Atlantic Mutual Ins. Co. v. J. Lamb, Inc.

• Decision Date: 01 August 2002
• Docket Number: No. B151708.,No. B150674.,B150674.,B151708.
• Parties: ATLANTIC MUTUAL INSURANCE COMPANY, Plaintiff and Respondent, v. J. LAMB, INC., Defendant and Appellant. Atlantic Mutual Insurance Company, Plaintiff and Respondent, v. Granite State Insurance Company, Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

123 Cal.Rptr.2d 256

100 Cal.App.4th 1017

ATLANTIC MUTUAL INSURANCE COMPANY, Plaintiff and Respondent, v. J. LAMB, INC., Defendant and Appellant.

Atlantic Mutual Insurance Company, Plaintiff and Respondent, v. Granite State Insurance Company, Defendant and Appellant.

No. B150674.

No. B151708.

Court of Appeal, Second District, Division 3.

August 1, 2002.

The Soni Law Firm, Surjit P. Soni, Leo E. Lundberg, Jr., Pasadena, and Glenn H. Johnson, for Defendant and Appellant J. Lamb, Inc.

McCormick, Barstow, Sheppard, Wayte & Carruth, LLP, James P. Wagoner and Todd W. Baxter, Fresno, for Defendant and Appellant Granite State Insurance Company.

Knapp, Petersen & Clarke and Gwen Freeman, Glendale, for Plaintiff and Respondent Atlantic Mutual Insurance Company.

CROSKEY, J.

The primary issue presented by these consolidated appeals¹ concerns the existence of coverage under a liability policy for a claim based upon disparaging statements allegedly made by the insured about a third party's business and products.

The plaintiff and respondent, Atlantic Mutual Insurance Company (Atlantic Mutual) filed this action for declaratory relief seeking a determination that there was no coverage under its policy. The trial court agreed with Atlantic Mutual's position and the defendants and appellants, J. Lamb, Inc. (Lamb) and Granite State Insurance Company (Granite State), appeal from the summary judgment entered against them. Lamb was the insured in successive years under policies issued by Atlantic Mutual and Granite State and claims that it is entitled to recover under the Atlantic Mutual policy even though it has already settled the same claim with Granite State. Granite State, on the other hand, claims that Atlantic Mutual is liable to it for equitable contribution and/or subrogation and such claim is not precluded by its prior settlement with Lamb.

Because we conclude that the disparaging statements published by Lamb fall within the very broad "personal injury" coverage provided in Atlantic Mutual's policy, we reverse the summary judgment entered in Atlantic Mutual's favor. In so doing, we distinguish this case from our earlier decision in Truck Ins. Exchange v. Bennett (1997) 53 Cal.App.4th 75, 61 Cal. Rptr .2d 497 (Bennett), based on the more expansive policy language before us that compels us to conclude that personal injury coverage was intended for disparaging publications in addition to those that were solely defamatory. We also conclude that there was a potential for coverage under the policies of both Atlantic Mutual and Granite State, and thus both insurers owed Lamb a defense of the third party suit filed against it, even though only one will have a duty to indemnify. Determining under which policy actual coverage will fall is a task for the trial court upon remand. Such determination, when made, will provide a basis for the trial court to resolve the remaining issues between the parties.

FACTUAL AND PROCEDURAL BACKGROUND²

This coverage litigation arises out of a complaint filed against Lamb in the underlying federal action by Continental Quilting Co., Inc. (Continental) on May 3, 1999. In that complaint, Continental sought a declaration that a patent claimed by Lamb, a competitor of Continental, was invalid and unenforceable. The complaint also contained causes of action for statutory and common law unfair competition and tortious interference with prospective advantage. In essence, and as is relevant to the issues raised in this matter, Continental alleged that Lamb had communicated with a number of Continental's customers and falsely stated that Continental was infringing a patent owned by Lamb and that Lamb would pursue legal action against those customers who continued to purchase the infringing products sold by Continental.³

On June 15, 1999, Lamb tendered defense of Continental's action to both Atlantic Mutual and Granite State. Both denied coverage and refused to provide a defense.

