Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group

• Decision Date: 29 October 1996
• Docket Number: No. B083983,B083983
• Citation: 59 Cal.Rptr.2d 36,50 Cal.App.4th 548
• Court: California Court of Appeals Court of Appeals
• Parties: , 65 USLW 2352, 40 U.S.P.Q.2d 1809, 96 Cal. Daily Op. Serv. 7937, 96 Daily Journal D.A.R. 13,120 LEBAS FASHION IMPORTS OF USA, INC., Plaintiff and Appellant, v. ITT HARTFORD INSURANCE GROUP, Defendant and Respondent.

Page 36

59 Cal.Rptr.2d 36

50 Cal.App.4th 548, 65 USLW 2352, 40 U.S.P.Q.2d 1809,

96 Cal. Daily Op. Serv. 7937,

96 Daily Journal D.A.R. 13,120

LEBAS FASHION IMPORTS OF USA, INC., Plaintiff and Appellant, v. ITT HARTFORD INSURANCE GROUP, Defendant and Respondent.

No. B083983.

Court of Appeal, Second District, Division 3, California.

Oct. 29, 1996.

As Modified on Denial of Rehearing Nov. 27, 1996.

Review Denied Jan. 22, 1997.

Khastoo & Saboorian and S. Shawn Khastoo, Beverly Hills, for Plaintiff and Appellant.

California Insured Counsel, Irell & Manella and Thomas W. Johnson, Jr., Newport Beach; American Intellectual Property Law Association and Don A. Martens, Gauntlett & Associates, David A. Gauntlett and M. Danton Richardson, Irvine; Pattishall, McAuliffe, Newbury, Hilliard & Geraldson and Joseph N. Welch, II, Chicago, IL; Adducci, Mastriani & Schaumburg, L.L.P., and David A. Guth, Washington, DC; United Policy Holders, Anderson Kill & Olick and Jordan Stanzler, San Francisco; Eugene R. Anderson, and William G. Passannante, New York City; and Brown & Bain and Jack E. Brown, Palo Alto, Robert E. White and Susan C. Rushakoff, San Francisco, as Amici Curiae on behalf of Plaintiff and Appellant.

Hawkins, Schnabel, Lindahl & Beck, Kelley K. Beck and Wendy A. Scholl, Los Angeles Sonnenschein Nath & Rosenthal and Paul E.B. Glad, San Francisco; Buchalter, Nemer, Fields & Younger and Richard de Saint Phalle, San Francisco, as Amici Curiae on behalf of Defendant and Respondent.

Dickson, Carlson & Campillo, Hall R. Marston and Aaron M. Peck, Santa Monica; Rivkin, Radler & Kremer, William M. Savino, Stephen J. Smirti and Celeste M. Butera, Uniondale, NY, for Defendant and Respondent.

CROSKEY, Associate Justice.

Lebas Fashion Imports of USA, Inc. ("Lebas"), appeals from a summary judgment granted in favor of ITT Hartford Insurance Group ("Hartford") on Lebas' first amended complaint for breach of an insurance contract and breach of the implied covenant of good faith. After Lebas had been sued in federal court for trademark infringement, Hartford, which had issued a commercial general liability ("CGL") policy to Lebas, denied coverage and refused to provide Lebas with a defense on the ground that the policy did not provide coverage for a claim based on trademark infringement. Lebas thereafter defended and settled the federal suit and then commenced this action.

We agree with Lebas that the "advertising injury" coverage provided under Hartford's CGL policy does extend to a claim for trademark infringement. This is so because the applicable advertising injury offense set out in Hartford's policy is ambiguous and, in the context of the entire policy and all of the relevant circumstances, Lebas had an objectively reasonable expectation of coverage. This requires us to resolve that ambiguity in Lebas's favor. As a result, based on the allegations of the underlying federal action, a potential for coverage existed and Hartford owed Lebas a duty to defend that action. We therefore reverse the judgment and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND ¹

Lebas is an importer and wholesaler of men's clothing in Los Angeles and sells and distributes goods under different brand names. Lebas had obtained a CGL policy from Hartford which was effective during the period October 15, 1991 through October 15, 1992.

