 174].) In our view, coverage for the trade
libel clearly alleged here would most certainly fulfill those
objectively reasonable expectations. Given the disjunctive
language used in the Atlantic Mutual policy, a reasonable
insured would objectively expect coverage for the claim
asserted by Continental.
Atlantic Mutual disagrees. It relies upon three other cases
in addition to Bennett, supra, 53 Cal.App.4th 75: Aetna
Cas. & Sur. Co. v. Centennial Ins. Co. (9th Cir. 1988)
838 F.2d 346, Nichols v. Great American Ins. Companies,
supra, 169 Cal.App.3d 766, and Microtec Research v.
Nationwide Mut. Ins. Co. (9th Cir. 1994) 40 F.3d 968.
None of these decisions, however, involved actual claims
of trade libel such as we have been presented with here,
where the insured allegedly communicated directly with the
claimant's customers and disparaged both the claimant and
its products. Thus, Aetna, Nichols, and Microtec provide
no support for Atlantic Mutual's argument. In each case,
the court held that the complaint's allegations did not
amount to trade libel, or did not trigger personal injury
coverage, because the complaint failed to allege an essential
element of trade libel-a disparaging statement about the
plaintiff's product. 16 Here, Continental's complaint alleges
that Lamb contacted Continental's customers and falsely
accused Continental of violating Lamb's patent. Such a claim
amounted to a denigration of Continental's products no less
than if Lamb had claimed they were defectively designed
or manufactured. Lamb clearly stated that Continental's
products were burdened with a legal infirmity that would
place a Continental customer in legal jeopardy if it purchased
and used or resold the product. Thus, whereas Aetna, Nichols,
and Microtec did not involve a disparaging statement made
about a plaintiff's products, the present case clearly does.
16
In Aetna and Microtec, the insured did not disparage
the plaintiff's product, but rather palmed its own product
off as that of the plaintiff. In Nichols, the insured made
no statement disparaging the plaintiff's equipment or
license, and the only statements made about the plaintiff
at all were made in the course of advertising, and thus fell
within a policy exception to coverage for publications or
utterances made in the course of advertising.
([10c]) We therefore conclude that, as a matter of law, the
insuring clause of Atlantic Mutual's policy provided coverage
for the claim asserted by the allegations of Continental's
complaint. Thus, a potential for coverage existed. Whether
that potential coverage was defeated by facts extrinsic
to Continental's complaint, however, depends upon the
applicability of the *1038 “first publication” exclusion also
relied upon by Atlantic Mutual, but not reached or considered
by the trial court. We now turn to that issue.
c. Atlantic Mutual Owed Lamb a Duty to
Defend the Underlying Continental Action
([13]) Atlantic Mutual's duty to provide Lamb with a defense
depends upon the existence of a potential for coverage at
the time of tender. Atlantic Mutual claims that such potential
was foreclosed by the “first publication” exclusion and
evidence that it claimed to have demonstrating that the first
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12
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
publication by Lamb of the disparaging material was prior to
the inception of the Atlantic Mutual policy; that is, during the
Granite State policy period.
Atlantic Mutual's argument overlooks the significance of the
fact that it is relying on a policy exclusion. The allegations
of the Continental complaint did not specify the date of
Lamb's first utterance of any disparagement. Thus, based
upon those allegations alone, the possibility of coverage
existed. That complaint was tendered to Atlantic Mutual.
This was sufficient, at that moment, to create a potential for
coverage and Atlantic Mutual's duty to defend arose.
It is settled that this duty is excused only where “ 'the
third party complaint can by no conceivable theory raise
a single issue which could bring it within the policy
coverage.' [Citation.]” (Montrose, supra, 6 Cal.4th at p. 300,
quoting Gray, supra, 65 Cal.2d at p. 276, fn. 15, italics
added by Montrose, some italics omitted.) As we have already
noted, “the insured need only show that the underlying claim
may fall within policy coverage; the insurer must prove it
cannot.” (Montrose, at p. 300, some italics added.)
Atlantic Mutual's response is that it produced a declaration
executed by its claims adjuster, who stated that he had spoken
with a representative of Lamb and that person had told him
“that the dispute between Continental and [Lamb] originated
with a conversation which occurred in September of 1998.”
Apart from the fact that such declaration is both vague and
ambiguous and does not clearly establish the date of the
critical “first publication,” it also overlooks the fundamental
principles discussed above that an insurer may only defeat
an existing potential for coverage by undisputed facts that
conclusively negate such coverage. This is particularly true
where the insurer seeks to defeat coverage by reliance
on an exclusion. An insurer may rely on an exclusion
to deny coverage only if it provides conclusive evidence
*1039 demonstrating that the exclusion applies. (See, e.g.,
Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at
p. 16 [exclusions are narrowly construed and insurer bears
burden of proving their application]; Merced Mutual Ins.
Co. v. Mendez (1989) 213 Cal.App.3d 41, 47 [261 Cal.Rptr.
273] [same]; Royal Globe Ins. Co. v. Whitaker (1986) 181
Cal.App.3d 532, 537 [226 Cal.Rptr. 435] [same]; Clemmer
v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 880 [151
Cal.Rptr. 285, 587 P.2d 1098] [same].) Thus, an insurer that
wishes to rely on an exclusion has the burden of proving,
through conclusive evidence, that the exclusion applies in all
possible worlds.
The equivocal and self-serving declaration of Atlantic
Mutual's own claims adjuster certainly did not rise to the
level of conclusive evidence. In any event, Lamb disputed
Atlantic Mutual's claim as to the date of first publication.
While such contrary evidence was not produced by Lamb at
the time that Atlantic Mutual denied coverage and refused
a defense, that fact does not alter our conclusion that the
Continental complaint was, in and of itself, sufficient to
establish a potential for coverage that could only be defeated
by Atlantic Mutual conclusively establishing that the “first
publication” exclusion applied. Atlantic Mutual did not do
that, and it does not matter that Lamb did not produce its
contrary evidence until later. Once the potential for coverage
had been established by the Continental complaint, Lamb
needed to do no more. The burden was on Atlantic Mutual.
In its attempt to demonstrate that it had met that burden,
Atlantic Mutual cites Gunderson v. Fire Ins. Exchange
(1995) 37 Cal.App.4th 1106, 1114 [44 Cal.Rptr.2d 272], and
Ringler Associates Inc. v. Maryland Casualty Co. (2000)
80 Cal.App.4th 1165, 1184 [96 Cal.Rptr.2d 136], for the
proposition that its duty to defend should be based solely
on the evidence available to it at the time it denied Lamb's
claim. This argument misapplies the holdings in these cases.
Gunderson was a bad faith case where the insured sued
his insurer for unreasonably denying coverage. (Gunderson,
supra, 37 Cal.App.4th at p. 1108.) At the time it denied
coverage, the insurer did not have access to any evidence
suggesting that the claims in the underlying complaint
triggered coverage. (Id. at pp. 1110-1111.) Shortly after the
insured settled the underlying litigation, he provided his
insurer with evidence suggesting that it had a duty to defend.
The court held that because he had not provided his insurer
with this evidence until after the underlying case had settled,
he could not argue that the insurer's denial of coverage
was unreasonable and amounted to bad faith. (Id. at pp.
1117-1118.)
Similarly, in Ringler, an insured/brokerage house brought a
bad faith action against its insurer for failing to provide it
with a defense in a suit that several life insurance companies
had brought against it based on allegedly *1040 defamatory
statements the brokerage house had made about their policies.
(Ringler Associates Inc. v. Maryland Casualty Co., supra, 80
Cal.App.4th at pp. 1172-1173.) The insurer denied coverage
based on its policy's first publication exclusion and, rather
than provide the insurer with evidence regarding the allegedly
defamatory statements, the insured intentionally withheld
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
13
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
information regarding the “number, nature, and timing of
[the] defamatory statements” it allegedly had made. (Id. at p.
1184.) The court held that the insurer could not be held liable
for bad faith when the evidence available to it at the time of
tender suggested that the exclusion applied. (Ibid.)
These cases are of no help to Atlantic Mutual because, in
this case, the potential for coverage was established by the
allegations of the underlying Continental complaint. Atlantic
Mutual needed no additional information from Lamb on
that point. Thus, we do not have here a case where an
insured has failed to timely provide information to an insurer
that would have established the potential for coverage in
the first instance. More significantly, we do not now have
before us the claim that Atlantic Mutual was acting in bad
faith or had relied unreasonably on the “first publication”
information developed by its claims adjuster. Lamb raised
the bad faith issue in its cross-complaint, but it was never
reached by the trial court. Upon remand, the trial court
may appropriately consider the reasoning and holdings in
Gunderson and Ringler if Lamb pursues its claim for bad faith
against Atlantic Mutual.
Even though it may ultimately be determined that Atlantic
Mutual has a viable defense to coverage by virtue of the
application of the “first publication” exclusion, this can only
affect its liability for indemnification. Its duty to defend
depended on the existence of only a potential for coverage.
That potential was never conclusively negated and obviously
cannot be negated short of an actual trial to resolve what is
clearly a genuine factual dispute. Thus, we can only conclude
that Atlantic Mutual owed Lamb a defense and it failed to
provide it.
For the exact same reasons, Granite State had a similar
obligation and it decided, albeit tardily, to satisfy that
obligation by its payment to Lamb of the full amount of
the costs incurred to defend the Continental action. This
circumstance leads us to the next issue which is Granite State's
claim that it has a right to equitable contribution from Atlantic
Mutual.
4. Granite State Has a Viable Claim for
Equitable Contribution as to Defense Costs
([14]) In the context of insurance law, the doctrine of
equitable contribution may be simply stated. “[W]here two
or more insurers independently *1041 provide primary
insurance on the same risk for which they are both liable
for any loss to the same insured, the insurance carrier who
pays the loss or defends a lawsuit against the insured is
entitled to equitable contribution from the other insurer or
insurers, ...” (Fireman's Fund Ins. Co. v. Maryland Casualty
Co. (1998) 65 Cal.App.4th 1279, 1289 [77 Cal.Rptr.2d 296]
(Fireman's Fund), italics added.)
The right to contribution depends upon the existence of an
obligation owed to a common insured. The right arises when
one of two or more insurers are “obligated to indemnify or
defend” the same loss or claim and one of those insurers has
paid more than its share of the loss or defended the action
without participation from the others. (Fireman's Fund,
supra, 65 Cal.App.4th at p. 1293.) “Equitable contribution
permits reimbursement to the insurer that paid on the loss
for the excess it paid over its proportionate share of the
obligation, on the theory that the debt it paid was equally and
concurrently owed by the other insurers and should be shared
by them pro rata in proportion to their respective coverage of
the risk. The purpose of this rule of equity is to accomplish
substantial justice by equalizing the common burden shared
by coinsurers, and to prevent one insurer from profiting at the
expense of others. [Citations.]” (Id. at pp. 1293-1294, some
italics added, fn. omitted.)
([15]) Applying these principles here, it is clear that both
Atlantic Mutual and Granite State provided liability coverage
to the same insured for the same risk, although for differing
policy periods. Although, as we explain in more detail below,
they both could not be liable to provide indemnification to
Lamb (because of the differing policy periods), that fact does
not alter the conclusion that they both had a duty to provide a
defense. As already discussed, the Continental complaint did
not establish the date of the first publication of the disparaging
publications and there is still extant an unresolved dispute
over that question. It is undisputed, however, that such first
publication necessarily occurred during either Granite State's
or Atlantic Mutual's policy period. The resolution of that
dispute is very significant to the issue of indemnification
liability, but it is irrelevant to the defense burden. That burden
is established by the existence of the dispute. (Horace Mann,
supra, 4 Cal.4th 1076, 1085.)
As we have already explained, Atlantic Mutual had a duty
to defend Lamb. Because it was also possible that Lamb's
offense took place during Granite State's policy period,
Granite State also had a duty to defend Lamb. Granite State
does not contend otherwise; indeed, it concedes the point by
its claim for equitable contribution. It could not do otherwise.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
14
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
Given the uncertainty as to the date(s) of Lamb's actions
giving rise to Continental's *1042 claim, a possibility of
coverage under the policies of both insurers exists and will
continue to exist until the issue is conclusively determined by
a final judicial decision. 17
17
The factual dispute critical to the “first publication”
issue (i.e., the date or dates of Lamb's alleged wrongful
conduct), on which Atlantic Mutual's actual coverage
liability depends, was not resolved in the now-settled,
underlying Continental action; it will therefore have to
be decided in this action.
Therefore, each insurer had a duty to provide a defense.
Granite State has effectively done so and it is therefore
entitled to recover from Atlantic Mutual an equitable
contribution towards the total defense expenditure. The
proper amount that Granite State is entitled to recover will
have to be determined in the first instance by the trial
court upon remand in accordance with the settled principles
applicable to the doctrine of equitable contribution. (See, e.g.,
Croskey et al., Cal. Practice Guide: Insurance Litigation (The
Rutter Group 2001) ¶¶ 8:73.20 to 8:73.32, pp. 8-25 to 8-28.)
We reject Lamb's argument that the terms of the Settlement
Agreement preclude Granite State from pursuing its equitable
contribution claim against Atlantic Mutual. Although its
contentions have not been consistent throughout these
proceedings, it appears that Lamb now argues that the
Settlement Agreement resolved only its bad faith claim
against Granite State and had nothing to do with either
defense of the Continental action or indemnification of
Continental's claim. There is nothing in this record, however,
that provides any support for such a proposition. It is certainly
not supported by the terms of the Settlement Agreement,
which does not even reflect that a claim for bad faith was
pending or existed. Moreover, Lamb has not demonstrated
the existence of any facts extraneous to the terms of the
Settlement Agreement that would support its present claim
that the $120,000 paid to Lamb should be allocated wholly,
or in part, to a claim of bad faith. Finally, Lamb's argument
appears to be contradicted by the deposition testimony of
its “person most knowledgeable,” who testified that the
Settlement Agreement constituted a novation of the Granite
State policy contract and did not involve a payment “for
defense and indemnity of bad faith.”
In short, we agree with the proposition, endorsed by both
insurers, that Lamb is simply trying to collect twice for the
same claim. If it was Lamb's intent to allocate the $120,000
paid by Granite State, or any portion thereof, to a claim of
tortious bad faith on the part of Granite State, then Lamb
should have caused such allocation to be explicitly set forth
in the Settlement Agreement. As it is presently worded, that
Agreement supports, rather than precludes, Granite State's
pursuit of equitable contribution against Atlantic Mutual.
Thus, the trial court properly resolved this issue by the
summary *1043 adjudication, in favor of Granite State, of
the claims raised by Lamb's cross-complaint.
The most that Lamb is entitled to recover is the balance of
the unreimbursed indemnification expense that it incurred.
Such recovery, as we explain below, will depend on a
determination by the trial court that (1) there is actual
coverage under the Atlantic Mutual policy and (2) Lamb has
proven the actual value of its settlement with Continental and
that such value exceeds the amount paid to Lamb by Granite
State over and above the defense costs of $89,455 (i.e., the
excess of the difference between $120,000 and $89,455).
5. Granite State Also May Have a
Viable Claim for Equitable Subrogation
In a primer on equitable subrogation (and its distinction from
equitable contribution), the court in Fireman's Fund, supra,
65 Cal.App.4th 1279, summarized the relevant principles.
([16]) “The different equitable principles on which
contribution and subrogation are based are reflective of
different underlying public policies. The aim of equitable
subrogation is to place the burden for a loss on the party
ultimately liable or responsible for it and by whom it should
have been discharged, and to relieve entirely the insurer or
surety who indemnified the loss and who in equity was not
primarily liable therefor. [Citation.] On the other hand, the
aim of equitable contribution is to apportion a loss between
two or more insurers who cover the same risk, so that each
pays its fair share and one does not profit at the expense of the
others. [Citations.]” (Fireman's Fund, supra, 65 Cal.App.4th
at p. 1296, some italics added.)
In State Farm & Casualty Co. v. Cooperative of American
Physicians, Inc. (1984) 163 Cal.App.3d 199 [209 Cal.Rptr.
