Summary
In Vivid Video, Inc. v. North Am. Specialty Ins. Co. (C.D. Cal 1999) 1999 U.S. Dist. Lexis 15322, the plaintiff (Vivid), a producer, marketer and distributor of adult entertainment videos, was sued for various claims including federal trademark infringement.
Summary of this case from Tool Touring, Inc. v. American Ins. Co.Opinion
CV 98-8674 RSWL (VAPx).
June 29, 1999
Before the Court is Plaintiff Vivid Video's Motion for Partial Summary Judgment on Defendant North American Specialty Insurance's Duty to Defend, and Defendant North American Specialty Insurance's Motion for Summary Judgment. The motions were scheduled for oral argument on June 14, 1999, but were removed from the Court's law and motions calendar pursuant to Rule 78 of the Federal Rules of Civil Procedure for disposition based on the papers filed. Now, having carefully considered all papers filed in support of the motions, the Court hereby GRANTS Plaintiff Vivid Video's Motion for Partial Summary Judgment on North American Specialty Insurance's Duty to Defend, and DENIES defendant North American Specialty Insurance's Motion for Summary Judgment.
I. BACKGROUND
Plaintiff is Vivid Video ("Vivid"), a California corporation that produces, markets and distributes video cassettes of adult films. Defendant North American Specialty Insurance ("NAS"), a New Hampshire corporation, contracted with Vivid to provide insurance coverage under a commercial general liability coverage policy ("policy") for one year effective January 8, 1997. The policy included coverage for "advertising injury," which includes "misappropriation of advertising ideas or style of doing business." In November 1997, Thomas Kirk, d/b/a "Vivid Video Productions," sued Vivid in the United States District Court for the Eastern District of Pennsylvania. The Kirk complaint set forth causes of action for infringement of a federally registered mark "Vivid Video Productions;" common law trademark infringement; unfair competition under the Lanham Act; dilution of trademark; and unfair trade practices.
Vivid tendered the defense of the Kirk action to NAS. By letter on March 4, 1998, NAS denied Vivid's request for a defense. NAS's denial was premised on the assertion that the policy's "First Publication" and "Field of Entertainment Liability" exclusions applied. Subsequently, Vivid settled the Kirk action.
On September 21, 1998, Vivid filed the instant action against NAS for: (1) declaratory relief regarding NAS's duty to defend; (2) declaratory relief regarding NAS's duty to indemnify; (3) breach of contract; and (4) breach of the implied covenant of good faith and fair dealing. Now before the Court is Vivid's Motion for Partial Summary Judgment on NAS's duty to defend, and NAS's Motion for Summary Judgment.
B. Motion for Summary Judgment
1. Legal Standard
Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. Where the moving party does not have the burden of proof at trial on a dispositive issue, the moving party may meet its burden for summary judgment by showing an "absence of evidence" to support the non-moving party's case.Celotex v. Catrett, 477 U.S. 317, 325 (1986).
The non-moving party, on the other hand, is required by Fed.R.Civ.P. 56(e) to go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial. Id. at 324. The non-moving party can meet this requirement by presenting affidavits, depositions, answers to interrogatories, or admissions on file. Id. Conclusory allegations unsupported by factual allegations, however, are insufficient to create a triable issue of fact so as to preclude summary judgment. Marks v. Department of Justice, 578 F.2d 261, 263 (9th Cir. 1978). Furthermore, a non-moving party who has the burden of proof at trial must present enough evidence that a "fair-minded jury could return a verdict for the (opposing party) on the evidence presented." Anderson v. Liberty Lobby, 477 U.S. 242, 255 (1986).
The moving party has no burden to negate or disprove matters on which the opponent will have the burden of proof at trial. In fact, the moving party need not produce any evidence at all on those matters. Celotex, 477 U.S. at 325-26. In ruling on a motion for summary judgment, the Court's function is not to weigh the evidence, but only to determine if a genuine issue of material fact exists. Anderson, 477 U.S. at 249-50.
C. Duty to Defend
A liability insurer owes its insured a broad duty to defend against a claim that creates a potential for coverage. Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076, 1081 (1993). The duty to defend is broader than the duty to indemnify. Id. Even a bare "potential" or "possibility of coverage" triggers the duty to provide a defense. Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 187, 300 (1993). In order to prevail in showing a duty to defend an "insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot."Id. While the duty to defend is broad, an insurer has no duty to defend where it is clear that a claim falls within an exclusion in the policy. See Legarra v. Federated Mutual Ins. Co., 35 Cal.App.4th 1472, 1482-83 (1995).
"An insurance policy is ambiguous when it is capable of two or more constructions, both of which are reasonable." Bay Cities Paving Grading, Inc. v. Lawyer's Mut. Ins. Co., 5 Cal.4th 854, 867 (1993). Provisions contained in an insurance policy must be construed according to their plain and ordinary meanings while considering the language in the context of the policy as a whole.Bank of the West v. Superior Court, 2 Cal.4th 1254, 1264, 10 Cal.Rptr.2d 538 (1992). If an ambiguity still remains it is to be "resolved against the insurer, with coverage clauses read broadly and exclusions read narrowly." Id.; Gray v. Zurich Ins. Co., 65 Cal.2d 263, 275, 54 Cal.Rptr. 104 (1966).
1. The "First Publication" Exclusion
NAS argues that the Kirk action was not covered by the policy because Vivid first used the allegedly infringing trademark prior to the inception date of the policy. NAS relies upon the policy's "First Publication" exclusion which, in pertinent part, states: "This insurance does not apply to . . . `advertising injury': . . . [a]rising out of oral or written publication of material whose first publication took place before the beginning of the policy period."
