Aroa Mktg., Inc. v. Hartford Ins. Co. of the Midwest

• Decision Date: 25 August 2011
• Docket Number: No. B228051.,B228051.
• Court: California Court of Appeals Court of Appeals
• Parties: AROA MARKETING, INC., Plaintiff and Appellant, v. HARTFORD INSURANCE COMPANY OF the MIDWEST, Defendant and Respondent.

198 Cal.App.4th 781
130 Cal.Rptr.3d 466
11 Cal. Daily Op. Serv. 10,837
2011 Daily Journal D.A.R. 12,849

AROA MARKETING, INC., Plaintiff and Appellant,
v.
HARTFORD INSURANCE COMPANY OF the MIDWEST, Defendant and Respondent.

No. B228051.

Court of Appeal, Second District, Division 4, California.

Aug. 23, 2011.
As Modified Aug. 25, 2011.

See Annot., Advertising Injury Insurance (2002) 98 A.L.R.5th 1; Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2011) ¶ 7:1066.12 (CAINSL Ch. 7C-B); 2 Witkin, Summary of Cal. Law (10th ed. 2005) Insurance, § 145.

130 Cal.Rptr.3d 468]Law Office of John J. Perlstein and John J. Perlstein, Los Angeles, for Plaintiff and Appellant.
Mendes & Mount, Dean B. Herman, and Catherine L. Rivard, Los Angeles, for Defendant and Respondent.

MANELLA, J.

[198 Cal.App.4th 784

INTRODUCTION

Aroa Marketing, Inc. (Aroa) appeals from an order sustaining a demurrer without leave to amend its complaint against respondent Hartford Insurance Company of the Midwest (Hartford). In the complaint, Aroa alleged that Hartford had breached its duty to defend or indemnify Aroa in an underlying lawsuit, Radcliffe v. Aroa Marketing, Inc., et al. (Super. Ct. L.A. County, 2008 No. 390531) (Radcliffe lawsuit). The trial court interpreted an insurance contract provision that specifically excluded coverage for “personal and advertising injury” arising out of “any violation of any intellectual property rights” as precluding coverage for the Radcliffe lawsuit. We affirm.¹

FACTUAL AND PROCEDURAL HISTORY A. Insurance Policy

Hartford had issued a commercial general liability insurance policy to Aroa for the policy period September 9, 2006 to November 1, 2007. The policy covered any damages that Aroa became legally obligated to pay because of “bodily injury,” “property damage” or “personal and advertising injury”

[198 Cal.App.4th 785]

arising out of Aroa's business. “Personal and advertising injury” was defined to include “ ‘oral or written or electronic publication of material that violates a person's right of privacy.’ ” Coverage was excluded, however, for “personal and advertising injury” arising out of “ ‘any violation of any intellectual property rights, such as copyright, patent, trademark, trade name, trade secret, service mark, or other destination of origin or authenticity.’ ”

B. Underlying Lawsuit

While the Hartford policy was in effect, Aroa hired a model named Tara Radcliffe to film an exercise video for Aroa's business. According to Radcliffe's complaint, the video was to be used at the consumer electronics show (CES) held in January 2007 and on CES's Internet site. However, Aroa allegedly also used Radcliffe's “image and likeness to sell and market ... products, including products unrelated to the exercise equipment featured in the [v]ideo, through medi[a] other than CES and its internet site.” Upon discovering Aroa's use of her image and likeness in media not named in the written contract, Radcliffe “repeatedly requested that she be compensated for said use.” Aroa failed to pay Radcliffe and continued the unauthorized use. In response, Radcliffe sued [130 Cal.Rptr.3d 469]Aroa for using her “likeness to sell and market products beyond that which was allowed under the contract.” She asserted causes of action for “statutory and common law misappropriation of likeness, breach of contract, unjust enrichment and unfair competition.” According to Radcliffe, Aroa's actions directly injured her “in that her image and likeness was, and still is [ sic ], being associated with and taken as an endorsement of the AROA brand and its products such that it diminished her marketability and publicity value as a professional actor and model.” She also claimed that as a direct and legal result of Aroa's activities, she was “deprived of her right to publicity.”

Aroa requested that Hartford defend and indemnify it against the Radcliffe lawsuit, but Hartford declined in an August 26, 2009 disclaimer of coverage letter. According to Hartford, “[i]t is well settled under California law, both statutory and common law, that, while the right of publicity is derivative from a right of privacy, it is clearly considered an intellectual property right which is specifically excluded from coverage under the Policy.” Aroa eventually settled the Radcliffe lawsuit.

C. Coverage Lawsuit

On May 20, 2010, Aroa filed its first amended complaint (FAC) against Hartford alleging that Hartford had breached its duty to defend and indemnify Aroa against the Radcliffe lawsuit. Hartford filed a demurrer to the FAC. It asserted the causes of action in the Radcliffe lawsuit did not fall within the

[198 Cal.App.4th 786]

scope of the insurance policy's coverage as Radcliffe claimed a violation of her right to publicity and a “right of publicity” claim is not a “ right of privacy” claim. Additionally, Hartford argued the causes of action were excluded by the policy's intellectual property rights exclusion.²

The parties filed additional pleadings and the trial court held a hearing on August 16, 2010. On September 2, 2010, the trial court issued an order sustaining the demurrer without leave to amend. Aroa filed a timely notice of appeal.

DISCUSSION

Under California law, “an insurer has a duty to defend an insured if it becomes aware of, or if the third party lawsuit pleads, facts giving rise to the potential for coverage under the insuring agreement.” ( Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19, 44 Cal.Rptr.2d 370, 900 P.2d 619.) “[I]f, 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, 31 Cal.Rptr.3d 147, 115 P.3d 460.) An insurer is also obligated to provide a defense where an exclusion arguably applies but may reasonably be interpreted to be inapplicable to the alleged facts. ( Smith Kandal Real Estate v. Continental Casualty Co. (1998) 67 Cal.App.4th 406, 418, 79 Cal.Rptr.2d 52.)

On appeal, Aroa contends the trial court erred in sustaining the demurrer to its FAC because the statutory and common law misappropriation of likeness claims in the Radcliffe lawsuit fall within the scope of the insurance policy's coverage for right to privacy claims. It further contends that the exclusion for privacy claims arising out of intellectual property rights was inapplicable.[130 Cal.Rptr.3d 470]Finally, it contends the trial court abused its discretion in denying leave to amend the FAC. We address each contention in turn. We review the order sustaining the demurrer de novo, and we review the court's denial of leave to amend for an abuse of discretion. ( Total Call Internat., Inc. v. Peerless Ins. Co. (2010) 181 Cal.App.4th 161, 166, 104 Cal.Rptr.3d 319.)

A. Coverage Provision

“ ‘While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.’ ”

[198 Cal.App.4th 787]

( Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115, 90 Cal.Rptr.2d...