251], the court held that in cases “involving disputes between
carriers insuring the same policyholder, but for different
interests,” an insurer that “fulfilled its legal obligation to
defend and settle” a third party claim on behalf of its insured
assumes the position of its insured by paying the claim, and
may sue the other insurers in a separate action “to adjudicate
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
15
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
the factual merits of the coverage issue” between them. (Id.
at pp. 204-205.)
“Properly read, American Physicians stands for the principle
that where different insurance carriers cover different risks
and liabilities with respect to the same insured, they may
proceed against each other for reimbursement by subrogation
rather than by contribution.... [C]ontribution is only available
in cases where there are coinsurers who share the same level
of *1044 obligation on the same risk. One insurer has no
right of contribution from another insurer with respect to
its payment on an obligation for which it was primarily
responsible, and as to which the liability of the second insurer
was only secondary. [Citations.]” (Fireman's Fund, supra, 65
Cal.App.4th at p. 1298, italics in original.)
Based upon these principles, Granite State seeks to recover
from Atlantic Mutual the amount it paid to Lamb under the
Settlement Agreement. As we have already discussed, both
insurers owed Lamb a defense and they will have to share that
liability on some equitable basis, such basis to be determined
upon remand by the trial court.
The same cannot be said for the amount paid by Lamb to
settle the Continental action. That is a burden that falls under
the indemnification promise of the policies issued by the
insurers. Necessarily, in this case only one insurer can be
liable for that. To that extent, Atlantic Mutual and Granite
State insured different interests, that is, different time periods,
and the operative event could only take place during one of
those periods. The insurer that has indemnification coverage
is the insurer that issued the policy covering the period
when Lamb's alleged disparaging publication first occurred.
If that was during Atlantic Mutual's policy period, then no
act creating any liability of Lamb would have taken place
during the Granite State policy period, and thus Granite State
would have no indemnification liability. 18 On the other hand,
if Lamb's first disparaging publication occurred during the
Granite State policy, then Atlantic Mutual's first publication
exclusion would apply, and Atlantic Mutual would have no
coverage liability. As indicated above, Atlantic Mutual has
the burden of proving the application of its exclusion.
18
As we have already noted (see fn. 4, ante), under the
insuring clause of the Granite State policy, coverage for
personal injury offenses required that they be committed
during the policy period.
As this comes to us upon a summary judgment granted
without considering this critical and disputed issue, we are
unable to determine which insurer will have indemnification
liability under its policy. That issue will have to be resolved
by the trial court upon remand.
If the court determines that Granite State has such liability,
then Granite State will not be entitled to recover on its
equitable subrogation claim. If, on the other hand, it is
determined that Atlantic Mutual is liable to indemnify Lamb,
then (in addition to its right to equitable contribution) Granite
State shall be entitled to recover on its equitable subrogation
claim the difference between the $120,000 it paid to Lamb
and the $89,455 (for Lamb's defense *1045 costs) that is the
subject of the equitable contribution award already discussed.
In addition, and depending on its proof as to the actual value
paid to Continental, Lamb would be entitled to recover from
Atlantic Mutual the balance of the amount (i.e., in excess
of the $120,000 paid by Granite State) it actually paid to
settle with Continental. Proof of such amount shall be Lamb's
burden.
Conclusion
Our review of the appellate record demonstrates that the
allegations of the Continental complaint charged offenses
within the personal injury coverage of the Atlantic Mutual
policy; also there are clearly disputed issues of fact as to the
application of the “first publication” exclusion. Therefore,
there was a potential for coverage under the Atlantic Mutual
policy. This means that both Atlantic Mutual and Granite
State owed a duty to defend Lamb in the underlying
Continental action. As Lamb has already recovered its
defense costs from Granite State, however, Atlantic Mutual's
liability for such defense costs will be limited to what is owed
to Granite State under the latter's equitable contribution claim.
Lamb's claim that Granite State cannot assert such a claim is
without merit.
The issue of Atlantic Mutual's liability for indemnity,
however, will depend on the trial court's determination of (1)
whether there was any actual coverage under the Atlantic
Mutual policy and, if so, (2) the amount that Lamb actually
paid to settle the Continental action. The resolution of the first
issue will turn on the application of the “first publication”
exclusion in the Atlantic Mutual policy. On this question,
Atlantic Mutual will have the burden of proof. If such
actual coverage under the Atlantic Mutual policy is found to
exist, however, then Granite State will be entitled to recover
from Atlantic Mutual, under the principles of equitable
subrogation, up to the $30,545 sum that Granite State paid to
Lamb for indemnity under its policy.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
16
Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017 (2002)
123 Cal.Rptr.2d 256, 02 Cal. Daily Op. Serv. 6984, 2002 Daily Journal D.A.R. 8703
The second issue will be determined upon evidence as to the
actual value of the consideration given by Lamb to settle
the Continental action. On this issue, Lamb will have the
burden of proof. If Lamb establishes that the value of the
consideration paid to Continental to settle the underlying
action exceeded the $30,545 received from Granite State (i.e.,
the difference between the $120,000 paid by Granite State
and the amount allocated to the defense costs expended by
Lamb), then Lamb will be entitled to recover such amount
from Atlantic Mutual if there is actual coverage under its
policy.
We therefore will reverse the judgment of the trial court
and remand with directions for the conduct of such further
End of Document
proceedings as will address and *1046 resolve these issues,
as well as any others that may arise therefrom or that remain
unaddressed as the result of the trial court's grant of a
summary judgment to Atlantic Mutual.
Disposition
The judgment is reversed and both matters (case Nos.
B150674 and B151708) are remanded to the trial court for
further proceedings not inconsistent with the views expressed
herein. Each party shall bear its own costs on appeal.
Klein, P. J., and Aldrich, J., concurred. *1047
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
17
Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
KeyCite Yellow Flag - Negative Treatment
Declined to Extend by Rizzo v. Insurance Co. of State of Pennsylvania,
C.D.Cal., August 30, 2013
90 Cal.App.4th 500, 108 Cal.Rptr.2d 657, 01 Cal.
Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
ALBERT E. BARNETT et al.,
Plaintiffs and Appellants,
v.
FIREMAN'S FUND INSURANCE
COMPANY, Defendant and Respondent.
No. D037272.
Court of Appeal, Fourth District, Division 1, California.
June 4, 2001.
SUMMARY
Former executive officers and a former employee of a
physician practice management company brought an action
against the company's insurer for refusal to defend and
indemnify them in an underlying action in which the
company and a professional medical corporation alleged the
officers and employee made disparaging remarks about them.
Plaintiffs in the present action had tendered defense of the
underlying action to the insurer, asserting that they were
additional insureds under a comprehensive general liability
(CGL) policy issued to the company. The trial court sustained
the insurer's demurrer without leave to amend. (Superior
Court of Orange County, No. 795732, Randell L. Wilkinson,
Judge.)
The Court of Appeal reversed. The court held that the trial
court erred in sustaining the insurer's demurrer without leave
to amend, since the allegations against plaintiffs triggered
at least a potential for coverage under the personal injury
coverage for defamation provided under the CGL policy.
The company was the named insured under the policy,
and the officers were covered as additional insureds. Since
the complaint alleged the officers were seeking to further
corporate interests when they criticized the company, it was
possible they were engaged with respect to their duties
as executive officers when they committed the alleged
misconduct and therefore a potential for coverage existed.
However, the claim by the third additional insured, who
was an employee rather than an officer, did not allege facts
sufficient to state a cause of action against the insurer arising
from the underlying action brought against that particular
insured by the company, since the employee section of the
policy excluded personal injury to employees. The court
further held that the complaint stated sufficient facts to allege
the insurer breached a duty to defend both the officers and the
employee against the medical corporation's complaint. The
CGL policy insured against claims for defamation made by
third parties if officers and employees were acting within the
scope of their employment at the time the alleged defamatory
comments were made. (Opinion by McDonald, J., with
Kremer, P. J., and Huffman, J., concurring.)
HEADNOTES
Classified to California Digest of Official Reports
(1)
Appellate Review § 128--Scope of Review--Function of
Appellate Court-- Rulings on Demurrers.
When the matter comes before the appellate court from
a judgment of dismissal following the sustaining of a
demurrer without leave to amend, the court accepts as true
the facts alleged in the complaint, together with facts that
may be implied or inferred from those expressly alleged.
The appellate court does not, however, accept the truth of
contentions or conclusions of fact or law. Additionally, to
the extent the factual allegations conflict with the content of
the exhibits to the complaint, the appellate court relies on
and accepts as true the contents of the exhibits and treats as
surplusage the pleader's allegations as to the legal effect of
the exhibits.
(2)
Appellate Review § 128--Scope of Review--Function of
Appellate Court-- Rulings on Demurrers--Grounds to Affirm
or Reverse.
On appeal from a judgment dismissing an action after
sustaining a demurrer, the appellate court reverses if the
plaintiff has stated a cause of action under any legal theory.
However, the court affirms the judgment if any one of the
several grounds of demurrer is well taken.
(3)
Insurance Contracts and Coverage § 11--Interpretation of
Contracts--As Question of Law.
The interpretation of the meaning of an insurance policy
and the scope of coverage are questions of law. Whether a
third party action asserts a potentially covered claim under
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
1
Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
the policy triggering the duty to defend requires the court
to interpret the language of the insuring agreement and is a
question of law.
(4)
Insurance Contracts and Coverage § 107.1--Liability
and Indemnity Insurance--Determination of Obligation to
Defend.
An insurer must defend any action that seeks damages
potentially within the coverage of the policy. Conversely, the
insurer owes no duty to defend when the third party complaint
can by no conceivable theory raise a single issue that could
bring it within the policy coverage. However, to be entitled to
a defense, the insured must prove the existence of a potential
for coverage, while the insurer must establish the absence of
any such potential. In other words, the insured need only show
that the underlying claim may fall within policy coverage; the
insurer must prove it cannot. The determination of whether
the duty to defend exists is made initially by comparing the
allegations in the third party complaint with the terms of the
policy, and considering extrinsic facts that reveal a possibility
the claim may be covered by the policy. The existence of the
duty to defend turns on all facts known by the insurer at the
inception of the third party lawsuit. If the facts alleged by
the third party or known to the insurer create any potential
for indemnity under the policy, the insurer must provide a
defense even though noncovered acts are also alleged by the
third party action.
(5)
Insurance Contracts and Coverage § 107.1--Liability
and Indemnity Insurance--Determination of Obligation to
Defend--Underlying Action for Defamation.
In an action by former executive officers and a former
employee of a physician practice management company
against the company's insurer for refusal to defend and
indemnify them in an underlying action in which their former
employer and a medical corporation alleged that plaintiffs
made disparaging remarks about them, the trial court erred
in sustaining the insurer's demurrer without leave to amend,
since the allegations against plaintiffs triggered at least
a potential for coverage under the comprehensive general
liability (CGL) policy. The CGL policy provided coverage for
injury arising out of oral or written publication of material that
slandered or libeled a person or organization or disparaged a
person's or organization's goods, products, or services. This
clause covered claims for defamation. Although the officers
and employee may not have alleged all of the elements
necessary to state a cause of action for defamation, the duty
to defend arises when the facts alleged in the underlying
complaint give rise to a potentially covered claim regardless
of the technical legal cause of action pleaded by the third
party. The complaints in the underlying action alleged that the
officers and employee told third persons that the company's
methods of doing business were flawed and would result
in its failure and made other representations that disparaged
and damaged the company and corporation. Such allegations
triggered at least a potential for coverage under the personal
injury coverage for defamation.
[See 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, §
1135 et seq.; West's Key Number Digest, Insurance k. 2311.]
(6)
Insurance Contracts and Coverage § 107.1--Liability
and Indemnity Insurance--Determination of Obligation to
Defend--Additional Insured on Former Employer's Policy-Where Underlying Action Initiated by Former Employer.
In an action by former executive officers of a physician
practice management company against the company's insurer
for refusal to defend and indemnify them in an underlying
action in which the company alleged the officers made
disparaging remarks about them, the trial court erred in
sustaining the insurer's demurrer without leave to amend,
since the complaint stated sufficient facts to allege that
the insurer breached a duty to defend the officers against
the underlying complaint. The company was the named
insured under a comprehensive general liability policy, and
the officers were covered as additional insureds. When a
person seeks coverage as an additional insured under a policy
issued to a corporation as the named insured, an officer or
employee of the corporation is entitled to a defense if he or she
was acting in an insured capacity when allegedly engaged in
the injury-producing conduct. The complaint alleged that the
officers were acting to advance the interests of the company
when they expressed concerns that changes implemented by
the company would violate California's prohibition against
the corporate practice of medicine. Since the complaint
alleged the officers were seeking to further corporate interests
when they criticized the company, it was possible they were
engaged with respect to their duties as executive officers
when they committed the alleged misconduct and therefore
a potential for coverage existed. However, a claim by a
third additional insured, who was an employee rather than an
officer, did not allege facts sufficient to state a cause of action,
since the employee section of the policy excluded personal
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2
Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
injury to employees, thereby eliminating any potential that the
employee would be covered.
(7)
Insurance Contracts and Coverage § 107.1--Liability
and Indemnity Insurance--Determination of Obligation to
Defend--Additional Insureds--Third Party Claims.
In an action by former executive officers and a former
employee of a physician practice management company
against the company's insurer for refusal to defend and
indemnify them in an underlying action in which both the
company and a medical corporation alleged plaintiffs made
disparaging remarks about them, the trial court erred in
sustaining the insurer's demurrer without leave to amend,
since the complaint stated sufficient facts to allege the insurer
breached a duty to defend against the medical corporation's
complaint. The comprehensive general liability (CGL) policy
insured against claims for defamation made by third parties if
officers and employees were acting in their insured capacity
at the time the alleged defamatory comments were made. The
officers and employee alleged they were sued for defaming
a third party (the medical corporation) while executing their
duties as an officer, or acting within the scope of employment,
respectively, of the company. The medical corporation could
not be deemed a subsidiary of a named insured (the company)
under the CGL policy, so as to prevent the corporation
from being treated as a third party claimant, since there
were no allegations or extrinsic facts that established that
the corporation possessed the requisite relationship to the
company that would qualify it as an additional named insured.
COUNSEL
Zimmerman, Koomer, Connolly & Finkel, Michael D.
Koomer and Scott Z. Zimmerman for Plaintiffs and
Appellants.
Mower, Koeller, Nebeker, Carlson & Haluck, Jon R. Mower
and John R. Armstrong for Defendant and Respondent.
McDONALD, J.
In late 1996 and early 1997 MedPartners, Inc. (MedPartners),
and a different entity, Southern California Medical
Corporation (SCMC), filed lawsuits against appellants Albert
E. Barnett, Gloria Mayer (G. Mayer) and Thomas Mayer
(T. Mayer) (the underlying action). In the underlying action,
MedPartners and SCMC alleged appellants engaged in a
variety of misconduct, including making disparaging remarks
about them. Appellants tendered the defense of the underlying
action to respondent Fireman's Fund Insurance Company
(Fireman's), asserting they were additional insureds under
a comprehensive general liability policy (the CGL policy)
issued by Fireman's to MedPartners. Fireman's rejected the
tender.
In the present lawsuit, appellants alleged Fireman's refusal to
defend and indemnify them in the underlying action breached
its obligations under the CGL policy. Fireman's demurrer to
the complaint argued appellants were not entitled to a defense
or indemnity because (1) there was no possibility appellants
were acting in an insured capacity when they committed the
conduct alleged in the underlying action and (2) the conduct
alleged in the underlying action was not covered by the CGL
policy. The trial court sustained the demurrer without leave
to amend, and this appeal followed.
I. Factual and Procedural Background
A. The Facts of the Underlying Action
([1]) Because this matter comes before us from a judgment
of dismissal following the sustaining of a demurrer without
leave to amend, our factual *505 background accepts
as true the facts alleged in the complaint, together with
facts that may be implied or inferred from those expressly
alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37
Cal.App.4th 1397, 1403 [44 Cal.Rptr.2d 339].) We do not,
however, accept the truth of contentions or conclusions of
fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216
Cal.Rptr. 718, 703 P.2d 58].) Additionally, to the extent the
factual allegations conflict with the content of the exhibits to
the complaint, we rely on and accept as true the contents of
the exhibits and treat as surplusage the pleader's allegations
as to the legal effect of the exhibits. (Weitzenkorn v. Lesser
(1953) 40 Cal.2d 778, 785 [256 P.2d 947]; Dodd v. Citizens
Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627 [272
Cal.Rptr. 623].)
