Mez Industries v. Pacific Nat. Ins. Co.
| Decision Date | 03 December 1999 |
| Docket Number | No. B121209.,B121209. |
| Citation | 76 Cal.App.4th 856,90 Cal.Rptr.2d 721 |
| Court | California Court of Appeals Court of Appeals |
| Parties | MEZ INDUSTRIES, INC., Plaintiff and Appellant, v. PACIFIC NATIONAL INSURANCE COMPANY, Defendant and Respondent. |
Gauntlett & Associates and David A. Gauntlett, Irvine, for Plaintiff and Appellant.
Murchison & Cumming, Edmund G. Farrell and Bryan M. Weiss, Los Angeles, for Defendant and Respondent..
Troop, Steuber, Pasich, Reddick & Tobey, Kirk A. Pasich and Lori M. Yankelevits; Mayer, Brown & Platt, Los Angeles, William J. Robinson and Victor de Gyarfas; Sheldon & Mak, Inc., Surjit P. Soni and William J. Brutocao, Los Angeles, as Amici Curiae on behalf of Appellant and upon the request of the Court of Appeal.
Greines, Martin, Stein & Richland, Irving H. Greines, Marc J. Poster, Robert A. Olson and Edward L. Xanders, Beverly Hills, for Truck Insurance Exchange as Amici Curiae on behalf of Defendant and Respondent and upon the request of the Court of Appeal.
Sonnenschein Nath & Rosenthal, Paul E.B. Glad and Michael A. Barnes, San Francisco, for National Association of Independent Insurers, American Insurance Association, Allstate Insurance Company and Fireman's Fund Insurance Company as Amici Curiae on behalf of Defendant and Respondent and upon the request of the Court of Appeal.
Chapman, Popik & White, Susan M. Popik, San Francisco, and Katherine O'Neal as Amici Curiae on behalf of Defendant and Respondent and upon the request of the Court of Appeal.
This case presents the question of whether a liability insurer providing coverage for "advertising injury" is required to defend its insured in an action charging the insured with inducement of patent infringement. When the respondent, Pacific National Insurance Company ("Pacific") refused to provide such a defense to the appellant, Mez Industries, Inc. ("Mez"), Mez filed this action for declaratory relief and breach of contract. The trial court sustained Pacific's demurrer without leave to amend and thereafter entered a judgment of dismissal.1
Because we conclude that the advertising injury provisions of Pacific's policy did not provide coverage to Mez for inducement of patent infringement and, in any event, such coverage would have been precluded by Insurance Code section 533,2 we conclude that no potential for coverage existed as a matter of law and thus no duty to defend ever arose. The trial court ruled correctly and we therefore affirm.
Mez is engaged in the business of manufacturing, distributing and selling components used for the connection of joints in airflow conduction systems (such as central heating and air conditioning systems). It manufactures these components and advertises them for sale through wholesalers to mechanical and sheet metal construction contractors who use the components to create duct systems in various building projects throughout the United States.
On April 10, 1995, Ductmate Industries, Inc. ("Ductmate") filed a complaint against Mez in the United States District Court for the Northern District of Ohio in an action styled as "Ductmate Industries, Inc. v. Mez Industries, Inc.," U.S.D.C. N.D. Ohio Case No. 4:95CV00815 (hereinafter, the "Ductmate action"). Stripped to its relevant essentials, the complaint in that action alleged that Mez had induced its customers to infringe at least four of Ductmate's patents for certain "flange-type duct joint assemblies] and seal arrangement[s] [therefor]."4
Ductmate's alleged claims of inducement of patent infringement pursuant to 35 U.S.C. § 271(b) were not based upon Mez's manufacture of the individual component parts for a duct system joint assembly, but rather upon those activities of Mez that caused or encouraged others to take those component parts and put them together in a way which infringed Ductmate's patents. Those activities by Mez necessarily involved its advertising activities, which encouraged and solicited others to buy Mez's products and assemble them in a particular manner. For example, Ductmate featured in its own advertising its "Slide-On Connectors" for use in putting together a conduction system and provided step-by-step instructions for assembly and installation. Mez has distributed a variety of advertising brochures, mailers, and promotional booklets depicting HVAC duct joint assemblies which graphically illustrated how Mez's corners, flanges and seals could work as substitutes for Ductmate's Slide-On-Connectors corner units and related products. In addition, Mez's assembly and installation instructions produced the same HVAC ducts as depicted in Ductmate's advertising materials.
