Aetna Cas. and Sur. Co., Inc. v. Centennial Ins. Co.

• Citation: 838 F.2d 346
• Decision Date: 01 February 1988
• Docket Number: No. 86-6740,86-6740
• Parties: AETNA CASUALTY AND SURETY COMPANY, INC., Plaintiff-Appellee, v. CENTENNIAL INSURANCE COMPANY; Atlantic Mutual Insurance Company, Defendants- Appellants, Great American Insurance Company; the Cincinnati Insurance Company, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 346

838 F.2d 346

AETNA CASUALTY AND SURETY COMPANY, INC., Plaintiff-Appellee, v. CENTENNIAL INSURANCE COMPANY; Atlantic Mutual Insurance Company, Defendants- Appellants Great American Insurance Company; the Cincinnati Insurance Company, Defendants-Appellees.

No. 86-6740.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 5, 1987.

Decided Feb. 1, 1988.

Roy G. Weatherup, Haight, Dickson, Brown & Bonesteel, Santa Monica, Cal., for plaintiff-appellee.

Lee P. O'Connor, O'Connor & Schmeltzer, Tustin, Cal., Joy Smathers, Veatch, Carlson, Grogan, & Nelson, Los Angeles, Cal., for defendants-appellees.

Andre E. Jardini, Knapp, Petersen & Clarke, Universal City, Cal., for defendants-appellants.

Appeal from the United States District Court for the Central District of California.

Before TANG, WIGGINS and KOZINSKI, Circuit Judges.

WIGGINS, Circuit Judge:

Appellants, excess insurers Centennial Insurance Company ("Centennial") and Atlantic Mutual Insurance Company ("Atlantic"), appeal a summary judgment for primary insurers Cincinnati Insurance Company ("Cincinnati") and Great American Insurance Company ("Great American"). In the underlying action, Aetna Casualty & Surety Company ("Aetna"), an excess insurer, defended International Identification, Inc. against a claim brought by Allflex Tag Co. Aetna then filed suit against the other insurance companies above claiming that they should be responsible for defending International Identification against Allflex's charges that it had engaged in unfair commercial practices. Aetna thus seeks contribution for the costs of International Identification's defense. The district court held that the excess insurers, Centennial, Atlantic, and Aetna, had the duty to defend, while the primary insurers, Great American and Cincinnati, had no such duty.

Centennial and Atlantic contend that International Identification's primary insurance policies, by their very terms, require Cincinnati and Great American to defend the underlying action. We affirm the district court's ruling that the primary insurers had no duty to defend the suit.

BACKGROUND

A. The Parties and Policies

International Identification, Inc., is in the business of making identification tags for animals and livestock. International Identification took out a number of insurance policies during the relevant time period for the underlying action. Cincinnati insured International Identification for bodily injury and property damage liability between June, 1974 and June, 1979 and again between June, 1979 and June, 1984. Under the personal injury liability endorsement of this policy, limited to $300,000, Cincinnati promised to defend against claims, and indemnify damages incurred by International Identification, arising out of the following offenses committed in the conduct of International Identification's business:

Group B--The publication or utterance of a libel or slander or of any other defamatory or disparaging material, or a publication or utterance in violation of an individual's right of privacy; except publications or utterances in the course of or related to advertising, broadcasting or telecasting activities conducted by or on behalf of a named insured[.]

Great American provided coverage to International Identification between June, 1980 and June, 1981. The personal injury liability endorsement, limited to $500,000, was identical to Cincinnati's endorsement. Both of these policies excluded "personal injury arising out of a publication or utterance described in Group B concerning any organization or business enterprise, or its products or services made by or at the discretion of any insured with knowledge of the falsity thereof."