Atlantic Mutual's policy covered the period December 2, 1998, to December 2, 1999. Granite State's policy covered the preceding two years, December 2, 1996 to December 2, 1998. The policies of both insurers were substantially identical with respect to the relevant policy provisions.⁴ Lamb contends there is coverage under both the "personal injury" clause as well as the "advertising injury" provision.⁵

Both insurers based their denial of coverage on the ground that the allegations of the Continental complaint established that there was no potential for coverage as no claim for either "personal injury" or "advertising injury" was asserted. In addition, Atlantic Mutual contended that whatever acts may have been committed by Lamb, they did not occur during the policy period as required by the insuring clause. Atlantic argued that its "first publication" exclusion applied to preclude coverage.⁶

Denied coverage under its liability policies, Lamb entered into negotiations with Continental to settle the underlying action. On August 23, 1999, a settlement was reached whereby Lamb paid $65,000 to Continental in exchange for a dismissal of the underlying action.⁷ In addition, Lamb incurred $89,455 in defense costs and attorney's fees in reaching this resolution of the matter.

Thereafter, Lamb wrote to both Atlantic Mutual and Granite State, advised them of the settlement of the Continental action and requested that they reconsider their denial of coverage. Atlantic Mutual refused to change its position, but Granite State was persuaded to do so and entered into negotiations with Lamb. On or about March 14, 2000, a settlement was reached whereby Granite State agreed to pay Lamb $120,000 in exchange for a full release of all liability arising from the Continental claim.⁸

Shortly after March 14, 2000, Granite State Advised Atlantic Mutual that it had also insured Lamb and that it had paid all of the defense costs (i.e., $89,455) incurred by Lamb in defending the Continental action, as well as a part of the settlement costs allegedly expended by Lamb. This was apparently the first time that Atlantic Mutual learned that another insurer was involved in the matter. Granite State demanded that Atlantic Mutual share, on an equitable basis, the $120,000 it had paid to Lamb to cover the above described expenses.

At about the same time, Lamb also made a separate demand on Atlantic Mutual. Lamb took the position that Granite State's payment to it was not for defense or settlement of the Continental action, but rather was a "claim buyout" in which Lamb agreed to release its bad faith claim against Granite State and to accept a novation of the Granite State policy "to exclude past, present or future coverage relating to" the Continental action. Lamb demanded that Atlantic Mutual pay Lamb the full amount of its total defense and settlement expense ($154,455) which it claims to have incurred in the Continental action.

Atlantic Mutual rejected this demand and advised Lamb's counsel that Lamb had no right to be paid twice for the claim. Facing claims from both Lamb and Granite State for substantially the same money, and believing it owed nothing to either party, Atlantic Mutual, on May 30, 2000, filed this action against them for declaratory relief to determine the issue of coverage under its policy and its liability, if any, to either party.⁹

On July 20, 2000, Lamb filed a cross-complaint that included claims against Atlantic Mutual for breach of contract and bad faith and for declaratory relief against Granite State as to the meaning, purpose and legal effect of the Settlement and Release Agreement of March 14, 2000 (hereafter, the Settlement Agreement). Granite State also filed a cross-complaint against Atlantic Mutual for equitable subrogation and/or alternatively, equitable contribution.

Atlantic Mutual moved for summary judgment against both Lamb and Granite State on the ground that there was no coverage under its policy for the claim asserted in the Continental action and therefore it had no liability to either party as a matter of law. Granite State also moved for summary judgment on its cross-complaint against Lamb. Lamb filed cross-motions for summary judgment against both Atlantic Mutual and Granite State. With respect to these competing motions, the trial court, in April and May, 2001, ruled as follows:

1. Atlantic Mutual's motion against Lamb on its complaint and Lamb's cross-complaint was granted on the ground that the Continental complaint had not alleged an offense that constituted either advertising or personal injury within the meaning of the Atlantic Mutual policy (this ruling is the subject of the appeal in No. B150674).¹⁰

2. Atlantic Mutual's motion against Granite State was granted on the ground that since there was no coverage for the underlying Continental claim under the Atlantic Mutual policy, Atlantic Mutual had no duty to Granite State under either equitable subrogation or equitable contribution for any sums paid with respect to the Continental claim against Lamb (this ruling is the subject of the appeal in No. B151708).

3. Granite State's motion against Lamb on Lamb's cross-complaint for declaratory relief was granted on the grounds that: (1) the Settlement Agreement between Granite State and Lamb was not a novation; (2) the 29$120,000.00 paid to Lamb was to satisfy Lamb's "claim that it was entitled to reimbursement for its defense fees and settlement consideration in the Continental action;" and, (3) the Settlement Agreement does not impair any rights Granite State may have to equitable subrogation against, or equitable contribution from, Atlantic Mutual (this ruling, which we deem to be a summary adjudication of the claims raised by Lamb's cross-complaint, is also the subject of the appeal in case No. B150674).¹¹

Both Lamb (No. B150674) and Granite State (No. B151708) have filed timely appeals and we have, on our own motion, consolidated them for resolution in this single opinion.

CONTENTIONS OF THE...