On June 15, 1992, Parfums Guy Laroche, a Societe Anonyme (similar to a United States corporation, but organized under the laws of the Republic of France) and Cosmair, Inc., a Delaware Corporation (collectively, "Guy Laroche") ² filed an action in the United States District Court for the Central District of California in which Lebas was named as the defendant. In this action, Guy Laroche alleged that it was engaged in the manufacture, distribution and sale (on a worldwide basis) of high fashion perfumes and cosmetic products under its trade name and trademarks, "DRAKKAR" and "DRAKKAR NOIR." ³ It was also alleged that prior to June 15, 1992, Lebas had adopted and commenced to use the name "DRAKKAR" on its clothing products, including men's suits, and to advertise those clothing products under the name(s) "DRAKKAR" and "DRAKKAR NOIR." In addition, it was alleged that Lebas had filed an application with the United States Patent and Trademark Office to register the name "DRAKKAR" as its own (an application to which Guy Laroche had filed opposition). ⁴

Lebas tendered defense of this action to Hartford. After concluding that the claims asserted against Lebas were not potentially covered under its CGL policy, Hartford denied coverage and refused a defense. The relevant portion of the CGL policy with which we are concerned is that which provides coverage for "advertising injury."

Under its policy, Hartford promised to "pay those sums that [Lebas] becomes legally obligated to pay as damages because of ... 'advertising injury' ..."; and the policy also stated that Hartford would "have the right and duty to defend any 'suit' seeking those damages." In addition, the policy provided that the "advertising injury" to which it applied was limited to "an offense committed in the course of advertising [Lebas'] goods, products or services." The term "advertising injury" was defined to mean an "injury arising out of one or more of the following offenses: a. .... [p] b ....[ ⁵] [p] c. Misappropriation of advertising ideas or style of doing business; or [p] d. Infringement of copyright, title or slogan." (Italics added.) There is no claim by Hartford that any exclusion contained in the policy has any application to the coverage issue. Thus, the insuring clause provisions quoted above are the only portions of the policy with which we are concerned.

After Hartford refused to provide a defense, Lebas undertook to and did settle the underlying action with Guy Laroche. Lebas entered into a stipulated consent judgment which required the payment of monetary damages and an injunction restraining any future use of the name "DRAKKAR." Lebas then filed this action against Hartford for its breach of contract and bad faith refusal to defend Lebas in the underlying action. Hartford moved for summary judgment, claiming that there never was any potential for coverage under the policy and therefore no duty to defend had ever arisen. Lebas opposed the motion, arguing that coverage was available under the "advertising injury" provisions of the policy.

On February 17, 1994, the trial court granted Hartford's motion after it concluded that the relevant policy provisions were clear and unambiguous and that no coverage was provided for a trademark infringement. Judgment was entered on March 3, 1994 and this timely appeal by Lebas followed.

ISSUE PRESENTED

The sole question before us is whether an alleged trademark infringement is potentially covered by policy language promising coverage for (1) the misappropriation of advertising ideas or style of doing business or (2) the infringement of copyright, title or slogan. This is an issue which has not heretofore been directly addressed by any California court and involves the construction and application of relatively new standard policy language contained in many post-1986 CGL policies.

DISCUSSION

1. Standard of Review.

Summary judgment is properly granted when the evidence in support of the moving party establishes there is no issue of fact to be tried. (Code Civ. Proc. § 437c; Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107, 252 Cal.Rptr. 122, 762 P.2d 46.) If the trial court determines there is no triable issue of fact, it determines the legal issues in the case. (Taylor v. Fields (1986) 178 Cal.App.3d 653, 659, 224 Cal.Rptr. 186.) Appellate review of a summary judgment motion consists of a de novo review of the pleadings presented to the trial court in support of, and in opposition to, the motion. (AARTS Productions, Inc. v. Crocker National Bank (l986) 179 Cal.App.3d 1061, 1064-1065, 225 Cal.Rptr. 203.)

As there is no dispute as to the relevant facts which we have summarized above, we exercise our independent judgment as to their legal effect. The sole issue with which we are concerned, involves the meaning, construction

and application of the language of the policy. That is a pure issue of law. (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 35, 221 Cal.Rptr. 171.)

2. The Duty To Defend Depends On A Potential For Coverage.

It is settled that an insurer must defend any action which potentially seeks damages within the coverage of the policy. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275, 54 Cal.Rptr. 104, 419 P.2d 168.) This obligation can be excused only when the third party complaint " 'can by no conceivable theory raise a single issue which could bring it within the policy coverage.' " (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153, quoting from Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 276, fn. 15, 54 Cal.Rptr. 104, 419 P.2d 168, italics added by Montrose court.) "In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot." (Ibid.; italics in original.) Any doubt as to whether the facts give rise to a duty to defend is resolved in the insured's favor. (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 607, 222 Cal.Rptr. 276, disapproved on another point in Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at pp. 296-298, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)

However, while the duty to defend is broad, it is not unlimited. It is entirely dependent upon a showing by the insured that the third party claim for which it seeks a defense is one for damages which potentially fall within the policy coverage. It is the nature and kind of risk covered by the policy which both defines and limits the duty to defend. (Dyer v. Northbrook Property & Casualty Ins....