Opinion
A112215
12-1-2006
BLUE AND GOLD FLEET, INC., et al., Plaintiffs and Appellants, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Defendant and Respondent.
Blue and Gold Fleet, Inc. sued its insurer to recover costs of defending against an antitrust lawsuit brought by a competitor. The issue presented is whether the allegations of the underlying lawsuit give rise to a potentially covered claim such that the insurer is required to provide a defense for Blue and Gold. The trial court granted summary adjudication, holding that the insurer had no duty to defend. We affirm.
BACKGROUND
St. Paul Fire & Marine Insurance Company (St. Paul) issued a comprehensive general liability insurance policy (Policy) covering Blue and Gold Fleet, Inc.s (Blue & Gold) marina and maritime operations for the period December 31, 1997 to December 1, 1998. In May 2001, Fishermans Wharf Bay Cruise Corporation, doing business as Red and White Fleet (Red and White), sued Blue & Gold for antitrust violations and other unfair business practices that began in mid-1997 (the third party lawsuit). Blue & Gold tendered its defense to St. Paul. St. Paul denied coverage and declined to defend.
The Red and White Lawsuit
Both Blue & Gold and Red and White sell bay cruise sightseeing tours on San Francisco Bay. Blue & Gold also holds the exclusive right to run passenger ferryboats from San Francisco to Alcatraz Island and to offer tours of Alcatraz Island. For over a decade, Red and White and Blue & Gold have been the only meaningful competitors for bay cruise customers. Red and White alleged that Blue & Gold engaged in a concerted effort to monopolize the bay cruise business by engaging in a number of anticompetitive practices. These acts included Blue & Gold systematically charging below cost prices to wholesale bay cruise customers and entering into exclusive dealing arrangements, below cost pricing contracts, and tying arrangements that offered valuable Alcatraz tickets to wholesale customers who refrained from patronizing Red and White. Red and White also alleged Blue & Gold provided wholesale customers with secret discounts on bay cruises and valuable Alcatraz ticket privileges that were denied to Red and White. Red and White asserted six causes of action under the Cartwright Act, Business and Professions Code section 16700 et seq. ; the Unfair Practices Act (UPA), section 17000 et seq.; and the Unfair Competition Law (UCL), section 17200 et seq.
All statutory references are to the Business and Professions Code unless otherwise indicated.
Trial Court Proceedings
Blue & Gold sued St. Paul in June 2004. St. Paul moved for summary adjudication on Blue & Golds cause of action seeking a declaration that the facts alleged in the complaint "potentially state one or more claims of Advertising Injury and/or Personal Injury covered by the `Liability Policy " and triggering the duty to defend. In support of the motion, St. Paul relied solely on the Policy, the third party complaint, the allegations of Blue & Golds complaint against St. Paul, and Blue & Golds responses to certain interrogatories. The trial court granted St. Pauls motion. Blue & Gold then stipulated to a judgment of dismissal of its other causes of action and the court dismissed the action with prejudice.
DISCUSSION
I. Standard of Review
A trial courts ruling on a summary adjudication motion is subject to de novo review. (See Buss v. Superior Court (1997) 16 Cal.4th 35, 60.) A trial courts interpretation of an insurance contract is also subject to de novo review unless the interpretation requires an assessment of the credibility of conflicting extrinsic evidence. (Northland Ins. Co. v. Briones (2000) 81 Cal.App.4th 796, 802.) No extrinsic evidence was introduced regarding the meaning of the St. Paul Policy.
II. An Insurers Duty to Defend
The California Supreme Court has established clear rules governing a liability insurers duty to defend. Insurers owe a duty to defend their insureds "for claims that potentially fall within the policys coverage provisions." (Hameid v. National Fire Ins. of Hartford (2003) 31 Cal.4th 16, 21.) Because the duty to defend is broader than the duty to indemnify (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081), an insurer will be obligated to "defend in some lawsuits where liability under the policy ultimately fails to materialize" (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 299 (Montrose)).