Barnett is a physician who founded and owned SCMC, a
professional medical corporation that operated an integrated
health care delivery system (the system) providing primary
and specialty medical services and inpatient and outpatient
hospital services under capitated contracts with health
maintenance organizations. In November 1995 SCMC
entered into a contract with Caremark Physician Services, Inc.
(Caremark) under which Caremark managed the operations
of the system on behalf of SCMC, but reserved to SCMC the
exclusive control over all decisions relating to the practice
of medicine. This reservation was required to comply with
California's prohibition against the corporate practice of
medicine. (See generally Conrad v. Medical Bd. of California
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
3
Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
(1996) 48 Cal.App.4th 1038, 1042-1043 [55 Cal.Rptr.2d
901].)
In 1996 MedPartners, a large physician practice management
company, acquired Caremark. Following the acquisition
Barnett and G. Mayer became executive officers of
MedPartners and T. Mayer became an employee of
MedPartners. MedPartners is the named insured under the
CGL policy issued by Fireman's.
After MedPartners acquired Caremark, MedPartners made
fundamental changes in the management and organizational
structure of the system. Appellants expressed concern to
MedPartners and others that, under the changes implemented
by MedPartners, the system would no longer be supervised
and directed by physicians concerned and entrusted with
providing quality care to patients; instead the system would
be directed by a corporation more concerned with corporate
revenues than with the benefits provided to patients, thereby
adversely affecting patient care and violating California's
prohibition against the corporate practice of medicine.
Appellants sought to advance the interests of MedPartners by
urging MedPartners to comply with California's prohibition
against the corporate practice of medicine. *506
In November 1996 MedPartners terminated appellants
as officers and employees of MedPartners. One reason
for the terminations was to retaliate against appellants
for their complaints about MedPartners' noncompliance
with the prohibition against the corporate practice of
medicine. MedPartners then filed the underlying action
against appellants; SCMC subsequently filed a complaint in
intervention in the underlying action. MedPartners' lawsuit
alleged, among other things, that appellants told numerous
persons (within and outside of the MedPartners organization)
that MedPartners' methods of doing business were flawed
and would result in MedPartners' failure, and made other
representations that disparaged and damaged MedPartners.
MedPartners' complaint pleaded causes of action for breach
of fiduciary duty, intentional interference with contractual
relations, breach of the implied covenant of good faith and
fair dealing, and fraud.
SCMC's complaint in intervention alleged similar misconduct
by appellants and that appellants made disparaging and
damaging remarks about SCMC. SCMC's complaint in
intervention pleaded claims for declaratory relief and for
intentional interference with contractual relations.
Appellants asked Fireman's to defend and indemnify
them in connection with both MedPartners' complaint and
SCMC's complaint in intervention. Appellants asserted they
were additional insureds under the CGL policy issued to
MedPartners, and that the allegations of the complaint
created a potentially covered claim for personal injury and/
or advertising injury within the meaning of the CGL policy.
Fireman's declined to defend or indemnify appellants.
B. The Present Action
Appellants filed this action against Fireman's, alleging its
refusal to defend and indemnify them in the underlying action
breached the contractual and good faith obligations owed to
them under the CGL policy. Fireman's demurrer to appellants'
complaint asserted two arguments. First, Fireman's argued
appellants were not insureds under the CGL policy because
Barnett and G. Mayer qualified as insureds only “with
respect to their duties as [MedPartners] officers,” and T.
Mayer qualified as an insured only “for acts within the
scope of [his] employment.” Fireman's argued that under
Milazo v. Gulf Ins. Co. (1990) 224 Cal.App.3d 1528 [274
Cal.Rptr. 632] (Milazo), acts by an additional insured that
are antagonistic or hostile to the business interests of the
named insured cannot be acts “within the scope of their
employment” or “with respect to their duties as officers”
of the named insured. Second, Fireman's argued that in the
underlying action MedPartners and SCMC did not allege facts
suggesting any possibility that appellants' *507 alleged
misconduct would be a covered act within the personal injury
or advertising injury coverages of the CGL policy.
Appellants argued that CGL policy contained no language
barring coverage under the circumstances alleged in the
underlying action, and that Milazo was distinguishable
because it involved insuring clauses and factual
circumstances different from those present here. Appellants
also argued that even if Milazo excluded coverage for
MedPartners' lawsuit, Milazo's rationale had no application to
a third party action like the SCMC lawsuit. Finally, appellants
argued that in the underlying action MedPartners and SCMC
alleged facts that could support liability for defamation within
both the personal injury and the advertising injury coverages
of the CGL policy.
The trial court sustained Fireman's demurrer without leave
to amend and dismissed appellants' complaint. 1 This appeal
argues the trial court's ruling was in error.
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108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
1
The trial court ruled appellants were not insureds and
therefore could not state a cause of action against
Fireman's for breach of contract. This ruling also
precluded appellants from stating a cause of action
against Fireman's for breach of the covenant of good faith
and fair dealing. (Republic Indemnity Co. v. Schofield
(1996) 47 Cal.App.4th 220, 227 [54 Cal.Rptr.2d 637]
[persons who are not insureds cannot maintain action for
breach of the covenant of good faith and fair dealing].)
We conclude below that appellants have stated facts
sufficient to constitute a cause of action for breach of
contract, and Fireman's raises no independent argument
that the order sustaining the demurrer to appellants' cause
of action for breach of the covenant of good faith and fair
dealing was proper. Accordingly, we must reverse the
trial court's ruling as to appellants' breach of the covenant
of good faith and fair dealing claim for the same reasons
that support our reversal of the trial court's ruling as to
appellants' breach of contract action.
II. Standard of Review
([2]) On appeal from a judgment dismissing an action after
sustaining a demurrer we give the complaint a reasonable
interpretation, and treat the demurrer as admitting all material
facts properly pleaded, but not the truth of contentions,
deductions or conclusions of law. We reverse if the plaintiff
has stated a cause of action under any legal theory. (Walker
v. Allstate Indemnity Co. (2000) 77 Cal.App.4th 750, 754 [92
Cal.Rptr.2d 132].) However, we affirm the judgment if any
one of the several grounds of demurrer is well taken. (Weikel
v. TCW Realty Fund II Holding Co. (1997) 55 Cal.App.4th
1234, 1244 [65 Cal.Rptr.2d 25].) We apply de novo review
to decide whether it was proper to sustain the demurrer
because that ruling involved construction of the CGL and its
application to the facts alleged in the underlying lawsuits.
(Ray v. Farmers Ins. Exchange (1988) 200 Cal.App.3d 1411,
1415-1416 [246 Cal.Rptr. 593].) *508
III. Principles Governing Duty to Defend
([3]) The interpretation of the meaning of an insurance policy
and the scope of coverage are questions of law. (Western
Mutual Ins. Co. v. Yamamoto (1994) 29 Cal.App.4th 1474,
1481 [35 Cal.Rptr.2d 698].) Whether a third party action
asserts a potentially covered claim under the policy triggering
the duty to defend requires us to interpret the language
of the insuring agreement and is a question of law. (Alex
Robertson Co. v. Imperial Casualty & Indemnity Co. (1992)
8 Cal.App.4th 338, 342-343 [10 Cal.Rptr.2d 165] [potential
for coverage under insuring language presents issue of law];
Century Transit Systems, Inc. v. American Empire Surplus
Lines Ins. Co. (1996) 42 Cal.App.4th 121, 125-126 [49
Cal.Rptr.2d 567] [potential for coverage in light of policy
exclusions presents question of law]; Union Oil Co. v.
International Ins. Co. (1995) 37 Cal.App.4th 930, 936 [44
Cal.Rptr.2d 4] [whether clause is ambiguous and whether
insured has objectively reasonable expectation of coverage
are questions of law subject to de novo review on appeal].)
Fireman's does not deny that the CGL policy covers liability
of its insureds for defamation and requires Fireman's to
defend appellants against a lawsuit in which they were
potentially liable for defamatory statements made in their
insured capacities. 2 ([4]) An insurer must defend any action
that seeks damages potentially within the coverage of the
policy. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263,
275 [54 Cal.Rptr. 104, 419 P.2d 168].) Conversely, the insurer
owes no duty to defend when the third party complaint “ 'can
by no conceivable theory raise a single issue [that] could bring
it within the policy coverage.' ” (Montrose Chemical Corp.
v. Superior Court (1993) 6 Cal.4th 287, 300 [24 Cal.Rptr.2d
467, 861 P.2d 1153] [quoting Gray, supra, at p. 276, fn. 15],
italics omitted.) However, to be entitled to a defense, “the
insured must prove the existence of a potential for coverage,
while the insurer must establish the absence of any such
potential. In other words, the insured need only show that the
underlying claim may fall within policy coverage; the insurer
must prove it cannot.” (Montrose, supra, at p. 300, italics
omitted.) The determination of whether the duty to defend
exists is made initially by comparing the allegations in the
third party *509 complaint with the terms of the policy, and
considering extrinsic facts that reveal a possibility the claim
may be covered by the policy. The existence of the duty to
defend turns on all facts known by the insurer at the inception
of the third party lawsuit. (Id. at p. 295.) If the facts alleged
by the third party or known to the insurer create any potential
for indemnity under the policy, the insurer must provide a
defense even though noncovered acts are also alleged by
the third party action. (Horace Mann Ins. Co. v. Barbara B.
(1993) 4 Cal.4th 1076, 1084 [17 Cal.Rptr.2d 210, 846 P.2d
792].)
2
Barnett and G. Mayer qualified as insureds only “with
respect to their duties as [MedPartners] officers,” and T.
Mayer qualified as an insured only “for acts within the
scope of [his] employment” with MedPartners. However,
there is no dispute that if T. Mayer (while acting within
the scope of his employment with MedPartners) or
Barnett or G. Mayer (while discharging their duties
as officers of MedPartners) defamed a third party
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Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
claimant and were sued for defamation, Fireman's would
be obligated to defend and indemnify them in the
defamation suit.
In this case, we address two issues. First, assuming appellants
were insureds under the CGL policy, did the underlying
action assert a potentially covered claim against them; and
second, did appellants qualify as insureds under the CGL
policy?
IV. Analysis
A. The Defamation Claims Fall
Within the Personal Injury Coverage 3
([5]) The personal injury coverage of the CGL policy provides
coverage for “injury ... arising out of one or more of the
following offenses: ... d. Oral or written publication of
material that slanders or libels a person or organization or
disparages a person's or organization's goods, products or
services.” This clause covers claims against the insured for
defamation. (Cf. Truck Ins. Exchange v. Bennett (1997) 53
Cal.App.4th 75, 83-86 [61 Cal.Rptr.2d 497].) Appellants
argue the underlying action raised a potentially covered
claim for defamation because the complainants alleged
that appellants told numerous persons that MedPartners'
methods of doing business were flawed and would result
in MedPartners' failure, and made other representations that
disparaged and damaged MedPartners and SCMC. *510
These allegations, argue appellants, trigger the personal
injury coverage of the CGL policy.
3
Appellants also suggest the nascent defamation claims
are covered under the advertising injury coverage
provided by the CGL policy. However, the advertising
injury section provides coverage if the injury was
“caused by an offense committed in the course of
advertising your goods, products or services.” Most
courts have limited the scope of this coverage by the
common sense understanding that advertising activities
mean widespread promotional activities directed to the
public at large (see Bank of the West v. Superior Court
(1992) 2 Cal.4th 1254, 1276, fn. 9 [10 Cal.Rptr.2d 538,
833 P.2d 545]). Appellants present neither argument
nor authority supporting a contrary interpretation of this
coverage. Moreover, although appellants peremptorily
argue that it is possible T. Mayer defamed MedPartners
during widespread promotional activities directed to
the public at large, they cite nothing in the record
supporting this possibility and do not attempt to
explain how an employee could defame his or her
employer during promotional activities and nevertheless
be deemed to have been acting within the scope of
employment. Accordingly, we decline to further address
this suggestion. (Dills v. Redwoods Associates, Ltd.
(1994) 28 Cal.App.4th 888, 890, fn. 1 [33 Cal.Rptr.2d
838].)
Fireman's argues, however, that personal injury coverages
of liability poli-cies apply only to acts enumerated by the
policy as covered offenses. (Fibreboard Corp. v. Hartford
Accident & Indemnity Co. (1993) 16 Cal.App.4th 492, 511
[20 Cal.Rptr.2d 376].) It cites Lindsey v. Admiral Ins. Co.
(N.D. Cal. 1992) 804 F.Supp. 47, 52 for the proposition that
the insurer has no obligation to defend unless the underlying
complaint alleges all of the elements necessary to establish an
enumerated offense. From this foundation, Fireman's argues
the complaints in the underlying action did not allege all of the
elements necessary to state a cause of action for defamation,
and therefore it had no duty to defend the underlying action. 4
4
Fireman's also cites Gunderson v. Fire Ins. Exchange
(1995) 37 Cal.App.4th 1106, 1114 [44 Cal.Rptr.2d 272]
as holding that, where the underlying complaint does not
allege a covered claim, an insured may not manufacture
coverage by speculating about extraneous facts or ways
in which the third party claimant might amend its
complaint at some future date to bring the claim within
the policy's coverage. From this predicate, Fireman's
argues it had no duty to defend because the third
party complaint did not allege appellants' liability for
defamation and required speculation about extraneous
facts that the third party might or might not assert by
amendment. However, Gunderson recognized that the
test for the duty to defend is whether the facts known to
the insurer at the time of tender of the defense, both from
the allegations on the face of the third party complaint
and from extrinsic information available to it at the time,
created a potential for coverage under the terms of the
policy. (Id. at p. 1114.) Gunderson held merely that on
the facts before it the third party complaint alleged claims
for which there was no possibility of coverage, there
were no extrinsic facts known at the time of the tender
that would give rise to a covered claim, the extrinsic
facts cited by the insured would not, even if true, have
established a covered claim, and the insurer did not have
a continuing duty to investigate whether there was a
potential for coverage after making an informed decision
that there was no potential for coverage. (Id. at pp.
1115-117.)
However, the duty to defend arises when the facts alleged in
the underlying complaint give rise to a potentially covered
claim regardless of the technical legal cause of action pleaded
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Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
by the third party. (CNA Casualty of California v. Seaboard
Surety Co. (1986) 176 Cal.App.3d 598, 606-607 [222
Cal.Rptr. 276], disapproved on another point in Montrose
Chemical Corp. v. Superior Court, supra, 6 Cal.4th at pp.
296-298.) The complaints in the underlying action alleged
appellants told third persons that MedPartners' methods of
doing business were flawed and would result in its failure
and made other representations that disparaged and damaged
MedPartners and SCMC. These allegations trigger at least a
potential for coverage under the personal injury coverage for
defamation provided by the CGL policy. 5 *511
5
Fireman's asserts a defamation claim requires that the
plaintiff allege the defendant made statements that are
published, untrue, impugn the plaintiff's integrity, and
are statements of fact rather than opinion, and that these
elements were not pleaded in the underlying action. In
California, however, the plaintiff need only plead that
the defendant published specified types of defamatory
statements; the plaintiff need not specially allege
the statements were false. (5 Witkin, Cal. Procedure
(4th ed. 1997) Pleading, §§ 694-696, pp. 154-156.)
The underlying complaint alleged publication to third
persons, and the content of the statements were allegedly
disparaging. These allegations sufficed to give rise to a
potentially covered claim.
B. The Complaint Stated Sufficient Facts to Allege
Fireman's Breached a Duty to Defend Barnett
and G. Mayer Against MedPartners' Complaint
([6]) Our discussion of the coverage afforded by the CGL
policy to appellants for any defamation claim treated the
underlying action as having been filed by parties with no
relationship to the CGL policy. However, the underlying
action by MedPartners is a claim by the named insured under
the CGL policy. Appellants are covered as additional insureds
under that policy (subject to any applicable exclusionary
language) to the extent they were engaged in discharging their
duties as corporate officers or acted within the scope of their
employment.