"Advertising injury" is defined in the instant policy as an injury arising out of one or more of the following offenses:
a. 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;
b. Oral or written publication of material that violates a person's right of privacy.
c. Misappropriation of advertising ideas or style of doing business; or
d. Infringement of copyright, title or slogan.
California law is clear that an insurance policy defining advertising injury to include "misappropriation of advertising ideas or style of doing business" covers trademark infringement claims against the insured. Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group, 50 Cal.App. 4th 548, 553 (1996).
Courts, however, are split on whether the first publication exclusion applies to all advertising injuries as defined in the instant policy. In Irons Home Builders Inc. v. Auto-Owners Ins. Co., 839 F. Supp. 1260, 1264-65, the court found that the exclusion applied only to "advertising injuries" arising from libel, slander, or invasion of privacy, and did not apply to an "advertising injury" arising out of "misappropriation of advertising ideas or style of doing business." The Irons Home Builders court explained its rationale as:
The definitions of "advertising injury," and "first publication" exclusion in Irons Home Builders are identical to "advertising injury" and "first publication" exclusion provisions in the NAS policy.
[t]he exclusion provision refers to the "oral or written publication of material." It mimics the provisions of the policy that relate to advertising injury involving libel, slander, and invasion of privacy. In each case, advertising injury is defined as the "oral or written publication of material" that is slanderous or libelous or invades privacy. The clear implication is that the exclusion provision relied upon by [the insurer] merely limits the coverage for advertising injury that arises from those three particular torts.Id.
In contrast, the court in Applied Bolting Technology Products, Inc. v. United States Fidelity Guaranty Co., 942 F.Supp. 1029, 1037 (E.D. Pa. 1996), found that the first publication exclusion applied to the entire definition of "advertising injuries" contained in the policy, including the "misappropriation of advertising ideas or style of doing business." In expressly rejecting the holding in Irons Home Builders, the Applied Bolting Technology Products court stated:
In the policy, the term "advertising injury" is always surrounded by quotation marks, and it appears with quotation marks in the first-publication exclusion. "Advertising injury" is defined by the four, not two, offenses expressly set forth in the policy to define "advertising injury." The first-publication exclusion bars coverage for "`advertising injury' . . . arising out of oral or written publication of material whose first publication took place before the beginning of the policy period." I read this exclusion to mean that "advertising injury," which I must assume the insurance company intentionally surrounded with quotation marks when it used that term in the exclusion, has the same four-subpart meaning when used in the exclusion that it has every other time it appears in the policy surrounded by quotation marks.
After considering the above case law, the Court finds that the first publication exclusion in the NAS policy is capable of at least two divergent interpretations, both of which are reasonable. And because any doubt as to whether a duty to defend exists should be resolved in favor of the insured, the Court finds that NAS's duty to defend Vivid in the Kirk action was not absolved by the first publication exclusion. See Freson Economy Import Used Cars, Inc. v. United States Fid. Guar. Col, 76 Cal.App.3d 272, 278 (1977) ("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").
2. The "Field of Entertainment Limitation" Endorsement
NAS next argues that the Kirk action is not covered by the policy due to the Field of Entertainment Endorsement ("Endorsement"). The Field of Entertainment Endorsement, in pertinent part, reads; "[i]t is agreed that COVERAGE B PERSONAL AND ADVERTISING INJURY LIABILITY, also excludes . . . `advertising injury' arising out of the `Field of Entertainment Business' of the Insured with respect to . . . infringement of copyright or trademark whether common law or statutory." The Endorsement defines the "Field of Entertainment Business" as including:
a. The creation, production, publication, distribution, exploitation, exhibition, advertising and publicizing in various media of motion pictures of any kind and character, television programs, commercial, industrial, educational and training films, phonograph records, audio and video tapes, cassettes and discs, electrical transcription, music in sheet and other form, books and other publications, and other similar properties.
b. The conduct of any players, entertainers or musicians in any production, show appearance or performance, or exhibition. . . .
c. The ownership, operation, maintenance or use of radio and television broadcasting stations, CATV systems, cinemas, stage productions with living actors, and any similar exhibition or broadcast media.
d. The ownership, operation, maintenance or use of merchandising programs, advertising or publicity material, characters or ideas' whether or not on premises of the Insured or in possession of the Insured at the time of the alleged offense.
After reviewing the Endorsement and considering it in the context of the policy as a whole, the Court finds that it cannot be read to exclude NAS from providing Plaintiff a defense in the Kirk action. The Endorsement's plain language supports an interpretation that it excludes only injuries an insured might suffer from the entertainment nature of its business, and would not encompass injuries an insured might experience even as a non-entertainment type business. Specifically, an insured might reasonably conclude that the Endorsement excludes coverage for injuries which may arise from the substantive content of its entertainment activities, rather than from an insured's application of its own identifying mark on its line of products, even if those products are entertainment in nature. Accordingly, since the Field Endorsement is capable of two reasonable interpretations it must be construed against NAS, and as such does not eliminate NAS's duty to defend Vivid in the Kirk action.
Conclusion
Because the policy's first publication exclusion and Field of Entertainment Endorsement are each capable of two divergent reasonable interpretations they must be construed against NAS, and as such NAS had the duty to defend Vivid in the Kirk action. Accordingly, Plaintiff Vivid Video's Motion for Partial Summary Judgement on North American Speciality Insurance Company's Duty to Defend is GRANTED, and North American Specialty Insurance Company's Motion for Summary Judgment is DENIED. The pretrial conference is continued to September 20, 1999, at 11:00 a.m. and the trial is continued to October 5, 1999, at 9:00 a.m.