American Intern. v. Continental Cas.

• Decision Date: 16 August 2006
• Docket Number: No. B179005.,B179005.
• Citation: 142 Cal.App.4th 1342,49 Cal.Rptr.3d 1
• Court: California Court of Appeals Court of Appeals
• Parties: AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY et al., Plaintiffs and Appellants, v. CONTINENTAL CASUALTY INSURANCE COMPANY et al., Defendants and Respondents.

49 Cal.Rptr.3d 1

142 Cal.App.4th 1342

AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY et al., Plaintiffs and Appellants, v. CONTINENTAL CASUALTY INSURANCE COMPANY et al., Defendants and Respondents.

No. B179005.

Court of Appeal, Second District, Division 2.

August 16, 2006.

McCormick, Barstow, Sheppard Wayte & Carruth, James P. Wagoner, Jay A. Christofferson, Fresno, and David W. Burnett for Plaintiffs and Appellants.

Woolls & Peer, John E. Peer and Beth E. Yoffie, Los Angeles, for Defendant and Respondent Continental Casualty Insurance Company.

Greenan, Peffer, Sallander & Lally, James S. Greenan, San Ramon, John P. Makin and Nelson S. Hsieh for Defendant and Respondent Gulf Underwriters Insurance Company.

Gray & Prouty, Malcolm D. Schick and David J. Gittelman for Defendant and Respondent Admiral Insurance Company.

ASHMANN-GERST, J.

The question presented is whether respondents Continental Casualty Company (Continental), Gulf Underwriters Insurance Company (Gulf), and Admiral Insurance Company (Admiral) (collectively objecting insurers) are liable for equitable indemnity or equitable contribution to appellants American International Specialty Lines Insurance Company (American) and Lexington Insurance Company (Lexington) (collectively settling insurers). The settling insurers paid $21.5 million to fund a settlement and $3,214,612 in defense costs on behalf of Walt Disney Company (Disney) (the insured of Continental, American and Lexington) in connection with an action by Goto.Com, Inc. (Goto.com) against Disney and Infoseek Corporation (Infoseek) (the insured of Gulf and Admiral). The settling insurers sued the objecting insurers, who then moved for summary judgment, inter alia, due to lack of notice of the Goto.com action and settlement to Continental, and lack of coverage on the part of Gulf and Admiral. Summary judgment was entered for the objecting insurers and the settling insurers appeal. We find no error and affirm the judgment.

CONTENTIONS

According to the settling insurers:

1. Even if Continental did not have notice of the Goto.com action, there is a triable issue as to whether notice was required. Under Continental's insurance policy, Disney was excused from providing notice of the Goto.com action if it had a reasonable belief that the occurrence, injury or offense was not covered. Disney reasonably believed it was not covered, so notice was not required.

2. The trial court erred when it ruled that Continental did not receive notice of the Goto.com action prior to Disney's settlement. There was a triable issue as to whether Continental received constructive notice of the Goto.com action through AON Risk Services, Inc. (AON).

3. Because Continental had no right to control Disney's defense, notice would not have changed the settlement. As a result, Continental cannot avoid its equitable duty to contribute to the settlement.

4. The trial court improperly relied on Truck Ins. Exchange v. Unigard Ins. Co. (2000) 79 Cal.App.4th 966, 94 Cal.Rptr.2d 516 (Unigard) in ruling that Continental's nonvoluntary payment clause was a defense to the settling insurers' claims. Unigard is distinguishable and should not be applied to this case.

5. The trial court erroneously applied the provision in Gulf's insurance policy that excluded coverage if Infoseek had prepolicy knowledge of circumstances that could lead to an insurance claim. There are triable issues as to Gulf's duty to defend because Infoseek might not have known of a prior wrongful act before the February 12, 1999, inception date of Gulf's insurance.

6. Even if Infoseek was not entitled to coverage for prior wrongful acts, Gulf was required to provide a defense for wrongful acts occurring within the policy period. The trial court erred when it concluded that all Infoseek's wrongful acts should be treated as one prior wrongful act.

7. Admiral, which issued an excess policy that followed form to Gulf's insurance, breached a contractual duty to conduct an investigation and determine coverage. Admiral must contribute to the settlement because the allegations of the Goto.com action triggered Admiral's insurance policy.

FACTS

Goto.com

In December 1997, Goto.com began operating a search engine with the internet address "www.goto.com." Goto.com's word marks were GOTO and GOTO.COM and its design mark (mark) displayed the words Go and To in white letters in the center of a green circle on a yellow background.