When a person seeks coverage as an additional insured
under a policy issued to a corporation as the named insured,
an officer or employee of the corporation is entitled to a
defense if he or she was acting in an insured capacity when
allegedly engaged in the injury-producing conduct. (See
generally Olson v. Federal Ins. Co. (1990) 219 Cal.App.3d
252, 260-262 [268 Cal.Rptr. 90].) Section II of the CGL
policy identifies who qualifies as additional insureds under
the CGL policy; it provides that executive officers of
MedPartners are “insureds, but only with respect to their
duties as your officers ....” The allegations of the complaint,
which we accept as true on demurrer, 6 were that Barnett
and G. Mayer “[a]t all times relevant ... were executive
officers of MedPartners, acting with respect to their duties as
MedPartners executive officers,” and that they “were acting
to advance the interests of MedPartners” when they expressed
concerns that the changes implemented by MedPartners
would violate California's prohibition against the corporate
practice of medicine. These allegations, if true, could show
that Barnett's and G. Mayer's defamatory statements (e.g.,
that MedPartners' methods of doing business were flawed and
would result in MedPartners' failure and other representations
that disparaged and damaged MedPartners) were made in
their capacities as executive officers seeking to discharge
their duties to assure that MedPartners fulfilled its legal
obligations. Accordingly, there exists a potential that Barnett
and G. Mayer were acting in an insured capacity when
they allegedly engaged in the injury-producing conduct, and
*512 therefore Barnett and G. Mayer have stated a cause of
action against Fireman's for breach of the duty to defend the
MedPartners' complaint.
6
Fireman's argues that a court does not on demurrer accept
as true allegations contradicted by exhibits attached to
the complaint, but makes no effort to demonstrate the
relevance of this principle. Fireman's does not explain
how the exhibits contradict appellants' allegation that
they were acting as officers or employees seeking to
further the interests of their corporation at the time of
making the statements.
However, the claim by T. Mayer stands on a different
footing because, unlike the protection afforded to officers,
the employee subdivision of section II of the CGL policy that
extends coverage to T. Mayer as an employee of MedPartners
expressly excludes or limits coverage based on the identity
of the party making the claim. The employee section (§ II,
subd. 2.a.), which covers employees “for acts within the
scope of their employment,” specifies in pertinent part that
“no employee is an insured for: [¶] ... [b]odily injury or
personal injury: [¶] ... [t]o you ....” (Italics added.) Because
defamation is covered only by virtue of the personal injury
coverages of the CGL policy, the limitation contained in
section II, subdivision 2.a.(1)(a) excludes from coverage
any claim against an employee for defaming the named
insured. Because the only covered offense potentially raised
by the MedPartners' complaint against T. Mayer was that he
defamed MedPartners, the policy exclusion eliminates any
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Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
potential that T. Mayer would be covered for MedPartners's
claim against him.
Fireman's cites several cases to support its argument that
when an individual is an additional insured under a policy
issued to an entity and the entity sues the individual for
conduct detrimental or injurious to the entity, as a matter
of law there can be no duty to defend under the primary
insured's policy. However, the cases cited by Fireman's do
not support that broad proposition. The principal case cited
by Fireman's is Milazo, supra, 224 Cal.App.3d 1528, in
which a partnership was insured under a comprehensive
general liability policy, and a partner was an additional
insured “ 'with respect to his liability as [a partner].' ” (Id.
at pp. 1535-1536, italics omitted.) The partnership sued
Milazo, an individual partner, alleging that he breached his
fiduciary duty by misappropriating a partnership opportunity;
the insurer defended Milazo under a reservation of rights.
The jury verdict held Milazo liable for misappropriating the
partnership opportunity, and the issue on appeal was whether
the insurer was obligated to indemnify Milazo. (Id. at pp.
1531-1533.) The Milazo court, after concluding the policy
covered the partnership's liabilities and provided coverage
to Milazo as an additional insured only to the extent he
had derivative liability for the partnership's liabilities, held
there was no obligation to indemnify him in his insured
capacity. The Milazo court reasoned that a partner who
acts to misappropriate a partnership asset or opportunity is
necessarily engaged in conduct adverse to the partnership, and
because the partnership entity could not be liable for such
misconduct, Milazo could have no derivative liability and
*513 therefore the insurance did not cover the claim against
him. 7 (Id. at pp. 1537-1539.)
7
The Milazo court also noted that a partner who acts
to misappropriate a partnership asset or opportunity
is necessarily engaged in conduct contrary to, rather
than on behalf of, the partnership, and thus necessarily
was acting in his capacity as an individual rather than
as a partner. (Milazo, supra, 224 Cal.App.3d at pp.
1531-1533.)
Milazo is distinguishable from the instant case in important
aspects. First, unlike the insuring language that the Milazo
court construed as providing coverage for only derivative
liability, the insuring language of the CGL policy does
not appear to condition coverage for executive officers on
the requirement that the corporation have direct liability
for their misconduct. Second, and more importantly, the
Milazo court evaluated the duty to indemnify after a
trial that established the additional insured's misconduct
was necessarily committed in his individual capacity. 8 In
contrast, Fireman's duty to defend is tested by whether there
was any potential that Barnett's and G. Mayer's alleged
conduct was committed with respect to their duties as
executive officers. (Accord, Farr v. Farm Bureau Ins. Co.
of Nebraska (8th Cir. 1995) 61 F.3d 677, 681, fn. 4 [test for
coverage is not whether slander falls within scope of duties
of officer, but whether officers “were acting on behalf of the
corporation (as opposed to themselves) when they engaged
in the alleged behavior”].) Because the complaint alleges
Barnett and G. Mayer were seeking to further the corporate
interests when they criticized MedPartners, it is possible they
were engaged with respect to their duties as executive officers
when they committed the alleged misconduct and therefore a
potential for coverage exists.
8
The procedural posture of the present case likewise
distinguishes it from the recent decision in Lomes v.
Hartford Financial Services Group, Inc. (2001) 88
Cal.App.4th 127 [105 Cal.Rptr.2d 471]. In Lomes, the
named insured corporation sued the plaintiff alleging, in
part, that he had defamed it during conversations with a
lender in April 1996; at the time of the defamation, he
had already been fired as an officer but had remained
a director of the corporation. The insurer declined
to defend the plaintiff (an additional insured) in the
corporation's lawsuit; the plaintiff then sued the insurer
(the coverage lawsuit). In the papers filed in support of
cross-motions for summary adjudication in the coverage
lawsuit, the undisputed evidence included admissions by
the plaintiff that, at the time of the defamatory comments,
he was not an officer of the corporation, he was working
elsewhere, and he had not performed any services for
the corporation after August 1995. Because he clearly
had not been acting as an officer at the time of the
defamation, and because the Lomes court concluded
he could not have been acting as a director because
there was no evidence the board had authorized him
to contact the lender, he was not acting in any insured
capacity. (Id. at pp. 132-133.) Lomes's analysis revolved
around the absence of any evidence that the plaintiff
was discharging his corporate duties when he defamed
the entity. Here, however, we must assume the truth
of Barnett's and G. Mayer's allegations that they were
acting as officers seeking to further the interests of the
corporation.
The other California cases cited by Fireman's do not support
Fireman's broad contention. For example, in *514 Olson v.
Federal Ins. Co., supra, 219 Cal.App.3d 252, the plaintiff
argued he was entitled to a defense as an additional insured
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Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
under a policy issued to Olson Farms; the court rejected the
claim because the dispute did not arise out of his conduct
as a director of Olson Farms but instead involved a dispute
over the management of a different corporation. (Id. at pp.
260-262.) In Plate v. Sun-Diamond Growers (1990) 225
Cal.App.3d 1115 [275 Cal.Rptr. 667], the court did not
consider the interpretation of an insurance policy or the duty
to defend; the issue was whether the corporate agents were
entitled to indemnity from their employer under Corporations
Code section 317. In Transamerica Ins. Co. v. Sayble (1987)
193 Cal.App.3d 1562 [239 Cal.Rptr. 201], the court held
merely that an errors and omissions policy issued to an
attorney required allegations of negligence while rendering
services to his clients and did not provide coverage for a
dispute arising from dissolution of a law partnership. Finally,
in Republic Indemnity Co. v. Schofield, supra, 47 Cal.App.4th
220, the court held only that a workers' compensation policy
did not protect the employer's officers against a claim
for constructive discharge because the policy insured the
employer, and the officers were not the employer.
The authorities from other jurisdictions cited by Fireman's are
not persuasive. In Farr v. Farm Bureau Ins. Co. of Nebraska,
supra, 61 F.3d 677, the named insured corporation sued the
plaintiffs (former directors or officers of the corporation),
alleging they breached their fiduciary duty by trying to
thwart a sale of the corporation. The insurer rejected the
plaintiffs' tender of the defense to the insurer, the plaintiffs
sued the insurer, and the trial court ruled after a bench
trial that there was no duty to defend the plaintiffs under a
comprehensive general liability policy worded similarly to
the CGL policy. (Id. at pp. 678-679.) Farr noted the officers
were insureds “ 'only with respect to their duties' ” as officers,
and concluded the insurer had no duty to defend because
an officer cannot be acting with respect to his or her duties
when that fiduciary duty to the corporation is breached, and
all torts pleaded against the officers in the underlying action
necessarily involved breaching their fiduciary obligations
to the corporation. (Id. at pp. 680-681.) The Farr court
buttressed its conclusion by noting the purpose and intent of
the policies were to cover the corporation's liability to third
persons rather than internal disputes among shareholders. To
the extent this observation contains an implicit interpretation
of the policies in Farr as providing protection to officers only
when the claim against them is lodged by third persons, the
CGL policy does not limit coverage for officers based on the
identity of the claimant.
We decline to apply Farr to this case. First, Farr is silent
on what precise conduct the officers in Farr were accused
of committing and “assume [d] without deciding that the
[conduct] giving rise to the [underlying lawsuit] *515 would
satisfy the policy's definition of 'personal injury.' ” (Farr
v. Farm Bureau Ins. Co. of Nebraska, supra, 61 F.3d at
p. 680.) This assumption contributed to an incomplete, and
in our opinion, erroneous, analysis of the duty to defend
because deciding whether an officer's conduct occurred with
respect to his duty as an officer cannot be determined in a
vacuum. Although the (undisclosed) conduct of the officers
in Farr may have been outside the duties of an officer,
Fireman's cites no authority suggesting that an officer who
seeks to further the interests of his corporation by criticizing
management changes, or by erroneously suggesting these
changes could violate the law or result in the failure of the
corporation, is as a matter of law acting outside of his duties
or in breach of his fiduciary obligations. Second, a central
tenet of Farr's analysis that “each of the torts pleaded [in the
underlying action] requires a breach of one or more fiduciary
duties” shows the Farr court focused on the causes of action
pleaded rather than the operative misconduct, which is not
the approach used in California for purposes of evaluating
the duty to defend. (CNA Casualty of California v. Seaboard
Surety Co., supra, 176 Cal.App.3d at pp. 606-607 [it is
facts, not a technical, legal cause of action pleaded by third
party, that give rise to a potential for a covered claim].)
Finally, Farr states that the insurance policies were intended
to protect officers when they are “properly carrying out their
duties ... and are designed to protect the officer who acts
to advance the business interests of the corporation, not the
officer who acts in a manner that is antagonistic toward the
corporation's business interests.” 9 (Farr v. Farm Bureau Ins.
Co. of Nebraska, supra, 61 F.3d at p. 681.) The Farr court
concluded the officers there were not acting in an insured
manner. 10 Here, Barnett and G. Mayer alleged they were
carrying out their duties as officers and were acting to further
MedPartners' interests.
9
This observation was confirmed when the Farr court,
rejecting the insurer's claim that there could be no
coverage because defamation is not within the scope of
an officer's duties, stated that: “this is not the proper
inquiry. Rather, the proper inquiry is whether [the
officers] were acting on behalf of the corporation (as
opposed to themselves) when they engaged in the alleged
behavior.” (Farr v. Farm Bureau Ins. Co. of Nebraska,
supra, 61 F.3d at p. 681, fn. 4.)
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Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
10
The other out-of-state authority, Winther v. Valley Ins.
Co. (1996) 140 Or.App. 459 [915 P.2d 1050], is less
persuasive than Farr. There, the court concluded that the
language of the policy, providing coverage “ 'only with
respect to the conduct of your business,' ” covered only
liabilities arising out of activities necessary or incidental
to buying and selling the goods and services sold by the
entity, and that disputes between partners related to their
rights in the entity were not part of the “ 'conduct of
[the] business.' ” (Id. at p. 1052, italics omitted.) Winther
has no application to either the policy language or the
conduct of the officers in this case.
We conclude that, at least for purposes of demurrer, Barnett
and G. Mayer, but not T. Mayer, have stated facts sufficient
to state a cause of action against Fireman's for breach of the
duty to defend them against MedPartners' complaint in the
underlying action. *516
C. The Complaint Stated Sufficient Facts to
Allege Fireman's Breached a Duty to Defend
All Appellants Against SCMC's Complaint
([7]) Fireman's does not dispute that the CGL policy insures
appellants against claims for defamation made by third parties
if appellants were acting in their insured capacity at the time
the alleged defamatory comments were made. Accordingly,
if Barnett and G. Mayer were sued for defaming a third party
while executing their “duties as [MedPartners] officers,” or if
T. Mayer was sued for defaming a third party while “act[ing]
within the scope of [his] employment,” Fireman's would have
a duty to defend and indemnify appellants. Both elements are
adequately alleged here. First, in the underlying action, the
SCMC complaint alleged facts creating a potential claim for
defamation against appellants. Second, appellants' complaint
alleged they were at all relevant times acting with respect to
their duties as MedPartners' executive officers or within the
officers or employees of MedPartners. (Horace Mann
Ins. Co. v. Barbara B., supra, 4 Cal.4th at p. 1084 [where
facts alleged by the third party create any potential
for indemnity under the policy, insurer must provide a
defense even though noncovered acts are also alleged by
the third party].)
Fireman's argues SCMC cannot be treated as a third party
claimant because SCMC, as a subsidiary of a named insured
under the CGL policy, 12 is deemed to be an additional named
insured under the CGL policy, and therefore the same analysis
applicable to the duty to defend MedPartners' claim should
be applied to the duty to defend SCMC's claim. However,
the CGL policy specifies a subsidiary of a named insured
corporation qualifies as an additional named insured under
the CGL policy only if a series of conditions are met. One
of the conditions is that the specifically named insured parent
corporation owns ”a controlling interest in [the subsidiary] of
greater than 50 [percent] of the stock or assets.“ There are no
allegations or extrinsic facts that establish SCMC bears the
requisite relationship to Caremark that would qualify SCMC
as an additional named insured, and we therefore reject
Fireman's claim that SCMC was a named insured, excusing
Fireman's from its duty to defend appellants against SCMC's
*517 claim. (Montrose Chemical Corp. v. Superior Court,
supra, 6 Cal.4th at p. 300 [to be entitled to a defense ”the
insured need only show that the underlying claim may fall
within policy coverage; the insurer must prove it cannot“],
original italics.)
12
Caremark was added as a named insured to the CGL
policy. The precise relationship between Caremark
and SCMC is hazy: the MedPartners' complaint
characterized SCMC as an “indirect subsidiary” of
Caremark, and the SCMC complaint labeled their
relationship as a “Friendly PC or ”indirect subsidiary“ of
Caremark.
scope of their employment by MedPartners. 11
11
Fireman's argues it had no duty to defend because the
SCMC lawsuit demonstrates SCMC sought recovery
against Barnett for acts he committed as an owner
or officer of SCMC, and sought recovery against the
Mayers as Barnett's coconspirators, rather than for acts
they committed as officers or employees of MedPartners.
Although the SCMC complaint does allege misfeasance
by Barnett as an owner or officer of SCMC, it does
not renounce any claims it had against either Barnett
or the Mayers for acts they may have committed as
Disposition
The judgment is reversed. Appellants are entitled to costs on
appeal.
