August Entertainment v. Philadelphia Ins.
Decision Date | 08 January 2007 |
Docket Number | No. B184276.,B184276. |
Citation | 52 Cal.Rptr.3d 908,146 Cal.App.4th 565 |
Court | California Court of Appeals |
Parties | AUGUST ENTERTAINMENT, INC., Plaintiff and Appellant, v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant and Respondent. |
Law Offices of Christian J. Garris, Christian J. Garris; Law Offices of David M. Wolf and David M. Wolf, Los Angeles, for Plaintiff and Appellant.
Lewis Brisbois Bisgaard & Smith, Jeffry A. Miller, Thomas G. Oesterreich and Elizabeth G. O'Donnell, Los Angeles, for Defendant and Respondent.
This appeal raises issues concerning whether a directors and officers (D & O) liability policy covers a breach of contract claim where an officer entered into a contract without stating that he was acting on behalf of the corporation. The corporation subsequently disputed liability under the contract, and the other contracting party brought suit against the corporation and the officer, seeking to recover the contract price. The officer sought a defense from the D & O insurer, which denied the claim. The corporation and the officer settled the suit for the contract price.
In this action against the insurer for bad faith, the trial court entered judgment for the insurer after sustaining a demurrer without leave to amend. We affirm because the D & O policy did not cover the corporation's contractual debt or the officer's liability for breaching a contract. The breach of the contractual obligation asserted in this case did not give rise to a loss caused by a wrongful act within the meaning of the policy. Rather, the corporation was simply being required to pay an amount it voluntarily contracted to pay. To hold the insurer liable for the contract price would be tantamount to making it a business partner of the corporation and the officer, which was not the mutual intention of the insurer and the insured under the policy.
We accept as true the following allegations of the complaint. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal. Rptr. 718, 703 P.2d 58.)
InternetStudios.com, Inc., produced, distributed and marketed filmed entertainment products. The company operated a Web site for marketing films. Robert Maclean was an officer of InternetStudios.
August Entertainment, Inc., acts as the exclusive sales agent for various principals who own or control the rights of exploitation to several motion pictures. Gregory Cascante was the president of August Entertainment.
In October 1999, Maclean and Cascante began negotiations—by telephone, meetings, and correspondence—concerning possible deals between InternetStudios and August Entertainment. On March 14, 2000, Cascante faxed a memo to Maclean on August Entertainment letterhead, proposing that InternetStudios offer a minimum guarantee of $2 million to August Entertainment for the distribution rights to certain films. The memo contained other proposed terms. Cascante ended the memo, "If this structure is of interest to [I]nternetstudios.com please call me with any questions you have." It was signed, "Thanks in advance, Gregory Cascante."
On March 24, 2000, Maclean sent a letter to Cascante on InternetStudios letterhead. Maclean referenced Cascante's earner memo, stating, The letter was signed, "Yours truly, Rob Maclean."
Cascante received the letter and wrote on it, "On behalf of August Entertainment] I accept your offer." He signed the letter and also wrote the date, "3/24/2000." Cascante returned the letter to Maclean.
In subsequent correspondence, InternetStudios informed August Entertainment that it would "not go forward with the proposed acquisition and distribution rights" outlined in Maclean's March 24, 2000 letter because "as a result of our due diligence, it became clear that InternetStudios was unable to actually acquire all of August's distribution rights in the subject films." InternetStudios proposed that Maclean and Cascante schedule a meeting "to see if it is possible to work out an arrangement between InternetStudios and August Entertainment." InternetStudios asserted that "there is no agreement in place between the parties and that ... InternetStudios.com does not have any liability to [August Entertainment]." In contrast, August Entertainment insisted that a binding agreement existed.