Continental, American and Lexington issue policies to Disney

Continental issued a $2 million general liability policy (the Continental policy) to Disney for the policy period June 30, 1997, through June 30, 2000. The Continental policy provided coverage for advertising injury. Lexington issued a $10 million media wrap up policy (the Lexington policy) to Disney for the period June 30, 1998, through June 30, 2001, and promised to pay all loss that Disney became legally obligated to pay resulting from, inter alia, misappropriation or unauthorized use of a trademark or service mark, and unfair competition involving the misuse of matter. Under the Lexington policy, it was Disney's duty to defend against claims brought against it. Finally, American issued a $50 million excess liability policy (the American policy) to Disney for the period June 30, 1998, through June 30, 2001. With respect to media professional liability, the American policy contained an endorsement stipulating that the insurance it provided followed form to the Lexington policy and the Continental policy.

The Continental policy required Disney to notify Continental of any claim for advertising injury if Disney estimated that the defense costs and liability exceeded 50 percent of the retention. The retention was $250,000 for each occurrence with respect to advertising injury.

Infoseek obtains an application for insurance with Gulf

Infoseek's agent solicited insurance from Media/Professional Insurance. Media/Professional Insurance wrote back and requested, inter alia, that Infoseek sign and date an application. A copy of Gulf's specialty errors and omissions plan application was forwarded.

Disney acquires Infoseek stock; they launch the go.com search engine

Disney acquired 43 percent of the stock of Infoseek and an option to obtain a majority interest. On December 13, 1998, Disney and Infoseek launched a beta test version of a search engine called go.com. They promoted the search engine with the word mark GO and a design mark with GO appearing in the center of a green circle against a yellow background (infringing mark). The words were in white and used the same font used in the mark. Disney's Buena Vista Internet Group (Buena Vista) worked with Infoseek on go.com.

Goto.com's cease and desist demand and the parties' subsequent negotiations

Because the mark and infringing mark were similar, an attorney for Goto.com wrote to the Business and Legal Affairs department of Buena Vista. The attorney informed Buena Vista that Goto.com was the owner of the mark and the GOTO and GOTO.COM word marks, and that the mark and infringing mark were confusing to consumers. According to the attorney for Goto.com: "Disney's use of the GO word mark and [infringing mark] in connection with its [internet] services constitutes, among other things, a violation of Section 43(a) of the Lanham Act, [title 15 United States Code sections] 1051, et seq., as well as violations of applicable state statutory and common law. [¶] We therefore demand, on behalf of [Goto.com], that Disney provide us with written assurances by no later than the close of business on Friday, January 8, 1999, that it will immediately cease and desist from all use of the GO word mark, the [infringing mark] and any similar marks. [¶] [Goto.com] will take any and all steps to protect its intellectual property rights. If we do not receive the requested written assurances by Friday, January 8, 1999, [Goto.com] will reasonably assume that Disney does not intend to comply with the request, and [Goto.com] will feel free to pursue any and all remedies available to it under applicable federal and state law to protect its intellectual property rights." (Italics omitted.)

On January 11, 1999, a Goto.com attorney spoke to Buena Vista, which revealed that personnel at Disney were adamant that they try to find a business solution to the dispute. According to Buena Vista, they needed to sit down and talk to Infoseek's chief executive officer and Disney.

On January 15, 1999, Disney sent an e-mail to the chief executive officer of Goto. com. The e-mail stated that Disney was "coordinating availability of the appropriate Infoseek people so we can set up a meeting for next week." A subsequent e-mail from the Goto.com chief executive officer to Goto.com addressees forwarded a draft discussion document that was received from Larry Shapiro. That e-mail stated: "The next step is to meet with InfoSeek [sic] on Monday to hammer out an agreement along the lines of this document."

The "Go Network and [Goto.com] Partnership Opportunities Discussion Document," which was dated January 15, 1999, set forth a nonbinding outline of discussions regarding potential business partnership opportunities between Disney's Buena Vista and Infoseek on one hand, and Goto. com on the other hand. The discussion document provided, in part, (1) "[s]everal potential product integration and business opportunities are being discussed, which will be further explored with the Infoseek product and business development team"; (2) "[a]ny business opportunity is subject to successful negotiation with Infoseek"; (3) "[Goto.com] and [Infoseek and Buena Vista] will explore potential revenue sharing from the services provided by [Goto.com] within the Go Network or other joint economic incentives around these opportunities"; and (4) "[Goto.com] [Buena Vista] and Infoseek will meet to explore these and other opportunities to integrate [Goto.com] products and/or technologies into...