At least for our purposes, there is no contention that Mez's products themselves infringed upon any of Ductmate's patents. (See fn. 4, ante.) Rather, the relevant essence of the Ductmate action is that Mez's advertising, marketing and sales promotion activities solicited, encouraged and induced engineers, contractors, distributors and builders to purchase Mez's products and to combine and assemble them in a manner which did infringe Ductmate's patents.
Mez tendered defense of the Ductmate action to Pacific on or about July 6, 1995. Mez asserted that it was entitled to coverage and a defense of the action under the "Advertising Injury" section of Pacific's liability policy. As relevant to the issues before us, that policy promised both indemnity and a defense for an injury caused by one or both of the following two "offenses" committed in the course of advertising goods, products or services in the coverage territory during the policy period:
(1) "Misappropriation of advertising ideas or style of doing business," and
(2) "Infringement of copyright, title or slogan."5
On or about November 22, 1995, after a review of the matter, Pacific denied coverage and refused to provide a defense. On June 4, 1997, Mez filed this action alleging essentially the forgoing facts and asserting that Pacific had wrongfully denied coverage. Mez alleged that it was entitled to a defense and sought a declaratory judgment for Pacific's breach of its contractual obligations under the policy.6
Pacific attacked this complaint by demurrer, asserting that, as a matter of law, there could be no potential for coverage and thus no duty to defend. Pacific argued that the claim of inducing patent infringement is simply not a covered offense under the advertising provisions of the policy and, in any event, coverage for such an act would be precluded under section 533. The trial court agreed and, on January 9, 1998, sustained Pacific's demurrer without leave to amend.7 A judgment of dismissal was thereafter entered on January 27, 1998. Mez has filed this timely appeal.
Mez contends that there is at least a potential for coverage under the Pacific policy. It argues that the offenses of (1) "misappropriation of advertising ideas or style of doing business" and (2) "infringement of copyright, title or slogan" are both ambiguous and each could reasonably include the alleged inducement of patent infringement. Therefore, Mez concludes, Pacific had a duty to provide Mez with a defense to the Ductmate action and the trial court erred when it sustained Pacific's demurrer and entered a judgment of dismissal.
Pacific rejects these contentions and reasserts the same basic arguments which the trial court accepted and upon which it based its ruling.
A demurrer tests the sufficiency of the allegations in a complaint as a matter of law. (Pacifica Homeowners' Assn. v. Wesley Palms Retirement Community (1986) 178 Cal.App.3d 1147, 1151, 224 Cal Rptr. 380.) We review the sufficiency of the challenged complaint de novo. (Saunders v. Superior Court (1994) 27 Cal. App.4th 832, 837, 33 Cal.Rptr.2d 438.) We accept as true the properly pleaded allegations of fact in the complaint, but not the contentions, deductions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) We also accept as true facts which may be inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403, 44 Cal.Rptr.2d 339.) We consider matters which may be judicially noticed, and we "give the complaint a reasonable interpretation, reading it as a whole and its parts in their context." (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.) We do not concern ourselves with whether the plaintiff will be able to prove the facts which it alleges in its complaint. (Parsons v. Tickner (1995) 31 Cal. App.4th 1513, 1521, 37 Cal.Rptr.2d 810.) The judgment or order of dismissal must be affirmed if any of the grounds for demurrer raised by the defendant is well taken and disposes of the complaint. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967, 9 Cal.Rptr.2d 92, 831 P.2d 317.)
Advertising injury liability has become part of the coverage offered in Commercial General Liability ("CGL") policies only recently. Prior to 1986, this coverage was offered by a separate broad form endorsement for which an additional premium was charged. It is important to understand that this coverage is entirely distinct from the bodily injury and property damage coverage which has long been the standard fare of CGL policies.
Bodily injury and property damage coverage is dependent upon an "accident" or "occurrence" and coverage is not triggered until an injury or damage results. (Croskey, Kaufman, et al., Cal. Prac. Guide: Insurance Litigation (The Rutter Group 1999) ¶¶ 7:1001-7:1003.) Advertising injury, on the other hand, applies to injury resulting from the commission of certain specified offenses. (Ibid.) It does not depend upon an accident, but may be based (and often is) on the intentional acts of the insured....
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