Kremer, P. J., and Huffman, J., concurred.
Appellant's petition for review by the Supreme Court was
denied August 29, 2001. Kennard, J., was of the opinion that
the petition should be granted. *518
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
10
Barnett v. Fireman's Fund Ins. Co., 90 Cal.App.4th 500 (2001)
108 Cal.Rptr.2d 657, 01 Cal. Daily Op. Serv. 5705, 2001 Daily Journal D.A.R. 6975
End of Document
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
11
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
any material fact and that the moving party is
entitled to judgment as a matter of law. Fed.Rules
Civ.Proc.Rule 56(c), 28 U.S.C.App.(2000 Ed.)
KeyCite Yellow Flag - Negative Treatment
Distinguished by Bullpen Distribution, Inc. v. Sentinel Ins. Co., Ltd.,
N.D.Cal.,
June 1, 2012
590 F.Supp.2d 1244
United States District Court,
N.D. California,
San Jose Division.
[2]
The party moving for summary judgment always
bears the initial responsibility of informing
the district court of the basis for its motion,
and identifying the evidence which it believes
demonstrates the absence of a genuine issue of
material fact, and then the non-moving party
must identify specific facts that might affect the
outcome of the suit under the governing law, thus
establishing that there is a genuine issue for trial.
Fed.Rules Civ.Proc.Rule 56(c, e), 28 U.S.C.App.
(2000 Ed.)
E.PIPHANY, INC., Plaintiff,
v.
ST. PAUL FIRE & MARINE
INSURANCE CO., Defendant.
No. C 08-02621 JW.
|
Dec. 16, 2008.
Synopsis
Background: Insured filed suit against liability insurer,
asserting breach of contract claim and seeking declaration
that insurer had duty to defend insured in underlying
litigation, pursuant to policy's technology global companion
commercial liability protection. Insured moved for partial
summary judgment, and insurer moved for summary
judgment.
Federal Civil Procedure
Burden of Proof
[3]
Federal Civil Procedure
Weight and Sufficiency
When evaluating a motion for partial or full
summary judgment, the district court views the
evidence through the prism of the evidentiary
standard of proof that would pertain at trial
by drawing all reasonable inferences in favor
of the non-moving party, including questions
of credibility and of the weight that particular
evidence is accorded. Fed.Rules Civ.Proc.Rule
56(c), 28 U.S.C.App.(2000 Ed.)
[Holding:] The District Court, James Ware, J., held that
duty to defend in underlying trade libel suit was triggered by
allegations of disparagement by implication.
Plaintiff's motion granted.
[4]
West Headnotes (17)
[1]
District court determines whether the nonmoving party's specific facts, coupled with
disputed background or contextual facts, are
such that a reasonable jury might return a
verdict for the non-moving party, and in such a
case, partial summary judgment is inappropriate.
Fed.Rules Civ.Proc.Rule 56(c), 28 U.S.C.App.
(2000 Ed.)
Federal Civil Procedure
Absence of Genuine Issue of Fact in
General
Federal Civil Procedure
Right to Judgment as Matter of Law
As with a motion for summary judgment, partial
summary judgment is proper 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
Federal Civil Procedure
Partial Summary Judgment
[5]
Federal Civil Procedure
Materiality and Genuineness of Fact Issue
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
1
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
Where a rational trier of fact could not find for
the non-moving party based on the record as a
whole, there is no genuine issue for trial as would
defeat the motion for partial summary judgment.
Fed.Rules Civ.Proc.Rule 56(c), 28 U.S.C.App.
(2000 Ed.)
In General; Standard
Under California law, the liability insurer must
defend insured against a suit which potentially
seeks damages within the coverage of the policy.
1 Cases that cite this headnote
[11]
[6]
Federal Civil Procedure
By Both Parties
Since the duty to defend is broader than the duty
to indemnify, under California law, an insurer
may have a duty to defend the insured even
though no damages are ultimately awarded.
The filing of cross-motions for partial summary
judgment or summary judgment does not
necessarily mean that the material facts are,
indeed, undisputed. Fed.Rules Civ.Proc.Rule
56(c), 28 U.S.C.App.(2000 Ed.)
[12]
[7]
Insurance
In General; Standard
Federal Civil Procedure
Partial Summary Judgment
Insurance
Pleadings
Insurance
Matters Beyond Pleadings
Upon filing of cross-motions for partial summary
judgment or summary judgment, the denial of
one motion does not necessarily require the grant
of another. Fed.Rules Civ.Proc.Rule 56(c), 28
U.S.C.App.(2000 Ed.)
When analyzing an insurer's duty to defend the
insured, under California law, district court looks
to the underlying complaint and all facts known
to the insurer from any source.
1 Cases that cite this headnote
[8]
Federal Civil Procedure
By Both Parties
[13]
Upon filing of cross-motions for partial summary
judgment or summary judgment, the motions
must be evaluated in accordance with the claim
or defense which is the subject of the motion and
in accordance with the burden of proof allocated
to each party. Fed.Rules Civ.Proc.Rule 56(c), 28
U.S.C.App.(2000 Ed.)
Insurance
Matters Beyond Pleadings
Insurance
Termination of Duty; Withdrawal
Under California law, if any facts stated or fairly
inferable in the complaint, or otherwise known
or discovered by the insurer, suggest a claim
potentially covered by the policy, the insurer's
duty to defend the insured arises and is not
extinguished until the insurer negates all facts
suggesting potential coverage.
1 Cases that cite this headnote
[9]
Insurance
In General; Standard
Under California law, a liability insurer has a
broad duty to defend its insured against claims
that create a potential for indemnity.
1 Cases that cite this headnote
[10]
Insurance
Insurance
Pleadings
[14]
Libel and Slander
Nature and Elements in General
In California, a disparaging statement about a
competitor's product that causes the competitor
to suffer pecuniary damages is actionable as
trade libel.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
2
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
[15]
1 Cases that cite this headnote
Bruce D. Celebrezze, Michael A. Topp, Sedgwick, Detert,
Moran & Arnold LLP, San Francisco, CA, for Defendant.
Libel and Slander
Nature and Elements in General
Opinion
“Trade libel” and “product disparagement” are
injurious falsehoods that interfere with business.
[16]
Libel and Slander
Nature and Elements in General
Unlike classic defamation, trade libel and
product disparagement are not directed at the
plaintiff's personal reputation but rather at the
goods a plaintiff sells or the character of his other
business.
[17]
*1247 ORDER GRANTING PLAINTIFF'S
MOTION FOR PARTIAL SUMMARY
JUDGMENT ON DEFENDANT'S DUTY TO
DEFEND; DENYING DEFENDANT'S CROSSMOTION FOR SUMMARY JUDGMENT
Insurance
Defamation or Disparagement
Insurance
Defamation or Disparagement
Liability insurer's duty to defend insured in
underlying trade libel suit was triggered, under
California law, by disparagement allegations in
underlying complaint that implicated potential
for personal injury and advertising injury
coverage, under policy's technology global
companion commercial liability protection, even
though insured's publication did not expressly
identify disparaged product or business, where
underlying complaint alleged that insured made
false claims about superiority of insured's own
products that clearly and necessarily implied
inferiority of competitor's products, resulting
in pecuniary and reputational damages to
competitor.
11 Cases that cite this headnote
JAMES WARE, District Judge.
I. INTRODUCTION
E.piphany (“Plaintiff”) brings this diversity action against St.
Paul Fire & Marine Insurance Co. (“Defendant”), alleging
breach of contract and seeking declaratory relief under 28
U.S.C. § 2201. Plaintiff insurance policyholder alleges that
Defendant insurance carrier had a duty to defend Plaintiff
in an underlying litigation (“Underlying Action”), 1 pursuant
to the terms of the parties' insurance policy (“Policy”), and
that Defendant violated the terms of the Policy by failing to
provide a defense.
1
Sigma Dynamics, Inc. v. E.piphany, Inc., Case No.
C 04-0569 MJJ, 2004 WL 3669840 (N.D. Cal. filed
February 10, 2004).
Presently before the Court are the parties' cross-motions for
summary judgment. 2 The Court conducted a hearing on
October 27, 2008. Based on the papers submitted to date
and oral argument, the Court GRANTS Plaintiff's Motion for
Partial Summary Judgment and DENIES Defendant's CrossMotion for Summary Judgment.
2
(Plaintiff's Motion for Partial Summary Judgment on
St. Paul Fire & Marine Insurance Company's Duty to
Defend and Breach of Its Duty to Defend, hereafter,
“Motion,” Docket Item No. 5; Defendant's CrossMotion for Summary Judgment, hereafter, “Defendant's
Motion,” Docket Item No. 27.)
Attorneys and Law Firms
*1246 David A. Gauntlett, James A. Lowe, Christopher Lai,
Gauntlett & Associates, Irvine, CA, for Plaintiff.
II. BACKGROUND
A. Undisputed Facts
Starting on June 24, 2002, Plaintiff was covered by
Technology Global Companion Commercial Liability
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
3
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
Protection, as part of an overall Policy 3 taken out with
Advertising Injury means injury, other than bodily injury
or personal injury, that's caused by an advertising injury
offense.
Defendant. 4 Coverage under the Policy continued until June
24, 2003. (Id.) In relevant parts, the Policy provided as
follows:
3
Policy number TE09405602.
4
(Declaration of James C. Zacharski in Opposition to
Plaintiff's Partial Motion for Summary Judgment and
in Support of Defendant's Cross-Motion for Summary
Judgment, Ex. A, hereafter, “Zacharski Decl.,” Docket
Item No. 29.)
Advertising injury offense means any of the following
offenses:
• Libel, or slander, in or with covered material.
• Making known to any person or organization covered
material that disparages the business, premises,
products, services, work, or completed work of
others ...
Personal injury liability. We'll pay amounts any protected
person is legally required to pay as damages for covered
personal injury that:
Advertising means attracting the attention of others by
any means for the purpose of:
• seeking customers or supporters; or
• results from your business activities
• increasing sales or business.
• is caused by a personal injury offense committed while
this agreement is in effect.
Advertising material means any covered material that:
Personal injury means injury, other than bodily injury
or advertising injury, that's caused by a personal injury
offense.
• is subject to copyright law; and
• others use and intend to attract attention in their
advertising ...
Personal injury offense means any of the following
offenses ...
Right and duty to defend a protected person. We'll
have the right and duty to defend any protected person
against a claim or suit for injury or damage covered by
this agreement. We'll have such right and duty even if
all of the allegations of the claim or suit are groundless,
false, or fraudulent. But we won't have a duty to perform
any other act or service ...
• Libel, or slander, in or with covered material
• Making known to any person or organization covered
material that disparages the business, premises,
products, services, work, or completed work of
others ...
Exclusions-What This Agreement Won't Cover ...
Covered material means any material in any form of
expression, including material made known in or with
any electronic means of communication, such as the
Internet.
Advertising Injury Liability. We'll pay amounts any
protected person is *1248 legally required to pay as
damages for covered advertising injury that:
• results from the advertising of your products, your
work, or your completed work; and
• is caused by an advertising injury while this agreement
is in effect ...
Poor quality or performance. 5 We won't cover
advertising injury that results from the failure of your
products, your work, or your completed work to conform
with advertised quality or performance ... (Id.)
5
The Court notes Defendant's contention that this
“failure to conform” exclusion eliminates a potential
for coverage. (Defendant's Memorandum of Points and
Authorities (1) in Opposition to Plaintiff's Motion for
Partial Summary Judgment and (2) in Support of St.
Paul's Cross-Motion for Summary Judgment at 14,
hereafter, “Opposition,” Docket Item No. 28.) This case,
however, is not related to the performance of Plaintiff's
products. Rather, this action is based on alleged trade
libel committed by Plaintiff, with respect to negative
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
4
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
comparisons Plaintiff made about competitors vis-a-vis
Plaintiff's products. It is irrelevant whether Plaintiff's
products actually possessed the attributes advertised by
Plaintiff.
On February 10, 2004, Plaintiff was sued by Sigma
Dynamics, Inc. (“Sigma”) in the Northern District of
California. On July 15, 2004, Sigma filed a First Amended
Complaint (“Underlying Complaint”), which alleged causes
of action for false advertising and unfair competition under
15 U.S.C. § 1125(a) and California Business & Professions
Code §§ 17200, 17500. 6 The Underlying Complaint alleged,
in relevant part:
6
(Declaration of Ryan J. Padden in Support of Plaintiff's
Motion for Partial Summary Judgment, Ex. 1, hereafter,
“Padden Decl.,” Docket Item No. 7.)
Sigma Dynamics and E.piphany are direct competitors in
the market for software products that enable businesses
to more efficiently manage and optimize their customer
interactions. One important *1249 differentiator between
competing products in this market is whether the software
is written in Java and is fully compliant with J2EE
application server technology ... Since at least mid-2002,
E.piphany has been falsely advertising its product suite
as “all Java” and “fully J2EE.” E.piphany's products
are not “all Java” or “fully J2EE,” and E.piphany's
misrepresentations about the underlying architecture and
implementation of its products have given it an unfair and
undeserved advantage over competitors, some of which
do offer, “all Java” and “fully J2EE” software solutions.
E.piphany's misleading statements have caused prominent
industry and financial analysts to publish unfair product
comparisons and reviews, which have compounded the
confusion by E.piphany's direct statements to customers
and prospective customers ... (Underlying Complaint ¶ 1.)
Using every channel at its disposal, E.piphany has made,
and continues to make, false and misleading statements
about its products and their performance. For example,
at some point in 2002, E.piphany began advertising that
its product suite is “all Java” and “fully J2EE.” (Id.
¶ 16.) E.piphany has made its claim to be “all Java”
and “fully J2EE” a core part of its positioning in the
market, and claims a competitive advantage over other
software makers based on that alleged differentiator.
(Id. ¶ 17.) Despite making public claims ... that it “is
the first full suite CRM vendor to market a complete
product suite built on J2EE” and that it has released “the
only component-based, fully-J2EE complete CRM suite
available,” E.piphany's products have never been “all
Java” nor “fully J2EE.” (Id. ¶ 18.)
On October 17, 2002, E.piphany issued its Q302
earnings press release [which stated] “the launch of
E.6 Service in August completed the E.6 platform, the
only component-based, fully-J2EE complete CRM suite
available.” (Id. ¶ 23.) On October 23, 2003, during
E.piphany's Q303 earnings conference call, E.piphany's
CEO claimed that E.Phiphany is “the only full-footprint
vendor who actually has a full J2EE architecture ... we're
the only vendor that has that, and I think we have a
couple year lead.” (Id. ¶ 26.) On January 14, 2003,
E.piphany published a press release entitled E.piphany
Advances Relationship with IBM by Delivering OpenStandards CRM, which claimed that the E.piphany E.6
CRM suite provides “a fully integrated and certified onevendor solution that delivers a true J2EE, standardsbased architecture.” (Id. ¶ 28.)
On August 4, 2003, E.piphany published a press release
entitled E.piphany Announces Support of BEA Weblogic
Platform 8.1, which claimed that “E.piphany offers the
only full-footprint CRM suite natively built on a serviceoriented J2EE architecture.” (Id. ¶ 29.) E.piphany issued
a worldwide press release on August 20, 2002, which
stated that “E.piphany is the first end-to-end CRM
suite designed and built on a unified J2EE-based
platform.” (Id. ¶ 35.)
The foregoing literally false, deceptive, and misleading
representations by E.piphany about its technology
have damaged, and continue to present the likelihood
of damage, to Sigma Dynamics. E.piphany's literally
false, deceptive, and misleading representations have
damaged Sigma's market share, sales, profits, business
relationships, reputation, and goodwill, and have
caused potential purchasers of Sigma's products and
services to choose E.piphany's instead of Sigma's. Such
representations *1250 have caused E.piphany to gain,
and Sigma to lose, profits, market share, reputation, and
goodwill. (Id. ¶ 43.)