The determination whether the insurer owes a duty to defend is made in the first instance by comparing the allegations of the third party complaint with the terms of the insurance policy. (Montrose, supra, 6 Cal.4th at p. 295.) The existence of the insurers duty to defend does not depend upon the ultimate adjudication of coverage under its policy but rather upon those facts known by the insurer at the inception of the third party lawsuit. (Ibid.) As the Second District has explained, the existence of the insurers duty to defend "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 (J. Lamb ).) The duty to defend is not unlimited. The insurers duty does "not exist in the air, without regard to whether or not the claims [are] at least potentially covered." (Buss, supra, 16 Cal.4th at p. 60.) Instead, the duty to defend is measured by the nature and kind of risks covered by the policy. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19; Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275.) If the policy provides no potential basis for coverage, then the insurer is under no obligation to defend an action against its insured. (Waller, at p. 37.)
The insured bears the initial burden of showing that the claim against it at least potentially falls within the scope of the coverage afforded by the policy. (See, e.g., Waller, supra, 11 Cal.4th at p. 16.) If the insured can show that the underlying claim is at least potentially within the scope of the policys coverage, then the insurer must defend the suit until it brings forward evidence of undisputed facts that conclusively eliminate the potential for liability. (Montrose, supra, 6 Cal.4th at pp. 298-299.) "On the other hand, if, as a matter of law, neither the complaint nor the known extrinsic facts indicate any basis for potential coverage, the duty to defend does not arise in the first instance." (Scottsdale Ins. Co. v. MV Transportation (2005) 36 Cal.4th 643, 655.)
III. The St. Paul Insurance Policy
In the main insuring clause of the Policy, St. Paul promised to indemnify Blue & Gold for all sums it became legally obligated to pay as damages for bodily injury or property damage, and required St. Paul to defend any suit against Blue & Gold seeking damages for injuries covered by the Policy, even if allegations of the suit were groundless, false or fraudulent.
Our main focus is on the coverage provided in Endorsement B of the Policy, "Personal Injury and Advertising Injury Liability Coverage." In this endorsement, St. Paul promised to indemnify Blue & Gold for all sums it became legally obligated to pay as damages for personal injury or advertising injury and required St. Paul to defend any suit against Blue & Gold seeking damages for those injuries, even if allegations of the suit were groundless, false or fraudulent. Personal injury was defined as injury caused by specified offenses committed during the policy period. As relevant here, those offenses included "a publication or utterance . . . of a libel or slander or other defamatory or disparaging material." Advertising injury was defined as "injury arising out of an offense committed during the policy period occurring in the course of the named insureds advertising activities, if such injury arises out of libel, slander, defamation, violation of rights of privacy, piracy, unfair competition, or infringement of copyright, title or slogans."
The full definition of personal injury in the Policy is: " `Personal Injury means injury arising out of one or more of the following offenses committed during the policy period: [¶] 1. false arrest, detention, imprisonment, or malicious prosecution; [¶] 2. wrongful entry or eviction or other invasion of the right of private occupancy; [¶] 3. a publication or utterance [¶] a. of a libel or slander or other defamatory or disparaging material, or [¶] b. in violation of an individuals right of privacy except publications or utterances in the course of or related to advertising, broadcasting, publishing or telecasting activities conducted by or on behalf of the named insured shall not be deemed personal injury."
Blue & Gold argues that St. Paul had a duty to defend because Blue & Gold faced potential liability in the third party lawsuit for disparagement covered by the personal injury provision; for defamation covered by the personal injury and advertising injury provisions; for unfair competition covered by the advertising injury provision; and for property damage covered by the main insuring clause of the Policy.
IV. The Personal Injury Provision Does Not Cover Disparagement Claims
Blue & Gold argues the third party lawsuit alleged acts of disparagement of Red and Whites business that were covered by the Policys personal injury provision.
The Policy defined personal injury to include an injury arising out of a publication or utterance of "a libel or slander or other defamatory or disparaging material." The Policy did not define "disparaging." It did not use the word "disparagement." The common law definition of disparagement is the publication of a falsehood derogatory to a plaintiffs title to property or to the quality of the plaintiffs goods or services that causes others not to deal with the plaintiff and results in pecuniary damage. (Nichols v. Great American Ins. Companies (1985) 169 Cal.App.3d 766, 773; 5 Witkin, Summary of Cal. Law (10th ed. 2005) §§ 640-646, pp. 944-953.) The tort is also known as trade libel or slander of title. (Ibid.) It encompasses "statements about a competitors goods that are untrue or misleading and are made to influence potential purchasers not to buy." (J. Lamb, supra, 100 Cal.App.4th at p. 1035.)
