King Const. v. Continental Western Ins. Co.

• Decision Date: 28 October 2003
• Docket Number: No. WD 61555.,WD 61555.
• Citation: 123 S.W.3d 259
• Parties: KIRK KING, KING CONSTRUCTION, INC., and American Family Mutual Insurance Company, Respondent, v. CONTINENTAL WESTERN INSURANCE COMPANY, Appellant.
• Court: Missouri Court of Appeals

123 S.W.3d 259

KIRK KING, KING CONSTRUCTION, INC., and American Family Mutual Insurance Company, Respondent, v. CONTINENTAL WESTERN INSURANCE COMPANY, Appellant.

No. WD 61555.

Missouri Court of Appeals, Western District.

October 28, 2003.

Motion for Transfer to Supreme Court Denied December 23, 2003.

Application for Transfer Denied January 27, 2004.

Brian K. Francka, Jefferson City, MO, for appellant.

Mark A. Ludwig, Jefferson City, MO, for respondent.

Before ELLIS, C.J., LOWENSTEIN and HOLLIGER, JJ.

HAROLD L. LOWENSTEIN, Judge.

Continental Western Insurance Company appeals from the judgment of the trial court holding that Continental had a duty to defend Kirk King and King Construction, Inc. (collectively "King"), in a copyright-infringement suit filed against the two. Continental insured King under a commercial general liability policy. Plaintiff-Respondent King, a custom homebuilder was sued for using a copyrighted house plan as its own. The Continental policy covers "advertising injuries" caused by an offense (infringement of copyright) committed in the course of advertising the insured's products. This case pivots on whether the placing of a sign bearing the builder's name next to a construction site of the builder constitutes advertising within the meaning of the insurance policy. Continental argues that the trial court erred in concluding that it had a duty to defend and to indemnify King and that American Family Mutual Insurance Company (American Family), the predecessor insurer of King, must split the defense and indemnification costs. This court rejects both points.

I. FACTS

William Wiley sued Kirk King and King Construction, Inc. (and other parties not important to this appeal) for copyright infringement in violation of 17 U.S.C. §§ 101 et seq. Wiley alleged that King had "knowingly, intentionally and willfully copied Wiley's [copyrighted house design] and built a home, which is nearly identical to the copyrighted home." The petition made no mention of damages stemming from the advertising or sale of the copyright infringing home or that King had used Wiley's plans in his (King's) advertising. In the front lawn of the allegedly copyright-infringing home, King had placed a two foot-by-three foot sign with the name of King Construction Company on it; the sign also held the building permits.

Twice, King tendered the defense of the case to appellant Continental, which had issued King a comprehensive general liability policy that covered some forms of "advertising injury" and "personal injury." Continental refused both tenders. King then tendered the defense to his other insurance company, American Family, which had issued King a policy with an "other insurance" clause identical to one in the Continental policy. American Family agreed to defend and indemnify King in the Wiley suit, though under a reservation of rights.

Wiley eventually settled with King and American Family. Under the settlement agreement, King admitted infringing Wiley's copyright by building the home in question and agreed to pay Wiley $25,000. American Family agreed to pay, and later paid, $7,500 of the $25,000 and $3,661.25 for all of King's legal expenses. The settlement agreement became a consent judgment, in which the court also permanently enjoined King from "directly or indirectly, employing, copying, duplicating, reproducing, making any works of, distributing copies of or otherwise using any of [Wiley's house design] or any derivations thereof."

After Continental refused to indemnify King or American Family or to reimburse American Family¹ for paying King's legal expenses, King and American Family filed this suit against Continental for breach of contract and vexatious refusal to provide insurance coverage, seeking damages of $28,661.25, plus statutory penalties, attorneys' fees, and costs. In their petition, King and American Family claimed that Continental had a duty to defend and indemnify King because "the building of a home and the placement of a sign with the builder's name on it in the yard of such home is a form of advertising that builder's product and services."

The policy here did not define "advertising." At the bench trial, the only evidence as to advertising by contractors such as King, came from respondent's witness, Charles Schaefer, a retired homebuilder with forty years experience in the construction industry, who testified that the most effective way for a home building contractor to advertise was to place signs on job sites identifying the contractor.