On July 22, 2004, Plaintiff sent a letter to Defendant, which
tendered to Defendant the defense of claims asserted in the
Underlying Complaint. (Padden Decl., Ex. 3.) On July 27,
2004, Defendant informed Plaintiff that Defendant did not
have a duty to defend Plaintiff under the terms of the Policy,
on the grounds that the Underlying Complaint did not allege
any covered “personal injury” or “advertising injury.” (Id.,
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
5
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
Ex. 4.) On September 21, 2005, Plaintiff attempted, through
counsel, to re-tender the defense of Sigma's claims, which
Defendant again denied on February 17, 2006. (Id., Exs. 8, 9.)
Presently before the Court are Plaintiff's Motion for Partial
Summary Judgment on Defendant's Duty to Defend and
Breach of Its Duty to Defend and Defendant's Cross-Motion
for Summary Judgment.
is inappropriate. Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
However, where a rational trier of fact could not find for the
non-moving party based on the record as a whole, there is no
“genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith
Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538
(1986).
[6]
[7]
[8] The filing of cross-motions for partial
summary judgment or summary *1251 judgment does
not necessarily mean that the material facts are, indeed,
undisputed. The denial of one motion does not necessarily
III. STANDARDS
require the grant of another. See Atl. Richfield Co. v. Farm
[1] [2] Although motions for partial summary judgment Credit Bank of Wichita, 226 F.3d 1138, 1147 (10th Cir.2000).
The motions must be evaluated in accordance with the
are common, Rule 56 of the Federal Rules of Civil Procedure,
claim or defense which is the subject of the motion and in
which governs summary judgment, does not contain an
accordance with the burden of proof allocated to each party.
explicit procedure entitled “partial summary judgment.”
As with a motion under Rule 56(c), partial summary
judgment is proper “if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the
IV. DISCUSSION
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment
Plaintiff contends that the Complaint in the Underlying
as a matter of law.” Fed.R.Civ.P. 56(c). The purpose of partial
Action triggered Defendant's duty to defend, because the
summary judgment “is to isolate and dispose of factually
Underlying Complaint alleged “disparagement,” and thus
unsupported claims or defenses.” Celotex v. Catrett, 477
triggered the potential for coverage under the terms of the
U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
Policy. (Motion at 4-5.)
The moving party “always bears the initial responsibility of
informing the district court of the basis for its motion, and
[9] [10] [11] Under California law, a liability insurer has
identifying the evidence which it believes demonstrates the
a broad duty to defend its insured against claims that create a
absence of a genuine issue of material fact.” Id. at 323, 106
potential for indemnity. Montrose Chem. Corp. v. Sup.Ct., 6
S.Ct. 2548. The non-moving party must then identify specific
Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (1993)
facts “that might affect the outcome of the suit under the
(internal citations omitted). “The carrier must defend a suit
governing law,” thus establishing that there is a genuine issue
which potentially seeks damages within the coverage of the
for trial. Fed.R.Civ.P. 56(e).
policy.” Gray v. Zurich Ins. Co., 65 Cal.2d 263, 275, 54
Cal.Rptr. 104, 419 P.2d 168 (1966). Since the duty to defend
[3] [4] [5] When evaluating a motion for partial or full is broader than the duty to indemnify, an insurer may have
summary judgment, the court views the evidence through
a duty to defend even though no damages are ultimately
the prism of the evidentiary standard of proof that would
awarded. Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th
pertain at trial. Anderson v. Liberty Lobby Inc., 477 U.S.
1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792 (1993).
242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court
draws all reasonable inferences in favor of the non-moving
[12]
[13] When analyzing the duty to defend under
party, including questions of credibility and of the weight
California law, a court looks to the underlying complaint
that particular evidence is accorded. See, e.g. Masson v. New
and “all facts known to the insurer from any source.” See
Yorker Magazine, Inc., 501 U.S. 496, 520, 111 S.Ct. 2419,
Montrose Chem.Corp., 6 Cal.4th at 300, 24 Cal.Rptr.2d 467,
115 L.Ed.2d 447 (1991). The court determines whether the
861 P.2d 1153. This is because “the duty to defend, although
non-moving party's “specific facts,” coupled with disputed
broad, is not unlimited; it is measured by the nature and
background or contextual facts, are such that a reasonable jury
kinds of risks covered by the policy.” Waller v. Truck Ins.
might return a verdict for the non-moving party. T.W. Elec.
Exchange, Inc., 11 Cal.4th 1, 19, 44 Cal.Rptr.2d 370, 900 P.2d
Serv. Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626,
619 (1995). However, “[i]f any facts stated or fairly inferable
631 (9th Cir.1987). In such a case, partial summary judgment
in the complaint, or otherwise known or discovered by the
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6
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
insurer, suggest a claim potentially covered by the policy, the
insurer's duty to defend arises and is not extinguished until
the insurer negates all facts suggesting potential coverage.”
Scottsdale Ins. Co. v. MV Transp., 36 Cal.4th 643, 655, 31
Cal.Rptr.3d 147, 115 P.3d 460 (2005).
In this case, the Policy covers the offenses of “personal
injury” and “advertising injury,” which are defined in
the Policy as “[m]aking known to any person or
organization covered material that disparages the business,
premises, products, services, work, or completed work of
others.” (Zacharski Deck, Ex. A.) The parties do not dispute
that the Policy, by its explicit terms, covers “disparagement.”
Rather, the parties contest whether the Underlying Complaint
made allegations sufficient to demonstrate a potential
for “disparagement” coverage, because the E.piphany
publications alleged in the Underlying Complaint did not
specifically identify Sigma or any Sigma products, but rather
made allegedly false representations about E.piphany's own
products.
a publication does not expressly identify a disparaged
product or business. Precedent does suggest, however, that
disparagement by implication is actionable under California
law. In Blatty v. New York Times Co., the California Supreme
Court addressed First Amendment limits on defamation
claims, including claims for trade libel. 42 Cal.3d 1033,
232 Cal.Rptr. 542, 728 P.2d 1177 (1986). The Court noted
that, as a threshold matter, “in defamation actions the First
Amendment ... requires that the statement on which the claim
is based must specifically refer to, or be ‘of and concerning,’
the plaintiff in some way.” Id. at 1042, 232 Cal.Rptr. 542,
728 P.2d 1177. The Court went on to clarify that “to be
referred to specifically, we emphasize, the plaintiff need
not be mentioned by name, but may be identified by clear
implication.” Id. at 1044 n. 1, 232 Cal.Rptr. 542, 728 P.2d
1177.
At least one other jurisdiction has specifically addressed the
issue of whether disparagement coverage can be triggered
when a policy holder was not alleged to have disparaged
a specifically identified product or business. See Knoll
[14]
[15]
[16] In California, a disparaging statement Pharmaceutical Co. v. Automobile Ins. Co. of Hartford, 152
about a competitor's product that causes the competitor to
F.Supp.2d 1026, 1037-38 (N.D.Ill.2001) (applying Illinois
suffer pecuniary *1252 damages is actionable as trade
law). 8 In Knoll, the policy holder was insured for advertising
libel. 7 See Microtec Research, Inc. v. Nationwide Mut.
Ins. Co., 40 F.3d 968, 972-73 (9th Cir.1994). California
courts have held that to state a disparagement claim within
the meaning of the Policy here at issue, the underlying
plaintiff must allege that defendant made false, injurious,
or derogatory statements about a plaintiff's products, which
caused it to suffer pecuniary damages. See, e.g., id.; Truck Ins.
Exchange v. Bennett, 53 Cal.App.4th 75, 89, 61 Cal.Rptr.2d
497 (1997). Trade libel and product disparagement are
“injurious falsehoods that interfere with business. Unlike
classic defamation, they are not directed at the plaintiff's
personal reputation but rather at the goods a plaintiff sells or
the character of his other business.” Aetna Cas. & Sur. Co. v.
Centennial Ins. Co., 838 F.2d 346, 351 (9th Cir.1988).
7
But see National Union Fire Ins. Co. of Pittsburgh, Pa.
v. Seagate Technology, Inc., 233 Fed.Appx. 614 (9th
Cir.2007) (finding under California law that a carrier had
a duty to defend when the relevant policy provided for
trade libel coverage, and where the underlying complaint
alleged statements by the policy holder that compared
its products to those of competitors without specifically
identifying the competitors or their products).
California courts have not explicitly determined whether
a cause of action for disparagement can exist where
injury and personal injury, which were defined as “oral or
written publication of material that slanders or libels a person
or organization or disparages a person's or organization's
goods, products or services.” Id. at 1034. In the litigation
underlying the insurance coverage dispute in Knoll, the
plaintiffs alleged that the policyholder had advertised its
thyroid drug as “more effective than or superior to the
other drugs available to treat hyperthyroidism” and had
wrongly claimed that its drug was “not bioequivalent to
competing products,” thereby disparaging *1253 competing
manufacturers. Id. at 1036. Although the complaint in the
underlying litigation did not allege disparagement of any
specific competitors or products, the court in Knoll found
a duty to defend because allegations of statements that
the policyholder's drug was superior to other drugs were
“disparaging in that they criticize the quality of other
companies' ... products as being inferior.” Id. at 1038. In other
words, by claiming that its own product was not bioequivalent
to competitor products, the policyholder had, by necessary
implication, suggested that competitors' products possessed
different and inferior indicia of biological activity.
8
The Court is aware that Knoll is distinguishable from
this case in that Knoll dealt with a situation in which
the plaintiffs in the underlying litigation were not the
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
7
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
parties at whom the alleged disparaging statements
were directed. Instead, the plaintiffs were consumers
who sought lower-priced thyroid drugs, and not the
manufacturers of those drugs. Nonetheless, the Court
finds the analysis of disparagement law instructive to the
issue presently before the Court.
[17]
In this case, the Underlying Complaint makes
numerous allegations that suggest a claim for disparagement
by implication. 9 The Underlying Complaint alleges that
Plaintiff falsely stated that it was the “only” producer of
“all Java” and “fully J2EE” software solutions, which was
an “important differentiator” between competing products,
even though some competitors offered products with these
exact features. (Underlying Complaint ¶ 1.) The Underlying
Complaint goes on to enumerate a host of specific instances
in which Plaintiff made these allegedly false claims, and in
which Plaintiff purportedly stated that it was the “first end-toend CRM suite designed and build on a unified J2EE-based
platform” and had “a couple of year lead” on competitors
in this particular product market. (Id. ¶¶ 16-18, 23-35.) The
Underlying Complaint further alleges that Plaintiff and Sigma
were direct competitors in this market and that Sigma's market
share, sales, and reputation were damaged as a result of
Plaintiff's allegedly false statements. (Id. ¶¶ 1, 43.)
9
The fact that the Underlying Complaint does not
specifically allege a disparagement cause of action is
of no moment, because the scope of the duty to defend
“does not depend on the labels given to the causes
of action” and can be found merely by “comparing
the allegations of the complaint with the terms of the
policy.” Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100
Cal.App.4th 1017, 1034, 123 Cal.Rptr.2d 256 (2002);
Montrose, 6 Cal.4th at 295, 24 Cal.Rptr.2d 467, 861
P.2d 1153. Indeed, the duty to defend exists “until it has
been shown that there is no potential for coverage.” Id.
(emphasis in original).
Taken together, these allegations show a claim for
disparagement by “clear implication.” Blatty, 42 Cal.3d
at 1044 n. 1, 232 Cal.Rptr. 542, 728 P.2d 1177. That
is, Plaintiff's alleged statement that it was, for example,
“the only component-based, fully-J2EE complete CRM suite
available” necessarily suggests that competitor products
did not have such capabilities. Plaintiff's alleged claim
of having “a couple of year lead” on competitors also
necessarily suggests that competitors were well behind
Plaintiff in terms of technology development. In addition,
the Underlying Complaint alleges that Plaintiff and Sigma
were competitors, that Plaintiff's competitors actually
were selling “all Java” and “fully J2EE” software at
the time of Plaintiffs misrepresentations, and that Sigma
suffered pecuniary and reputational damage as a result of
these purported misrepresentations. The gravamen of the
Underlying Complaint, therefore, is that Plaintiff made false
claims about the superiority of its own products, which clearly
and necessarily implied the inferiority of Sigma's competing
products, resulting in damages to Sigma. The Court finds
that the statements alleged in Underlying Complaint had the
potential to give rise to disparagement liability if ultimately
proven to be “injurious falsehoods that interfere[d] with
[Sigma's] business.” Aetna, 838 F.2d at 351. The fact that the
“injurious *1254 falsehoods” alleged were only directed at
Sigma by implied comparison with Plaintiff's products does
not alter this outcome.
In sum, the Court finds that the Underlying Complaint
contained disparagement allegations that implicated the
potential for “personal injury” and “advertising injury”
coverage under the Policy, and thus triggered Defendant's
duty to defend. Montrose, 6 Cal.4th at 295, 24 Cal.Rptr.2d
467, 861 P.2d 1153. Since Defendant undisputedly refused
Plaintiff's tender of the defense in the Underlying Action, the
Court finds that Defendant breached its duty to defend.
Accordingly, the Court GRANTS Plaintiff's Motion for
Partial Summary Judgment on Defendant's breach of its
duty to defend and DENIES Defendant's Cross-Motion for
Summary Judgment.
V. CONCLUSION
The Court GRANTS Plaintiff's Motion for Partial Summary
Judgment on Defendant's duty to defend. The Court DENIES
Defendant's Cross-Motion for Summary Judgment.
The Court sets a Case Management Conference for January
12, 2009 at 10 a.m. On or before January 5, 2009, the parties
shall file a Joint Case Management Statement. The Statement
shall include, among other things, the parties' position with
respect to claims remaining in this case. If the parties agree
that the case is ripe for a Final Judgment, the parties shall
include their proposed forms of Judgment as part of their Joint
Statement.
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8
E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244 (2008)
End of Document
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9
Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
solicit further briefing, should a submitted
opinion so warrant. U.S.Dist.Ct.Rules N.D.Cal.,
Civil Rule 7–3(d).
KeyCite Yellow Flag - Negative Treatment
Distinguished by Bullpen Distribution, Inc. v. Sentinel Ins. Co., Ltd.,
N.D.Cal.,
June 1, 2012
761 F.Supp.2d 904
United States District Court,
N.D. California,
San Francisco Division.
[2]
After a hearing on a motion to submit
statement of recent decision, under local
rule, a party may only submit additional
authority upon obtaining leave of district court.
U.S.Dist.Ct.Rules N.D.Cal., Civil Rule 7–3(d).
MICHAEL TAYLOR DESIGNS, INC., Plaintiff,
v.
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA, Defendant.
No. C 10–2432 RS.
|
Jan. 20, 2011.
Federal Civil Procedure
Hearing, evidence, and presentation of
arguments
[3]
Synopsis
Background: Insured furniture retailer sued commercial
liability insurer for declining to defend insured in underlying
trade dress infringement action, until underlying complaint
was amended to expressly allege claim for disparagement.
Parties cross-moved for summary judgment.
Federal Civil Procedure
Hearing, evidence, and presentation of
arguments
Local rule governing motions concerning
miscellaneous administrative matters, not
otherwise governed by a federal statute, federal
or local rule, or standing order of the assigned
judge, is an appropriate vehicle for seeking
leave to submit additional authority, after
hearing has been conducted on prior motion for
leave to submit statement of recent decision,
because rule permitting statements of recent
decisions submitted prior to hearing does not
bar the submission of such cases, but only
requires district court's permission and does
not otherwise govern procedure for obtaining
that court approval. U.S.Dist.Ct.Rules N.D.Cal.,
Civil Rules 7–3(d), 7–11.
Holdings: The District Court, Richard Seeborg, J., held that:
[1] allegations of original underlying complaint gave rise to
duty to defend, and
[2] insurer was permitted to limit fee reimbursement for
independent counsel.
Plaintiff's motion granted in part; defendant's motion denied.
[4]
West Headnotes (18)
[1]
Although local rule governing administrative
motions permits a party to seek leave to submit
additional newly-released authorities after a
matter has been heard, it is a right that should be
exercised sparingly. U.S.Dist.Ct.Rules N.D.Cal.,
Civil Rule 7–11.