Blue & Gold argues that the word "disparaging" in the Policy personal injury liability coverage triggered coverage for the tort of disparagement. A similar argument was rejected in Truck Ins. Exchange v. Bennett, which held that the word "disparaging" in the personal injury liability clause applied to defamation of a persons reputation, not to an action for disparagement or slander of title to property. (Truck Ins. Exchange v. Bennett (1997) 53 Cal.App.4th 75, 84 (Bennett).) In Bennett, the court held that disparagement protects rights that are different in character and kind from the rights protected by a defamation claim. Disparagement protects property interests, whereas defamation protects an individuals personal or professional reputation. (Id. at pp. 84-85.) As in Bennett, the reference to "disparaging" in the personal injury liability clause of the St. Paul Policy appeared in a listing of torts that protect a persons interest in reputation. (Id. at p. 83.) It must be construed in that context. (Id. at p. 86.) The context demonstrates that the term refers to disparaging a persons reputation, not to disparagement of a businesss products or services. To provide coverage for disparagement in the sense of trade libel, a policy must refer specifically to disparagement of a businesss goods or services. (See, e.g., J. Lamb, supra, 100 Cal.App.4th at pp. 1036-1037. )
The court in J. Lamb distinguished its earlier decision in Bennett on the basis that the policy language in J. Lamb was more expansive. Personal injury was defined to include "oral or written publication of material that slanders or libels a person or organization or disparages a persons or organizations goods, products or services . . . ." (J. Lamb, supra, 100 Cal.App.4th at pp. 1024, 1025, fn. 4, 1036.)
The St. Paul Policy used the policy language that was construed in Bennett. The allegations that Blue & Gold disparaged Red and Whites business or services did not fall within the Policys personal injury coverage and did not trigger a duty to defend.
V. The Third Party Lawsuit Did Not Allege Defamation of a Persons Reputation Within the Policy Coverage for Personal and Advertising Injuries
Blue & Gold argues the third party lawsuit raised potential liability for defamation within the coverages for personal injury and advertising injury in the Policy.
The full definition of advertising injury in the Policy is: "injury arising out of an offense committed during the policy period occurring in the course of the named insureds advertising activities, if such injury arises out of libel, slander, defamation, violation of rights of privacy, piracy, unfair competition, or infringement of copyright, title or slogans."
The third party complaint did not allege that Blue & Gold made statements defamatory to individuals personal or professional reputations. All of the allegedly defamatory statements identified in Blue & Golds appellate briefing related to Red and Whites business or services: falsely suggesting that Red and White had gone out of business; spreading misinformation about Red and White; illegally coercing customers; and making implicitly disparaging statements about the quality and reliability of Red and Whites business and services. Those allegations did not raise any potential liability for defamation under the personal injury or advertising injury definitions in the Policy.
For several reasons, we are unpersuaded by the reasoning of CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, which Blue & Gold cites to support its argument that the third party complaint raised a potential liability for both disparagement and defamation. First, CNA Casualtys broad reading of the insurers duty to defend was criticized by our Supreme Court in Montrose, supra, 6 Cal.4th at page 298 as dictum that does not accurately state the law. It is that expansive reading of the duty to defend that informed CNA Casualtys conclusion that allegations of anticompetitive behavior gave rise to potential liability under policy provisions for "libel or slander or other defamatory or disparaging material." (CNA Casualty, at pp. 607-608 & fn. 3.) Second, the CNA Casualty decision did not set out the relevant policy language and we cannot analyze the policy provision in the full context of policy exclusions and definitions. Third, CNA Casualty did not consider the distinctions between defamation of personal reputation and disparagement of product or services drawn by the Bennett court. (CNA Casualty, at p. 608.)
