Bank of West v. Superior Court (Industrial Indem. Co.)

• Decision Date: 15 November 1990
• Docket Number: No. A050298,A050298
• Citation: 225 Cal.App.3d 121,275 Cal.Rptr. 39
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 225 Cal.App.3d 121 225 Cal.App.3d 121, 59 USLW 2372 BANK OF the WEST, Petitioner, v. The SUPERIOR COURT of Contra Costa County, Respondent; INDUSTRIAL INDEMNITY COMPANY et al., Real Parties in Interest.

Page 39

275 Cal.Rptr. 39

Previously published at 225 Cal.App.3d 121

225 Cal.App.3d 121, 59 USLW 2372

BANK OF the WEST, Petitioner, v. The SUPERIOR COURT of Contra Costa County, Respondent INDUSTRIAL INDEMNITY COMPANY et al., Real Parties in Interest.

No. A050298.

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

Nov. 15, 1990.

Rehearing Granted Dec. 17, 1990.

Jan T. Chilton, William L. Stern, Severson & Werson, San Francisco, for petitioner.

Denis T. Rice, Helane L. Morrison, Kathryn Nelson, Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, for amicus curiae on behalf of petitioner.

No appearance for respondent.

Raoul D. Kennedy, Peter W. Davis, Richard de Saint Phalle, Dolores A. Dalton, Crosby, Heafey, Roach & May, Oakland, Paul H. Breslin, Walnut Creek, Frank Gilbert, San Francisco, for amicus curiae on behalf of real parties in interest.

ANDERSON, Presiding Justice.

I. INTRODUCTION

This is a first impression case in which we are invited to interpret advertising coverage for unfair competition contained in standard form comprehensive general liability insurance policies (CGL). The principal issue presented for determination is whether the phrase "unfair competition" giving rise to advertising injury is limited to the narrow tort as defined in common law (i.e., passing off the goods of a business rival as one's own) or whether it also includes the statutory definition which describes unfair competition broadly so as to embrace all unlawful, unfair or fraudulent business practices. After careful analysis of the policy language, the rules of contract interpretation and the existing case authorities we conclude that the phrase "unfair competition" as used in standard form CGL must be given the broad statutory meaning in order to provide coverage for all unlawful and unfair business practices committed against either a business rival and/or the general public.

II. FACTUAL AND PROCEDURAL BACKGROUND

This petition for writ of mandate grew out of two test cases: (1) Fallat v. Central Bank, Superior Court No. 865597 (hereafter Fallat), in which the class action involving 32 claims, alleged that Central Bank, the predecessor of petitioner Bank of the West (hereafter Bank), ¹ was guilty of unfair competition in financing automobile insurance premiums through Coast Program, a subsidiary of the Bank. The Fallat plaintiffs also asserted various regulatory violations on the part of the Bank. (2) Eagle Associates embraced six suits filed against the Bank. The complaints therein alleged that plaintiffs loaned funds to Eagle Associates which funds, pursuant to a written agreement with the Bank, were to be kept in a special interest bearing account and were to be released or transferred only on certain specified conditions. The plaintiffs charged that the Bank, in violation of the agreement, transferred funds from the special account and, thus, facilitated Eagle Associates' absconding with the money. Four of the six suits sought damages for emotional distress and all six claimed economic loss. In addition to breach of contract, the complaints alleged causes of action for breach of fiduciary duty, negligence, fraud and conversion as well.

During the relevant times the Bank was covered by standard form CGL and broad form endorsements to CGL policies which were issued by real parties in interest, Industrial Indemnity Company and Industrial Insurance Company of Hawaii, Ltd. (hereafter together Industrial); the Bank tendered both the Fallat and Eagle Associates actions to Industrial for defense and indemnity. Industrial first accepted the Fallat defense under a reservation of rights. Later on, however, Industrial denied coverage, refused to contribute to the cost of the defense, as well as to the settlement by which the Bank was obligated to pay plaintiffs $500,000 in damages and $250,000 for attorney fees. Industrial likewise denied coverage in Eagle Associates and filed a summary adjudication motion regarding coverage under the policies. However, prior to the determination of the issue, the Bank settled the case with the other insurers and withdrew its claim against Industrial, admitting in essence that Industrial's policies provided no coverage in Eagle Associates.