Q. How did you advertise on your jobs?

A. I put up signs on the jobs, and then weekends people would normally view our homes and see what we had, our guts in them and everything, how they was built. And probably most of my calls would come in on Monday, in the first part of the week, because that's the best advertisement I could see that we had was to contact the people and they could see what you had out there.

Q. So they could see the quality of the materials, the quality of the home, and then they'd call you?

A. Right.

Q. And you say on Mondays is when you got most of your calls?

A. Mondays and Tuesdays mostly.

Q. And do you know why that is?

A. Weekends they would tour, usually go out and look. You know, if they was intending to build a house, they'd usually look up a contractor and go from there.

Evidence was admitted showing that King had placed a two-foot-by-three-foot sign outside the job site, which had the name of King Construction Company on it, before construction had been completed and that the sign also held building permits. (The language of the King-Continental insurance policy will be presented in the analysis section. See infra.) The trial court entered judgment in favor of the plaintiffs, though finding that Continental's refusal to defend or indemnify King was not vexatious. The court reasoned as follows:

The undisputed evidence is that builders advertise their services and products by building a quality home and placing a sign identifying them as the builder in the yard for the general public to see. While this is not exclusively advertising, there is no requirement in the defendant's policy that the activity that constitutes advertising be exclusively advertising. The undisputed testimony was that this type of advertising is very effective because potential customers can see the quality of the construction and materials, and that many potential customers contact builders after seeing the homes they are building. The defendant does not define advertising in its policy, which it could have done; the common definition of advertising includes "to call public attention to" which King did by placing a sign in the yard of homes he was building. The sign alone is not the advertising; the sign alone has no meaning or impact without the house since the house itself allows potential customers to see the quality of the goods and services provided by the builder. It is the house itself [that] constitutes the copyright infringement, and the house is part of the advertising; therefore, there is causal relationship between the damage alleged (copyright infringement) and the advertising activity.

II. STANDARD OF REVIEW

The judgment in a court-tried case must be affirmed unless it is against the weight of the evidence, it was unsupported by sufficient evidence, or the trial court either misapplied or misconstrued the applicable law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). All the evidence and reasonable inferences therefrom is reviewed in the light most favorable to the judgment, and all evidence and inferences to the contrary are disregarded. Sanders v. Ins. Co. of N. Am., 42 S.W.3d 1, 8 (Mo.App.2000).

III. ANALYSIS

A.

The major issue in this case is whether the trial court misconstrued King's insurance policy as requiring Continental to defend King in the Wiley lawsuit and to indemnify him for any resulting liability. The facts present in this case constitute a case of first impression in Missouri. Continental argues that the trial court misapplied the policy language because (1) the injury in this case (copyright infringement) was not caused by an offense committed in the course of advertising King's goods, products, or services, and (2) the home building (copyright-infringing act) was not caused by King's advertising.

An insurance company has a duty to defend an insured when the insured is exposed to potential liability to pay based on the facts known at the outset of the case, no matter how unlikely it is that the insured will be found liable and whether or not the insured is ultimately found liable. McCormack Baron Mgmt. Servs., Inc. v. Am. Guarantee & Liab. Ins. Co., 989 S.W.2d 168, 170 (Mo. banc 1999). To extricate itself from a duty to defend the insured, the insurance company must prove that there is no possibility of coverage. Id. Coverage is principally determined by comparing the language of the insurance policy with the allegations in the pleadings. Id. "However, even though the pleadings do not show coverage, where known or reasonably ascertainable facts become available that show coverage[,] the duty to defend devolves upon the insurer." JOHN ALAN APPLEMAN, 7C INSURANCE LAW AND PRACTICE § 4684.01 (Walter F. Berdal, ed.1979). Accord Zipkin v. Freeman, 436 S.W.2d 753, 754 (Mo. banc 1968). Insurance coverage is a question of law. Keisker v. Farmer, 90 S.W.3d 71, 74 (Mo. banc 2002). "Where there is no duty to defend, there is no duty to indemnify." Am. States Ins. Co. v. Herman C. Kempker Constr. Co., 71 S.W.3d 232, 236 (Mo.App. 2002). Where reasonably possible, an insurance policy will be interpreted as affording coverage. Weathers v. Royal Indem. Co., 577 S.W.2d 623, 626 (Mo. banc 1979).

In its policy with King, Continental agreed to indemnify and defend King in any suits seeking damages for "personal injury" or "`advertising injury' caused by an offense committed in the course of advertising your...