VI. Coverage for Unfair Competition as an Advertising Injury is Limited to the Tort of Passing Off
Blue & Gold argues that the third party lawsuit contained allegations that could be regarded as stating a claim for unfair competition within the policys advertising injury coverage. Specifically, Blue & Gold points to the core antitrust allegations of the complaint (tying, secret rebates, exclusive dealing and predatory pricing); allegations that Blue & Gold spread misinformation about Red and White, told customers not to buy from Red and White, and otherwise tortiously interfered with Red and Whites business relationships; and the general allegation that Blue & Gold engaged in a "variety of tactics" to deny Red and White the ability to compete effectively.
In the context of advertising injury coverage, unfair competition has a much narrower scope than that urged by Blue & Gold. As a preliminary matter, the California Supreme Court held in Bank of the West that the policy term "unfair competition" does not refer to conduct prohibited by the Unfair Business Practices Act. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1262.) Blue & Gold concedes that under Bank of the West Red and Whites unfair competition claim under section 17200 and its false advertising claim under section 17500 did not trigger a duty to defend because those statutes do not authorize monetary damage recovery for private individuals. (Chern v. Bank of America (1976) 15 Cal.3d 866, 875.)
Bank of the West also explained that unfair competition in the advertising injury context is generally understood to refer to the common law tort of passing off ones goods as those of another. (Bank of the West, supra, 2 Cal.4th at p. 1263.) We join other courts in holding that, under Bank of the West, unfair competition as an advertising injury is limited to the common law tort. (Chatton v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 846, 863; Standard Fire Ins. Co. v. Peoples Church of Fresno (9th Cir. 1993) 985 F.2d 446, 450.) Although some courts have held open the possibility of a broader interpretation of unfair competition, no court has squarely held that unfair competition as an advertising injury covers more than the tort of passing off or similar misappropriation. (See American Cyanamid Co. v. American Home Assurance Co. (1994) 30 Cal.App.4th 969, 976-977; A-Mark Financial Corp. v. CIGNA Property & Casualty Companies (1995) 34 Cal.App.4th 1179, 1189; Keating v. National Union Fire Ins. Co. (9th Cir. 1993) 995 F.2d 154, 155.)
Under the narrow definition of unfair competition as passing off, the Red and White complaint raised no potential for coverage. The complaint did not allege that Blue & Gold passed off its services as those of Red and White or otherwise misappropriated Red and Whites trade dress or marketing ideas to exploit Red and Whites reputation in the market. (See Bank of the West, supra, 2 Cal4th at p. 1263; American Cyanamid Co., supra, 30 Cal.App.4th at pp. 976-977.) On the contrary, Red and White alleged that Blue & Gold spread misinformation that Red and White was not even in business and that Blue & Gold was the exclusive provider of bay cruise tours.
VII. The Third Party Lawsuit Did Not Allege Property Damage Within the Meaning of the St. Paul Policy
Blue & Gold argues there was potential liability for property damage under the "loss of use" language in the property damage provision. In the Policy, property damage (which is erroneously labeled "products damage" in the definitions section of the policy) was defined as "(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period."
Blue & Gold argues that if Red and White was driven out of business, as it alleged, it lost the use of its physical business assets. This argument is a strained attempt to convert economic losses into a covered liability. Strictly economic losses such as lost profits do not constitute damage or injury to tangible property covered by a comprehensive general liability policy. (Giddings v. Industrial Indemnity Co. (1980) 112 Cal.App.3d 213, 219.) Even if Red and White had been driven out of business, it did not lose the use of its physical assets. Red and White did not allege that its boats were no longer able to carry passengers across the bay. Rather, it alleged that its losses were lost profits and goodwill the business earned as a going enterprise, losses not covered by the Policy.
Because we conclude that the third party lawsuit did not raise potential liability for disparagement, defamation, unfair competition or property damage within the meaning of the Policys coverage clauses, we do not address the parties arguments regarding the meaning of "advertising" in advertising injury liability coverage or the scope of the exclusions in the St. Paul Policy. St. Paul had no duty to defend.
DISPOSITION
The judgment is affirmed.
We Concur.
JONES, P.J.
SIMONS, J.