Federal Civil Procedure
Hearing, evidence, and presentation of
arguments
Under local rule permitting statements of recent
decisions, submitted prior to the hearing in a
good faith belief as to their relevance, without
argument or counter-argument, district court
may invite argument at the hearing, or even
Federal Civil Procedure
Hearing, evidence, and presentation of
arguments
[5]
Federal Civil Procedure
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1
Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
[6]
Hearing, evidence, and presentation of
arguments
Hearing, evidence, and presentation of
arguments
On administrative motion for leave to submit
additional newly-released authorities after a
matter has been heard, if a decision is not an
on-point, controlling precedent, it must at least
be a highly persuasive decision on an issue
of particular importance, that is not otherwise
cumulative of the cases that have already been
submitted; the administrative motion should
concisely explain why these criteria are satisfied,
while avoiding arguing the merits to the extent
possible. U.S.Dist.Ct.Rules N.D.Cal., Civil Rule
7–11.
Any opposition to an administrative motion
for leave to submit additional newly-released
authorities after a matter has been heard should
focus, to the extent possible, on why the
proffered authority does not meet the criteria for
post-hearing consideration, rather than arguing
the merits. U.S.Dist.Ct.Rules N.D.Cal., Civil
Rule 7–11.
[9]
On administrative motion for leave to
submit additional newly-released authorities
after hearing had been conducted on motion
for summary judgment, insured's submission
of recent decision would be approved, on
ground that decision was circuit court's most
recent articulation of many central principles
implicated in insured's suit challenging insurer's
refusal to defend insured in underlying action
until amendment of underlying complaint, even
though insured failed to explain relevance of
decision that appeared consistent with authorities
previously cited and did not arise from so
nearly-identical facts as to make decision
undisputedly controlling to outcome of motion.
U.S.Dist.Ct.Rules N.D.Cal., Civil Rule 7–11.
Courts
Supreme Court decisions
Courts
Conclusiveness of decisions of Court of
Appeals within its circuit
Courts
Particular questions or subject matter
Federal Courts
Inferior state courts
District Court for the Northern District of
California is bound only by (1) opinions of the
Supreme Court, (2) opinions of the Ninth Circuit,
(3) opinions designated as precedential by the
Federal Circuit as to matters of patent law, and
(4) opinions of each state's highest court as to
matters of state law.
[7]
[8]
[10]
Federal Civil Procedure
Insurance
In general; standard
Under California law, a liability insurer owes a
broad duty to defend its insured against claims
that create a potential for indemnity.
Federal Courts
Inferior state courts
Where a California high court has not decided
a specific issue of California law, and the
Ninth Circuit has not declared how it believes
the California high court would rule, any
intermediate California appellate court rulings
on the point are generally entitled to great
weight.
Federal Civil Procedure
Hearing and Determination
[11]
Insurance
In general; standard
Under California law, implicit in the rule that a
liability insurer owes a broad duty to defend its
insured against claims that create a potential for
indemnity is the principle that the duty to defend
is broader than the duty to indemnify; an insurer
may owe a duty to defend its insured in an action
in which no damages ultimately are awarded.
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2
Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
[12]
in underlying action prior to amendment
of complaint to expressly allege claim for
disparagement that was covered by Web Xtend
Liability endorsement in insured's commercial
liability policy, since very essence of injury
alleged in original complaint was damage to
reputation of supplier's goods by insured's
allegedly infringing actions of offering inferior
imitations of supplier's goods.
Insurance
In general; standard
Insurance
Pleadings
Insurance
Burden of proof
Under California law, even though an insurer
has a duty to defend only if it becomes aware
of, or if the third party lawsuit pleads, facts
giving rise to the potential for coverage under the
insurance policy, the insured need only show that
the underlying claim may fall within the policy
coverage; the insurer must prove it cannot.
[13]
5 Cases that cite this headnote
[16]
To extent that insured requested determination
that commercial liability insurer was
required to pay all attorney fee invoices
generated by insured's independent counsel,
in defending insured against underlying trade
dress infringement and disparagement claims,
insured's request was denied, on motion for
summary judgment, since insured had not even
attempted to establish absence of any triable
issue of fact as to reasonableness of fees.
Insurance
Questions of law or fact
Under California law, whether an insurance
policy provides the potential for coverage and,
thus, a duty to defend exists, is a question of law
for district court to decide; such a determination
is typically made by comparing the allegations of
the complaint to the policy terms.
1 Cases that cite this headnote
[17]
[14]
Federal Civil Procedure
Insurance cases
Insurance
Pleadings
Insurance
Conflicts of interest; independent counsel
Insurance
Underlying defense costs
Insurance
Matters beyond pleadings
After an insurer has agreed to, or been found
obligated to, provide a defense to an insured,
the insurer who wrongfully denied coverage
may not rely on California law, permitting
insurer to limit amount of fee reimbursement
obligation for insured's independent counsel.
West's Ann.Cal.Civ.Code § 2860.
Under California law, an insurer's duty to defend
does not depend on the labels given to the causes
of action in the third party complaint; instead the
duty rests on whether the alleged facts or known
extrinsic facts reveal a possibility that the claim
may be covered by the policy.
2 Cases that cite this headnote
[15]
Insurance
Defamation or disparagement
Underlying complaint's factual allegations
against insured for purportedly infringing
supplier's trade dress created possibility that
insured would be found liable for disparagement
of supplier's goods, triggering insurer's duty
to defend insured, under California law,
[18]
Insurance
Conflicts of interest; independent counsel
Commercial liability insurer's obligation to
reimburse insured for fees of independent
counsel, incurred after underlying complaint
alleging trade dress infringement was amended
to expressly allege disparagement claim until
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3
Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
insurer's counsel took over insured's defense,
was limited to panel rates, under California law,
permitting insurers to pay insured's independent
counsel at panel rates actually paid to insurer's
attorneys in ordinary course of business in
defending similar actions in community where
claim arose or was being defended, even though
insurer had refused to defend insured prior to
amendment of original complaint to allege claim
covered by policy. West's Ann.Cal.Civ.Code §
2860.
2 Cases that cite this headnote
Attorneys and Law Firms
*906 Andrew M. Sussman, David A. Gauntlett, James A.
Lowe, Gauntlett & Associates, Irvine, CA, for Plaintiff.
Matthew Clark Lovell, Sedgwick Detert Moran & Arnold,
LLP, San Francisco, CA, for Defendant.
Opinion
ORDER RE CROSS–MOTIONS
FOR SUMMARY JUDGMENT
RICHARD SEEBORG, District Judge.
I. INTRODUCTION
This is an insurance coverage dispute. Plaintiff Michael
Taylor Designs, Inc. (“MTD”), a furniture retailer, was sued
in an underlying action for allegedly infringing the trade dress
of one of its former suppliers by offering “cheap synthetic
knockoffs” of that supplier's wicker furniture products.
Defendant Travelers Property Casualty Company declined
to defend MTD under a commercial liability policy it had
issued, until after the complaint in the underlying action was
amended to allege expressly a claim for “disparagement,” as
well as trade dress infringement. In this action, MTD seeks a
determination that Travelers had a duty to defend even under
the original allegations of the underlying complaint.
*907 The insurance policy at issue includes an endorsement
entitled “Web Xtend Liability,” that expressly deletes a
provision found in the body of the policy form that otherwise
would have provided coverage for trade dress infringement,
and instead promises coverage only where the insured has
“disparaged” the goods, products, or services of another. The
primary question presented in this case, therefore, is whether
the factual allegations of the original complaint filed against
MTD were sufficient to give rise to a duty defend, despite
the claims having been couched in language of trade dress
infringement rather than in terms of disparagement.
In their cross-motions for summary judgment, MTD and
Travelers agree that the material facts are not in dispute as to
the central question; what remains is to decide which party is
entitled to judgment in its favor given those undisputed facts.
Because the facts alleged in the original complaint against
MTD raised the possibility of a disparagement claim, thereby
triggering a duty to defend, Travelers' motion will be denied,
and MTD's will be granted, in part. MTD's request for an
adjudication in its favor on certain issues relating to attorney
fees and costs will be denied.
II. BACKGROUND
For many years MTD had a business relationship with
furniture designer Ivy Rosequist, in which MTD acted as the
exclusive sales agent for Rosequist's line of wicker furniture.
In 2008, a dispute arose between MTD and Rosequist over
MTD's plans to begin selling synthetic wicker products that
Rosequist contended were unlawful copies of her designs.
In March of 2008, Rosequist filed a two count complaint in
this district against MTD, alleging breach of contract and
violation of the Lanham Act. See Rosequist v. Michael Taylor
Designs, Inc., C 08–1588 SBA (“the Rosequist action”).
Rosequist's Lanham Act claim alleged, in essence, that MTD
had distributed promotional materials to its customers that
contained photographs of Rosequist's distinctive and highquality furniture. MTD pulled a “bait-and-switch” on its
customers, however, by displaying in its showroom “cheap
synthetic knock-offs” of Rosequist's products, running the
risk that consumers would be confused and misled, as to the
origin of the items on display. Rosequist claimed this conduct
would “dilute and tarnish” her trade dress.
MTD tendered defense of the Rosequist action to Travelers
on March 31, 2008. By letter dated April 15, 2008, Travelers
declined coverage, on grounds that “none of Rosequist's
claims implicate any of the offenses enumerated in the
definition of ‘personal injury’, ‘advertising injury’ or ‘web
site injury’ ” in the insurance policy. Traveler's letter
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4
Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
specifically noted that the Web Xtend Liability endorsement
expressly deletes the provisions found in the body of the
general policy form entitled “Coverage B—Personal and
Advertising Injury Liability” in their entirety and replaces
them with language set out in the endorsement.
Some ten months later, MTD, by letter dated February
27, 2009, re-tendered defense of the Rosequist action to
Travelers. The retender letter included substantial legal
argument that the Rosequist complaint stated a claim for
trade dress infringement, and faulted Travelers for refusing
to provide a defense, given that Coverage B in the body of
the policy form expressly defined “personal and advertising
injury” to include “infringing upon another's ... trade dress.”
The re-tender letter appears to have been prepared without
recognizing that the Web Xtend Liability endorsement is part
of the policy, and that Traveler's letter denying coverage
had pointed out that the endorsement deletes Coverage B
entirely. The re-tender *908 letter relied exclusively on
the assumption that Coverage B was in effect and explicitly
provided for coverage of trade dress claims—it did not
argue that the Rosequist complaint implicated a claim for
disparagement that would be covered even under the Web
Xtend Liability endorsement. 1
1
As part of its opposition to Travelers' cross-motion,
MTD has submitted a letter dated March 9, 2009, that
it contends was sent to Travelers and that presented, for
the first time, the assertion that the original Rosequist
complaint implicated a disparagement claim covered
under the Web Xtend Liability endorsement. The March
9th letter appears to be an incomplete draft—it includes
notes for further edits, and its substantive discussion
largely repeats verbatim the trade dress analysis of the
February 27, 2009 re-tender letter. The authenticating
declaration hedges as to whether it actually was ever
transmitted to Travelers.
Travelers did not respond in writing to the re-tender letter.
On October 21, 2009, an amended complaint was filed in
the Rosequist action, which MTD immediately provided to
Travelers. 2 The amended complaint includes a claim for
relief entitled “Slander of Goods/Slander of Title,” which
repeatedly asserts that MTD “disparaged the quality and
origin” of Rosequist's goods.
2
The amended complaint substituted Rosequist's
successor-in-interest as plaintiff, due to her intervening
death. For convenience, this order will continue to refer
to Rosequist and the Rosequist action, rather than to her
successor and the present name of that action.
On December 15, 2009, Travelers advised MTD that, based
on the claims of the amended complaint, it would defend
the Rosequist action, subject to a reservation of rights, and
that it was appointing Ropers, Majeski, Kohn & Bentley to
serve as MTD's counsel. Travelers stated that MTD would
be reimbursed for the reasonable and necessary defense
expenses its then-counsel incurred between tender of the
amended complaint and the time the Ropers firm took over,
as well as reasonable expenses incurred in the transition of
counsel. The Ropers firm ultimately assumed responsibility
of MTD's defense in the Rosequist action on January 12, 2010.
III. LEGAL STANDARD
Summary judgment is proper “if the pleadings 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 judgment as a matter of law.” Fed.R.Civ.P.
56(c). The purpose of summary judgment “is to isolate and
dispose of factually unsupported claims or defenses.” Celotex
v. Catrett, 477 U.S. 317, 323–324, 106 S.Ct. 2548, 91 L.Ed.2d
265 (1986).
Here, as noted, on the primary issue of whether Travelers had
a duty to defend under the allegations of the original Rosequist
complaint, the parties are in agreement that no material facts
are in dispute. The legal question, therefore, is which party is
entitled to judgment in its favor on those facts.
IV. DISCUSSION
A. MTD's Motion for Leave to Submit Statement of Recent
Decision
On two occasions after this motion was heard, MTD filed
a “statement of recent decision,” purportedly under the
authority of Civil Local Rule 7–3(d), attaching a court ruling
that had issued after the hearing. That rule, however, permits
submission of newly-published authorities without prior court
approval only, “[b]efore the noticed hearing date.” At some
point, MTD apparently became aware of this limitation, and
therefore seeks leave by a motion filed under Rule 7–11
to submit yet a third newly-issued decision that it contends
is relevant to the issues presented *909 here. Specifically,
MTD wishes to submit for consideration Hudson Ins. Co.
v. Colony Ins. Co., 624 F.3d 1264(9th Cir.2010). Travelers
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Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
opposes the motion, arguing that Rule 7–11 cannot be used
to seek relief where the issue is “otherwise governed” by
another local rule. Travelers also contends that Hudson (and
the two cases MTD previously submitted without first seeking
leave), are not in fact relevant to the pending disputes. In
turn, MTD objects to Travelers' opposition, noting that Rule
7–3(d) forbids a party from including any argument as to
the relevance of a case it is submitting under a “statement
of recent decision,” and complaining that it would therefore
be unfair for the Court to consider the arguments made by
Travelers that the cases it has offered are irrelevant.
high court would rule, any intermediate state appellate
court rulings on the point are generally entitled to great
weight.
4
Neither of the first two cases MTD submitted after the
hearing without seeking leave to do so satisfies these
guidelines. The first was a state appellate decision that
at best is cumulative, and which was designated as not
citable under the rules of the court that issued it. The
second, decided in this district, merely recites the general
legal principles that were fully briefed and not disputed
in this motion, and then applies those principles in a
manner that breaks no new legal ground, on facts not
sufficiently similar to those here to be enlightening.
Thus, while both cases may tangentially support MTD's
positions, neither advances the analysis such that party or
court resources should have been expended to give them
special consideration after the hearing.
[1]
[2]
[3] The local rules are structured to deter an
endless cycle of filings and counter-filings while preserving
the Court's ability to render a decision that is fully-informed
by any particularly germane legal authority that may emerge.