Thereupon, Industrial proceeded to seek a summary adjudication of advertising liability in the Fallat action. The CGL policies and the broad form endorsements to the standard CGL policies issued to the Bank provided in relevant part: "The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury or advertising injury to which this insurance applies, sustained by any person or organization and arising out of the conduct of the named insured's business...." (Primary Policy, SP 867-4855, subd. (1)(A), original emphasis.) The broad form endorsement provides: " 'Advertising injury' means injury arising out of an offense committed during the policy period occurring in the course of the named insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of the right of privacy, unfair competition, or infringement of copyright, title or slogan." (Emphasis added.)

Based upon the cited language of the policies, Industrial argued that there was no coverage for the Fallat claims because: (1) the term "unfair competition" used in the policies meant the common law definition of that tort, rather than the broader statutory definition contained in BUSINESS AND PROFESSIONS CODE SECTION 17200², and the Fallat claims did not allege (nor could it be amended to allege) the common law tort of unfair competition; (2) the relief awardable under section 17203 was equitable or restitutionary relief, rather than damages as contemplated by the policy coverage; and (3) the Fallat claims did not occur in the course of the insured Bank's advertising activities within the purview of the policies. The trial court agreed with Industrial and declared that there was no triable issue as to any of the above disputed points.

Despite the fact that the coverage issue raised in Eagle Associates became moot due to the dismissal of the claims against Industrial, the trial court proceeded to make further summary adjudications in that case as well. After extensive briefing, the trial court concluded that the insurance policy in Eagle Associates provided no coverage for any liability (including tort liability for emotional distress) which depended upon the existence of a contractual duty or which was based upon an alleged contractual obligation on the part of the insured. ³ Consistent therewith, the trial court entered orders granting summary adjudications on both the advertising liability issues raised in Fallat and the contractual liability (emotional distress) issue raised in Eagle Associates. Upon the stipulation of the parties, the proceedings were stayed pending review here.

III. DISCUSSION

The Bank argues that both orders of the trial court are unfounded and should be set aside. In particular, the Bank claims that respondent court erroneously interpreted coverage for "advertising injury" inasmuch as: (1) the phrase "unfair competition" is not limited to the narrow definition of the common law but also includes the statutory definition of that tort as outlined in section 17200; (2) the relief under section 17203 is not limited to injunction or restitution alone, but may include monetary damages; and (3) the unfair competition alleged in Fallat did occur in the course of the Bank's advertising activities. Moreover, the Bank contends that (4) the summary adjudication of contractual liability in Eagle Associates was mistaken because under settled law breach of duty created by a contract may give rise also to tort liability. (Ritchie v. Anchor Casualty Co. (1955) 135 Cal.App.2d 245, 256, 286 P.2d 1000.)

We believe the Bank's contentions concerning advertising coverage are well taken and, accordingly, we issue a peremptory writ to set aside the summary adjudication order granted in Fallat. Simultaneously, we hold that the contractual liability adjudication in Eagle Associates is moot and fails to provide a proper basis for review.

A. Advertising Liability Coverage

(1) The Applicable Law

Under settled law, a petition for writ of mandate is available to review an order granting summary adjudication of issues. (State of California v. Superior Court (Fogerty) (1981) 29 Cal.3d 240, 244, 172 Cal.Rptr. 713, 625 P.2d 256.) Since we have been called upon to construe the standard Insurance Services Office (ISO) insurance policies without extrinsic evidence, the interpretation is one of law (Chong v. Fremont Indemnity Co. (1988) 202 Cal.App.3d 1097, 1100, 249 Cal.Rptr. 264) and we review the issues raised by the petition de novo (Laxague v. Fireman's Fund Ins. Co. (1990) 220 Cal.App.3d 530, 533, 269 Cal.Rptr. 456; Scroggs v. Coast Community College Dist. (1987) 193 Cal.App.3d 1399, 1401, 239 Cal.Rptr. 916).

The rules interpreting an insurance contract are also well settled. Words in the insurance policy must be read in their ordinary sense (McKee v. State Farm Fire & Cas. Co. (1983) 145 Cal.App.3d 772, 776, 193 Cal.Rptr. 745) and must be interpreted according to the plain meaning which a layman would ordinarily attach to them (Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 807, 180 Cal.Rptr. 628, 640 P.2d 764). As often emphasized, " 'The policy should be read as a layman would read it and not as it might be analyzed by an attorney or an insurance expert.' " (Otter v. General Ins. Co. (1973) 34 Cal.App.3d 940, 949, 109 Cal.Rptr. 831; accord, Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 271, 203 Cal.Rptr. 672.) Since the insurance policies are considered "adhesion contracts" (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269-270, 54 Cal.Rptr. 104, 419 P.2d 168), the courts must construe the provisions therein to protect...