In September 2000, August Entertainment filed an action against InternetStudios (August Entertainment, Inc. v. InternetStudios.com, Inc. (Super.Ct.L.A.County, 2000, No. BC235673)). After two demurrers, August Entertainment filed a second amended complaint in November 2000, alleging causes of action for breach of contract and anticipatory repudiation. InternetStudios was the only named defendant. Twenty Doe defendants were also included. The complaint alleged: (1) August Entertainment and InternetStudios were corporations; (2) on March 24, 2000, InternetStudios, "by and through its agent Maclean, made a written offer to August Entertainment to obtain a license of rights in [certain] Pictures"; and (3) August Entertainment, "by and through its agent, Gregory Cascante, ... accepted InternetStudios' offer and entered into [a] contract with InternetStudios ... concerning the license to InternetStudios of such rights of exploitation to the Pictures as were controlled by August [Entertainment]." August Entertainment alleged that it was owed $2 million under the contract. Eventually, InternetStudios filed an answer to the complaint.
In April 2001, August Entertainment filed a two-page "First Amendment to Second Amended Complaint," amending the name "InternetStudios" throughout the complaint to mean "InternetStudios.Com, Inc., Does 1 through 20, inclusive, and/or each or any of them." August Entertainment then served Maclean as Doe 1. Maclean answered the complaint.
By letter to InternetStudios dated September 5, 2001, August Entertainment explained its reasons for adding Maclean as a defendant. It argued that Maclean was personally liable for breach of contract because he did not state in his March 24, 2000 letter that he was signing on behalf of InternetStudios, and the letterhead he used did not indicate that InternetStudios was a corporation. According to August Entertainment, "the general rule is that an agent who signs a contract in his or her own name, rather than that of the principal, becomes personally liable even though he or she intends to bind only the principal, since, by so acting, the agent makes the contract his or her own." (Citing Sayre v. Nichols (1855) 5 Cal. 487, 488.) August Entertainment suggested that perhaps Maclean had made a mistake in signing the letter in this manner, possibly entitling him to indemnity under his D & O insurance.
Philadelphia Indemnity Insurance Company (Philadelphia) had issued an "Executive Safeguard" policy to InternetStudios, effective April 10, 2000, to April 10, 2001. The policy consisted of four parts, numbered as follows: (1) "Directors and Officers Liability & Company Reimbursement Insurance"; (2) "Employment Practices Liability Insurance"; (3) "Fiduciary Liability Insurance"; and (4) "Special Risk Insurance." Part one provided $3 million in D & O coverage and contained two insuring agreements. Under "Insuring Agreement A" entitled, "Directors and Officers Liability Coverage," Philadelphia agreed to pay for any "loss" on behalf of an "insured" based on a claim first made during the policy period for a "wrongful act," except for a "loss" that InternetStudios had actually paid on behalf of the insured as indemnification.
"Insured" meant "any person who has been, now is or shall become a duly elected director or a duly elected or appointed officer of [InternetStudios]." "Loss" was defined as "[d]efense [c]osts and any money the insured is legally obligated to pay as damages or in settlement" but did not include criminal or civil fines, penalties imposed by law, taxes, matters uninsurable under the law, or punitive damages. "Wrongful act" meant any "actual or alleged error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed by an Insured, individually or otherwise, in [his or her] capacity as a director or officer of [InternetStudios]; or [¶] ... matter claimed against an Insured solely in [his or her] capacity as such."
Under "Insuring Agreement B," entitled, "Company Reimbursement Coverage," Philadelphia agreed to pay on behalf of "the Company" (InternetStudios) any "loss" from a claim made during the policy period for "wrongful acts" by an "insured" to the extent that InternetStudios had indemnified an "insured" pursuant to law (common or statutory), contract, or InternetStudios's charter or bylaws. This coverage, unlike "Insuring Agreement A," excluded "any actual or alleged liability of the Company under any express contract or agreement."
On September 11, 2001, counsel for InternetStudios wrote to Philadelphia, making a claim under part one of the policy for D & O liability, not the company reimbursement coverage. Counsel enclosed a copy of the complaint and the letter from August Entertainment that explained Maclean's potential liability. Maclean's attorney also contacted Philadelphia.
By letter dated November 12, 2001, Philadelphia denied the claim. It denied coverage as to InternetStudios, relying on the exclusion for causes of action based on an express contract or agreement. It denied coverage as to Maclean, stating that his potential liability was based on actions he allegedly undertook in his individual capacity, not as an officer or director of InternetStudios. Philadelphia asserted it was not obligated to pay...
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