To that end, Rule 7–3(d) permits statements of recent
5
decisions, submitted prior to the hearing in a good faith belief
Similarly, any opposition to the motion should focus,
to the extent possible, on why the proffered authority
as to their relevance, without argument or counter-argument.
does not meet the criteria for post-hearing consideration,
Should an opinion so submitted warrant it, the Court may
rather than arguing the merits. Because a party is entitled
invite argument at the hearing, or even solicit further briefing.
to present arguments in opposition to a Rule 7–11
After the hearing, in contrast, a party may only submit
motion, however, MTD's objections based on Rule 7–
additional authority upon obtaining leave of court. Contrary
3(d) to Travelers' opposition brief are not well-taken.
to Travelers' argument, a motion brought under Rule 7–11
*910 [9] Here, attempting to honor the prohibition against
is an appropriate vehicle for seeking such relief, because
argument that applies when a party submits a statement of
Rule 7–3(d) does not bar the submission of such cases; it
recent decision under Rule 7–3(d), MTD did not explain why
only requires court permission. Furthermore, Rule 7–11 is
it believes Hudson is particularly relevant to the pending
applicable because Rule 7–3 does not “otherwise govern” the
issues. Hudson in fact appears consistent with the authorities
procedure for obtaining that court approval.
previously cited, and does not arise from so nearly-identical
facts as to make it undisputedly controlling to the outcome
[4] [5] [6] [7] [8] Although it is thereby permissible
of this motion. Nevertheless, because Hudson represents the
for a party to seek leave to submit additional, newly-released,
most recent articulation by the Ninth Circuit of many of the
authorities after a matter has been heard, it is a right that
central principles implicated here, it was arguably appropriate
should be exercised sparingly. If a decision is not an on-point,
to call it to the attention of the Court. Accordingly, MTD's
controlling precedent, 3 it must at least be a highly persuasive
motion under Rule 7–11 for leave to submit Hudson is
decision on an issue of particular importance, that it is not
granted, and it has been considered. As the discussion below
otherwise cumulative of the cases that have already been
will reflect, however, the decision in this case does not depend
submitted. 4 While any motion seeking leave to file additional
on the holding of, or any language in, Hudson.
authority after a hearing should still avoid arguing the merits
to the extent possible, it should concisely explain why the
criteria above is satisfied. 5
3
This court is bound only by (1) opinions of the Supreme
Court, (2) opinions of the Ninth Circuit, (3) opinions
designated as precedential by the Federal Circuit as to
matters of patent law, and (4) opinions of each state's
highest court as to matters of state law. Where a state high
court has not decided a specific issue of state law, and the
Ninth Circuit has not declared how it believes the state
B. Traveler's duty to defend under the original Rosequist
complaint
[10] [11] [12] The California Supreme Court has held
that “a liability insurer owes a broad duty to defend its insured
against claims that create a potential for indemnity.” Horace
Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076, 1081, 17
Cal.Rptr.2d 210, 846 P.2d 792 (1993) (citing Gray v. Zurich
Insurance Co., 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168
(1966)). “Implicit in this rule is the principle that the duty
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Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
to defend is broader than the duty to indemnify; an insurer
may owe a duty to defend its insured in an action in which no
damages ultimately are awarded.” Montrose Chemical Corp.
v. Superior Court, 6 Cal.4th 287, 24 Cal.Rptr.2d 467, 861
P.2d 1153 (1993). Even though “an insurer has a duty to
defend only if it becomes aware of, or if the third party lawsuit
pleads, facts giving rise to the potential for coverage under the
insurance policy,” Lomes v. Hartford Fin. Svcs. Group, Inc.,
88 Cal.App.4th 127, 105 Cal.Rptr.2d 471 (2001), “the insured
need only show that the underlying claim may fall within the
policy coverage; the insurer must prove it cannot.” Montrose,
6 Cal.4th at 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153.
• “Consumers are likely to be confused and will naturally
assume that the knock-offs currently being displayed in
Michael Taylor Design's showrooms are plaintiff's products.”
• “Defendant's action, unless enjoined, will cause irreparable
harm and injury to plaintiff and to consumers, in that it will
substantially dilute and tarnish plaintiff's established trade
dress and mislead consumers about the true origins and nature
of the cheap synthetic knockoffs.” [Emphasis added].
Undoubtedly, at the time Rosequist's complaint was
originally filed, her lawyers did not have a claim for
[13]
[14] “Whether an insurance policy provides [the] disparagement or trade libel at the forefront of their legal
potential for coverage and, thus, a duty to defend exists,
theories. Nevertheless, the very essence of the injury they
is a question of law for the court to decide.” Lomes,
were alleging was damage to the reputation of Rosequist's
88 Cal.App.4th at 132, 105 Cal.Rptr.2d 471. Such a
products that would result from consumers encountering
determination is typically made by comparing the allegations
“cheap synthetic knock-offs” and believing them to be
of the complaint to the policy terms. Id. at 132, 105
products manufactured and marketed by Rosequist. Travelers
Cal.Rptr.2d 471. Importantly, the duty to defend, “does not
offers two basic arguments as to why these allegations do not,
depend on the labels given to the causes of action in the third
in its view, suggest the possibility of a disparagement claim
party complaint; instead it rests on whether the alleged facts
that would give rise to coverage under the policy.
or known extrinsic facts reveal a possibility that the claim
may be covered by the policy.” Atlantic Mutual Ins. Co. v.
First, Travelers contends that case law has unequivocally
J. Lamb, Inc., 100 Cal.App.4th 1017, 1034, 123 Cal.Rptr.2d
rejected the notion that facts constituting trade
256 (2002) (emphasis in original).
dress infringement, standing alone, can ever constitute
disparagement. Relying first on a patent infringement case,
[15] With these general principles, MTD and Travelers Travelers asserts that the very nature of a claim based on
are in agreement. They also concur that under the Web
imitation of another's product forecloses any disparagement.
Xtend Liability endorsement of the policy issued to MTD,
“It does not follow that because an entity imitated the design
it was entitled to a defense if the factual allegations of
of a product, it is, therefore, disparaging it. In point of fact, it's
the original Rosequist complaint created a possibility that it
quite the opposite-as has been oft said: imitation is the highest
would be found liable for “disparagement”—defined in the
form of flattery.” Homedics, Inc. v. Valley Forge Ins. Co., 315
endorsement as, “[o]ral, written or electronic publication of
F.3d 1135, 1142 (9th Cir.2003). There was no suggestion in
material that slanders or libels a person or organization or
Homedics, however, that the defendant had ever advertised
disparages a person's or organization's goods, products or
its “imitation” products in a way that would lead consumers
services.” The issue, then, is whether the original Rosequist
to believe that they were the originals. Thus, the imitation
complaint implicated such a claim.
in Homedics indeed could only have been “flattery” that in
no way reflected badly on the reputation of the plaintiff's
The complaint alleged:
products.
• “The promotional materials widely circulated by Michael
Taylor Designs, Inc. for the patrons of Westweek includes
[sic] photographs of [Rosequist's] actual furniture (which
Michael Taylor Designs, Inc. has removed from its showroom
and is no *911 longer selling), compounding the high risk
that customers will visit Michael Taylor Designs, Inc. looking
for [Rosequist's] furniture, only to be unknowingly steered
instead to cheap imitation knock-offs.” [Emphasis added].
Travelers also lays heavy emphasis on Aetna Cas. & Surety
Co., Inc. v. Centennial Ins. Co., 838 F.2d 346 (9th Cir.1988),
in which, as here a defendant had been accused of trade dress
infringement. As opposed to this case, however, in Aetna
there were no allegations in the underlying complaint that
the infringer was damaging the reputation of the plaintiff's
goods by passing off copies of inferior quality. 838 F.2d at
352. Moreover, as described in Aetna, the “gravamen” of
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Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
the underlying claims against the alleged infringers was “that
they ‘palmed off’ [the plaintiffs'] products as their own.”
838 F.2d at 351 (emphasis added). Here, in stark contrast,
Rosequist's original complaint made clear that her charge was
that MTD was leading people to believe its “cheap synthetics”
were Rosequist's own products. Accordingly, while Travelers'
reliance on Aetna is understandable, given language in the
opinion implying that copying the goods of another and
disparagement are simply disparate wrongs, it does not stand
as clear authority that advertising an inferior item as if it were
the product of another invariably falls outside disparagement.
Similarly, in Microtec Res. v. Nationwide Mutual Ins. Co., 40
F.3d 968 (9th Cir.1994), the court cited Aetna in concluding
that an alleged software pirate had not disparaged the quality
of the purportedly stolen code by selling it as its own. The
fact that such conduct, akin to reverse *912 palming off,
carried no connotation that the plaintiff's code was of poor
quality, has little instructive value here. Because Rosequist
was expressly alleging that the reputation of her goods was
harmed by MTD's conduct, the mere fact that it was labeled
as trade dress infringement does not preclude the possibility
of a disparagement claim.
Traveler's second basic argument is that the original Rosequist
complaint at most alleged conduct with a potentially
negative effect on consumer perceptions, not “oral, written
or electronic publication of material” containing disparaging
statements about Rosequist's furniture. While the question
is somewhat close, this contention rests on an overly
restrictive reading of the complaint. To be sure, the primary
“publications” described in the complaint did not, in and of
themselves, constitute disparagement. Marketing brochures
containing pictures of Rosequist's actual products cannot be
said to impugn the quality of her furniture, standing alone.
The complaint, however, explained that the alleged purpose
of those brochures was to entice customers interested in
Rosequist's products into MTD's showrooms, where they
would then be “steered instead” to the imitation products.
The term “steered” fairly implies some further statements,
presumably oral, were being made by MTD personnel to
convey the information that the imitation products were the
Rosequist furniture depicted in the brochures. 6
6
Elsewhere the complaint alleged that customers would
“naturally assume” the imitations were Rosequist's
products. The allegation that some customers might
reach the same conclusion even absent additional
“steering” statements, does not permit the steering
allegation to be disregarded.
While Travelers' decision to extend coverage under the
amended Rosequist complaint cannot be used as an admission
that it was obligated to provide coverage under any
complaint containing the same basic facts, a comparison
of the two complaints is nonetheless instructive. The
amended complaint may have articulated the new legal
theory of “Slander of Goods,” and liberally sprinkled the
term “disparagement” throughout, but it did so without
adding substantially new or different allegations as to the
factual circumstances, or fundamentally altering the nature
of the injury being alleged. The express “disparagement”
in the amended complaint arises from consumers allegedly
being led to believe that Rosequist had designed and was
distributing the “cheap synthetic knock-offs” displayed in
MTD's showrooms.
The only factual change of any note was the expansion of
the somewhat vague term “steered,” into “sales employees
orally told potential customers....” Making this one point
explicit rather than implicit, however, does not represent
a distinction of significant import. 7 Accordingly, even the
factual allegations of the original Rosequist complaint were
sufficient to reveal the possibility of a covered claim, and
Travelers had a duty to provide MTD a defense from the time
that complaint was tendered. 8
7
Travelers also points to allegations in the amended
complaint that MTD's marketing brochures and website
“disparaged” Rosequist's products by depicting the
actual goods. Although Travelers may not have been
entitled to disregard those conclusory statements when
making its coverage decision on the amended complaint,
they added nothing of substance to the question of
whether the marketing materials contained disparaging
statements.
8
MTD argues that Travelers' duty to defend also arose
from “extrinsic evidence” made available in the re-tender
letter in February of 2009, but it has failed to explain
how that purported extrinsic evidence added anything
material beyond what was alleged in the complaint. In
light of the conclusion that the duty to defend arose
from the complaint itself, further consideration of the
argument is unnecessary. MTD also offers a separatelyheaded argument that it is entitled to coverage from the
date of tender of the original complaint under what it
labels a “relation-back doctrine.” The cases it cites in
support of this contention, however, stand only for the
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Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
unremarkable proposition that if an original complaint
gives rise to a duty to defend, the obligation dates to
the tender of that complaint. As MTD does not appear
to be making the untenable argument that an insured is
entitled to coverage from tender of an original complaint
even where coverage is triggered only by an amended
complaint, its invocation of a “relation-back” concept is
unnecessary.
*913 C. Enforceability of the Web Xtend Liability
endorsement
In its opposition to Traveler's cross-motion, MTD belatedly
raises an argument that the Web Xtend Liability endorsement
should be deemed unenforceable because Travelers did
not provide adequate and conspicuous disclosure that
the endorsement eliminates the coverage for trade dress
infringement claims listed in the body of the policy form.
It may not be a model of clarity to remove coverage for
one well-established and common type of potential liability
through an endorsement that is titled and otherwise gives
the appearance of being an attempt to provide additional
coverage or clarification in the internet sphere. All of the
authorities on which MTD relies, however, involve situations
where an insurer attempted to limit coverage in a renewal
policy without giving adequate notice that the insured would
receive less than under the original policy. Here, there is no
dispute that the Web Xtend Liability endorsement was part
of the policy package originally offered to, and accepted by,
MTD. Accordingly, while the issue is largely mooted by the
conclusions above, MTD has failed to establish that the Web
Xtend Liability endorsement should be held unenforceable as
a matter of law. 9
9
The apparent practice of providing policy holders with
pages and pages of provisions that may or may not be in
force, depending on what endorsements apply, is not to
be commended. Given current technology, there would
appear to be little practical impediment to preparing
customized policy documents for each policy holder that
either omit deleted verbiage entirely or plainly identify
it as having been removed by endorsement. Imposing a
requirement that insurers do so, however, is a matter for
legislative or regulatory consideration, contrary to the
implication of MTD's request for a judicial declaration
of unenforceability.
D. Attorney Fees and Interest
[16] MTD's motion also seeks an adjudication that it is
entitled to reimbursement for the attorney fees it incurred
from the inception of the Rosequist action until the Ropers
firm actually assumed its defense on January 12, 2010.
The precise relief MTD seeks is unclear—on the one
hand it appears to acknowledge that it is at most entitled
to recover reasonable attorney fees, but on the other it
seems to be requesting a ruling that Travelers must simply
pay all the attorney fee invoices MTD's counsel generated
(and prejudgment interest thereon), without any further
examination of whether the claimed fees were reasonable and
necessary to MTD's defense. To the extent MTD is requesting
a determination that Travelers must pay the amounts actually
invoiced, its motion is denied, because it has not even
attempted to establish the absence of any triable issue of fact
as to the reasonableness of the fees.
Given the conclusion that Travelers' duty to defend arose
from the original Rosequist complaint, it follows that
MTD is entitled to reimbursement of the attorney fees it
reasonably and necessarily incurred between the time it
tendered that complaint, and October 21, 2009, when the
amended complaint was filed and provided to Travelers.
While Travelers disputes *914 that its duty to defend arose
from the original complaint, it does not appear to challenge
this proposition.
[17] The remaining dispute is whether Travelers is entitled
to rely on California Civil Code § 2860 to limit the amount of
its fee reimbursement obligation between October 21, 2009
when the amended complaint was tendered, and January 12,
2010, when the Ropers firm took over the defense. Section
2860 permits insurers to pay an insured's independent counsel
so-called “panel rates”—those rates “actually paid by the
insurer to attorneys retained by it in the ordinary course of
business in the defense of similar actions in the community
where the claim arose or is being defended.” MTD is correct
that an insurer who wrongfully denies coverage may not rely
on section 2860 after the fact, once it has agreed to—or been
found obligated to—provide a defense. Travelers, however,
is not contending that it is entitled to the benefit of section
2860 for the fees MTD incurred before October 21, 2009.
[18] Travelers is correct that it is entitled to the benefit of
section 2860 as to the fees incurred by MTD's independent
counsel after October 21, 2009. See Karsant Family
Ltd. Partnership v. Allstate Ins. Co., 2009 WL 188036,
*5 (N.D.Cal.2009) (finding provisions of section 2860
applicable to independent counsel fees after assumption
of defense, notwithstanding prior refusal to defend). MTD
complains that Travelers failed to reference section 2860
when it advised that it was providing coverage and that
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Michael Taylor Designs, Inc. v. Travelers Property Cas...., 761 F.Supp.2d 904...
it would reimburse fees incurred until the Ropers firm
took over. That argument is unpersuasive, as Travelers
expressly advised MTD that section 2860 would apply when
it acknowledged receipt of the amended complaint.
Once Travelers accepted the defense, its only contractual
and statutory obligation was to provide a defense at “panel
rates,” whether that happened to be through a law firm of
its own choosing or counsel previously employed by the
insured. Accordingly, while there might be an argument that
Travelers should not be entitled to the benefits of section 2860
until it actually communicated to MTD that it was assuming
the defense (rather than retroactively to the date of tender),
MTD has not presented such a contention and it will not be
decided here. To the extent that MTD seeks an adjudication
that Travelers may not rely on section 2860 at all, its motion
is denied.
amount of attorney fees, its request for a determination that
it is entitled to prejudgment interest is rejected as premature,
at best.
V. CONCLUSION
Travelers' motion for summary judgment is denied. MTD's
motion is granted insofar as it seeks an adjudication that
Travelers' duty to defend arose upon tender of the original
Rosequist complaint, and that it is entitled to reimbursement
of the reasonable and necessary attorney fees it incurred
between that date and October 21, 2009. MTD's motion
is otherwise denied. The parties shall appear for a Case
Management Conference on February 24, 2011, at 10:00 a.m.
IT IS SO ORDERED.
Finally, in light of the conclusion that MTD has failed to
show it is entitled to reimbursement of any particular dollar
End of Document
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