Avery Dennison Corp. v. Allendale Mut. Ins. Co.

• Citation: 310 F.3d 1114
• Decision Date: 25 September 2002
• Docket Number: No. 01-55468.,No. 01-55378.,01-55378.,01-55468.
• Parties: AVERY DENNISON CORP., Plaintiff-Appellant/Cross-Appellee, v. ALLENDALE MUTUAL INSURANCE CO., a Rhode Island Corporation, Defendant-Appellee/Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

310 F.3d 1114

AVERY DENNISON CORP., Plaintiff-Appellant/Cross-Appellee, v. ALLENDALE MUTUAL INSURANCE CO., a Rhode Island Corporation, Defendant-Appellee/Cross-Appellant.

No. 01-55378.

No. 01-55468.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 9, 2002.

Opinion Filed September 25, 2002.

Order Filed November 14, 2002.

David T. DiBiase, Lisa Coplen, Anderson, McPharlin & Conners, LLP, Los Angeles, CA, for the defendant-appellee-appellant.

Kirk A. Pasich, Cassandra S. Franklin, Howrey, Simon, Arnold & White, LLP, Los Angeles, CA, for the plaintiff-appellant-appellee.

Appeal from the United States District Court for the Central District of California; Carlos R. Moreno, District Judge, Presiding. D.C. No. CV-99-09217-CRM.

Before LAY,^* CANBY and PAEZ, Circuit Judges.

ORDER

The request to publish the unpublished Memorandum disposition is GRANTED. The memorandum disposition filed September 25, 2002, is modified by deletion of the following sentence: "We will not repeat most of the facts because the parties are familiar with them." So modified, the Memorandum disposition is redesignated a Per Curiam Opinion.

OPINION

PER CURIAM.

Avery Dennison Corporation appeals the district court's summary judgment in favor of Allendale Mutual Insurance Company in Avery Dennison's suit for breach of a contract of insurance and breach of an implied covenant of good faith and fair dealing. The district court held that Avery's claim was not covered by Allendale's insurance policy and that there was no evidence of bad faith. Avery Dennison appeals the district court's ruling. Allendale cross-appeals the district court's dismissal of its request for sanctions against Avery Dennison. We affirm the district court's decisions on both the appeal and cross-appeal.

The Main Appeal

Avery Dennison purchased an insurance policy with special provisions covering crime, including coverage of loss or damage to "Covered Property" caused by employee dishonesty. "Covered Property" is defined in the policy as "money," "securities" and "property other than money or securities." The policy further provides:

"Property other than Money and Securities" means any tangible property other than "money" and "securities" that has intrinsic value but does not include any property listed in any Coverage Form as Property Not Covered.

Avery Dennison made a claim against this policy when one of its employees sold trade secrets to a competitor. Allendale denied the claim on the ground that the policy did not cover intangible property, such as Avery Dennison's trade secrets.¹ The district court agreed with Allendale's position and granted summary judgment dismissing Avery Dennison's claim. We affirm.

We review de novo the district court's grant of summary judgment. Balint v. Carson City, 180 F.3d 1047, 1050 (9th Cir.1999) (en banc). We agree with the district court that, under the plain terms of the policy and the principles established by analogous California cases, trade secrets are not tangible property with intrinsic value, and therefore do not qualify as covered property under Allendale's policy. The plain meaning associated with "tangible property" is "[t]hat which may be felt or touched, and is necessarily corporeal." Black's Law Dictionary 1306 (5th ed.1979). Although we have been directed to no California cases addressing trade secrets, the California Supreme Court has described the meaning of "tangible property" in general liability insurance contracts. "The focus of coverage [for tangible property] is therefore the property itself, and does not include intangible economic losses, violation of antitrust laws or nonperformance of contractual obligations." Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 17, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995). Thus, in holding that loss of the right to use an easement was not a loss of "tangible property," the California Supreme Court stated:

"Tangible property" is not ambiguous, and coverage therefore does not turn on alternative meanings. Consistent with an insured's reasonable expectations, "tangible property" refers to things that can be touched, seen, and smelled.

Kazi v. State Farm Fire & Cas. Co., 24 Cal.4th 871, 880, 103 Cal.Rptr.2d 1, 15 P.3d 223 (2001).

The trade secrets for which Avery Dennison seeks to be compensated cannot be touched, seen, or smelled. Avery Dennison contends that some of the secrets were embodied in tangible property, but Avery Dennison does not seek to be compensated for the intrinsic value of some sheets of paper. It seeks to be compensated for the value of its trade secrets, which is by no means intrinsic in the pieces of paper by which some of them may have been transmitted.²

Kazi also refutes Avery Dennison's argument that we should read the insurance policy according to Avery Dennison's reasonable expectations of coverage. "Tangible property" is not an ambiguous term, and its meaning is sufficiently clear that an expectation that it would cover trade secrets is not reasonable.³ "[I]f the meaning a lay person would ascribe to contract language is not ambiguous, we apply that meaning." AIU Ins. Co. v. Superior Court, 51 Cal.3d 807, 822, 274 Cal.Rptr. 820, 799 P.2d 1253 (1990). Moreover, Allendale produced evidence that no insurer wrote crime policies that covered theft or dishonest disclosure of trade secrets, that Avery Dennison's purchase of insurance had not been motivated by the desire to protect trade secrets, and that Avery Dennison was informed by its broker that Allendale's policy "excluded" coverage for trade secrets. The district court accordingly did not err in rejecting Avery Dennison's "reasonable expectations" argument.

We also conclude that the district court properly granted summary judgment against Avery Dennison on its claim of breach of an implied covenant of good faith and fair dealing. Except perhaps in highly extraordinary circumstances, California does not permit recovery on a bad faith claim unless insurance benefits are due under the policy. Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 271 Cal.Rptr. 246, (1990). Avery Dennison has not shown any extraordinary circumstances that would take its claim outside of this rule. See Murray v. State Farm Fire & Cas. Co., 219 Cal.App.3d 58, 268 Cal.Rptr. 33, 37 (1990) ("While there may be unusual circumstances in which an insurance company could be liable to its insured for tortious bad faith despite the fact that the insurance contract did not provide for coverage, no such circumstances are presented here."). The California cases cited in Avery Dennison's briefs are of no help to it because those cases held that the insurers...