Centennial and Atlantic provided excess or umbrella coverage to International Identification between June, 1977 and June, 1980 and again between June, 1980 and June, 1981. The limits of each policy were $1,000,000. Centennial and Atlantic agreed to indemnify International Identification for the "ultimate net loss in excess of the retained limit," which was defined as the greater of the total of the applicable limits of various other insurance policies collectible by International Identification, or the amount not covered by the other policies. Centennial and Atlantic also promised to provide the insured with a defense to claims for personal injury or property damage liability, or advertising liability, which were "not covered" by certain other insurance policies, including those issued by Cincinnati and Great American. "Personal Injury" was defined in the policies as a liability for damages because of: "The publication or utterance of a libel or slander or other defamatory or disparaging material, or a publication or utterance in violation of rights of privacy, except when any of the foregoing of this part ... arises out of the insured's advertising activities ..." The umbrella policy also covered "advertising liability" which was defined as liability for damages because of:

(a) libel, slander or defamation;

(b) infringement of copyright or of title or of slogan;

(c) piracy or unfair competition or idea misappropriation under an implied contract;

(d) invasion of rights of privacy; which occur during a policy period, and arising out of the named insured's advertising activities.

The policies excluded liability for "infringement of registered trademark, service mark or trade name by use thereof as the registered trademark, service mark or trade name of goods or services sold, offered for sale or advertised, but this shall not relate to titles or slogans," or for "incorrect description of any article or commodity."

Lastly, Aetna provided excess or umbrella coverage to International Identification between June, 1981 and June, 1982, covering liability for personal injury, property damage, or advertising offense. Its policy limits were $1,000,000. Personal injury was defined, in part, as "except with respect to injury occurring in the course of a named insured's advertising activities, injury arising out of the publication or utterance of a libel or slander or other defamatory or disparaging material ..." But, like the Atlantic and Centennial policies, Aetna also provided coverage for advertising offenses which were defined as: "Injury occurring in the course of the named insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan (other than a patent)." Aetna, like the other excess insurers (Centennial and Atlantic), promised to provide a defense to any suit seeking damages which were not payable under the terms of certain other insurance policies, including the policies issued by Cincinnati and Great American, either "because such damages are not covered thereunder, or because of exhaustion of an underlying aggregate limit of liability by payment of claims."

B. The Underlying Action

On March 24, 1982, an action was filed against International Identification in the United States District Court for the Central District of California. Allflex Tag Company, Inc. and Delta Plastics, Ltd. v. International Identification, Inc. d/b/a National Band and Tag Co. (civil action No. 82-1444 WPG). Allflex and its New Zealand parent company, Delta Plastics, claimed that International Identification had engaged in unfair competition by advertising Allflex's distinctive animal tags as their own. Allflex's original complaint asserted four claims for relief. The first cause of action was for false designation of origin and unfair competition under section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982). The second cause of action was for common law trade mark infringement, based on International Identification's appropriation of the distinctive shape of Allflex's animal tag. Allflex's third claim for relief was for dilution of distinctiveness of a trade mark and injury to business reputation. Their fourth cause of action simply averred unfair competition. Allflex's First Amended Complaint was not substantially different from the original complaint, except that the continuing nature of International Identification's conduct was stressed. In the Second Amended Complaint, however, the third cause of action was refined to encompass a pendent state claim under Cal.Bus. & Prof.Code Sec. 14330 (West 1987).

C. This Case

Aetna accepted the defense of International Identification and admitted coverage. All of the other insurers refused to participate in the defense. Aetna filed this diversity action pursuant to the Federal Declaratory Judgments Act, 28 U.S.C. Sec. 2201, on April 27, 1984, seeking contribution by each of the primary and excess insurers for the defense of International Identification in the underlying action. On February 24, 1986, Aetna moved for summary judgment. Aetna asserted that the primary insurers had a duty to defend International Identification because the complaint in the underlying action sought damages which were potentially covered under the portions of the policies which provided coverage for the publication of defamatory or disparaging material. Aetna also noted that the primary insurers were estopped from relying upon the exclusions in their policies for advertising liability, because they failed to notify International Identification that they were refusing its defense based upon any exclusion in their policies. In addition, Aetna argued that there was a potential of coverage under the excess policies, because the complaint in the underlying action sought damages covered under the advertising liability portion of the policies and that the excess insurers were estopped from denying coverage based upon their failure to advise the insured that their claimed lack of coverage was based upon exclusionary language.

The district court granted the motion as to Centennial and Atlantic, but denied the motion as to the...