New Hampshire Ins. v. RL Chaides Const.

• Decision Date: 07 January 1994
• Docket Number: No. C-92-2207 MHP.,C-92-2207 MHP.
• Court: U.S. District Court — Northern District of California
• Parties: NEW HAMPSHIRE INSURANCE COMPANY, Plaintiff, v. R.L. CHAIDES CONSTRUCTION CO., INC., R.L. Chaides Equipment Co. and R.L. Chaides, and A.C. Aukerman Company, Defendants.

847 F. Supp. 1452

NEW HAMPSHIRE INSURANCE COMPANY, Plaintiff, v. R.L. CHAIDES CONSTRUCTION CO., INC., R.L. Chaides Equipment Co. and R.L. Chaides, and A.C. Aukerman Company, Defendants.

No. C-92-2207 MHP.

United States District Court, N.D. California.

January 7, 1994.

Paul A. Giacoletti and Robert A. Ballard, Boornazian Jensen & Garthe, Oakland, CA, for plaintiff.

David A. Gauntlett, Callahan & Gauntlett, Irvine, CA, Thomas E. Schatzel, Thomas E. Schatzel Law Offices, Los Gatos, CA, and Geoffrey W. Snyder, Jackson, MI, for defendants.

MEMORANDUM AND ORDER

PATEL, District Judge.

New Hampshire Insurance Company ("NHICO") filed this action seeking a declaratory judgment that it has no duty to defend or indemnify its insured, R.L. Chaides Construction Co., Inc. ("Chaides") in connection with an action ("underlying action") brought in United States District Court. The underlying action was brought by A.C. Aukerman Company ("Aukerman") against Chaides, R.L. Chaides, and R.L. Chaides Equipment Co.¹ Now before the court is NHICO's motion for summary judgment on its second claim for relief. NHICO moves for a judicial declaration that it has no duty to defend or indemnify its insured for alleged injuries under the personal injury/advertising injury section of plaintiffs insurance policy ("Policy"). See Compl. at 7-8.

Having considered the papers submitted and the arguments of the parties, and for the following reasons, the court GRANTS NHICO's motion for summary judgement.²

BACKGROUND

I. The Underlying Action

Chaides contracts and subcontracts to build highway barrier walls using slip forming methods and apparatus, and has been in such business since the mid-1970's. Declaration of Robert Purdy, at 2. In order to secure contracts, Chaides solicits opportunities to submit bids to perform slip forming services. Id. Such solicitations include information on Chaides' expertise, labor and machinery. Id. at 2-4. Methods of solicitation include direct communications with prime contractors, by mail or telephone, and direct mail promotions, including published magazine articles relating to Chaides and its slip forming method and apparatus. Id. When the solicitations are successful, Chaides is awarded contracts to perform its services. Id. at 2.

Aukerman claims to have been issued, and to still be the owner of, Patent Nos. 3,792,133 (1974), 3,957,405 (1976) and 4,014,633 (1977). Id., Ex. A. Each of these patented inventions pertains to a method or apparatus for forming elongated concrete structures. Id., Ex. B. Aukerman claims that Chaides violated its patents either by making, selling, and/or using slip forms embodying the patented inventions or by actively inducing the making, selling and/or using of slip forms embodying the patented inventions.³ Id., Ex. A. Aukerman filed suit on October 26, 1988. Compl. at 3.

The action brought by Aukerman against Chaides was originally resolved on motion for summary judgment against Aukerman. Compl. at 5. Tender of defense was not made until May 29, 1991, after summary judgment in the underlying action. Compl. at 4. Aukerman appealed the summary judgment ruling and the appeals court remanded the case for further trial proceedings. Id. By order filed September 3, 1993, the trial court held Chaides liable for infringement of Aukerman's patents. See Aukerman v. Chaides, No. 88-20704 SW, slip op. at 7-9, 1993 WL 379548 (N.D.Cal. September 3, 1993).

II. The Insurance Policy

NHICO issued a comprehensive general liability policy to Chaides which became effective on May 15, 1988. See Giacoletti Dec., Ex. D. Under the business liability coverage of the Policy, NHICO agreed to pay on behalf of the insured all sums for which the insured might become liable in damages for, inter alia, advertising injury caused by piracy. Id., Ex. D, § II at 10. Defendants claim that NHICO had a duty to defend in the underlying action in view of the policy terms for coverage under advertising injury. NHICO claims no duty to defend or indemnify and filed this declaratory relief action on June 11, 1992. Resolution of NHICO's summary judgment motion relating to its second claim for relief depends upon the language of the Policy and whether Chaides' acts as alleged in the underlying action created a potential for liability giving rise to a duty to defend under the Policy.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 56, summary judgment shall be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial ... since a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). See also T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987) (the non-moving party may not rely on the pleadings but must present significant probative evidence supporting the claim); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (a dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party.").

The court's function, however, is not to make credibility determinations, Anderson, 477 U.S. at 249, 106 S.Ct. at 2510, and the inferences to be drawn from the facts must be viewed in a light most favorable to the party opposing the motion. T.W. Elec. Serv., 809 F.2d at 631.

Furthermore, cases involving "interpretation of insurance contracts raise questions of law and thus are particularly amendable to summary judgment." John Deere Ins. Co. v. Shamrock Industries, Inc., 696 F.Supp. 434, 438 (D.Minn.1988), aff'd, 929 F.2d 413 (8th Cir.1991).

DISCUSSION

I. Duty to Defend

An insurer owes a broad duty to defend its insureds. CNA Casualty of California v. Seaboard Sur. Co., 176 Cal.App.3d 598, 605, 222 Cal.Rptr. 276 (1986). That duty is measured by the reasonable expectation of the insured, and must be assessed at the outset of the case. See Fire Ins. Exchange v. Jiminez, 184 Cal.App.3d 437, 441, 229 Cal. Rptr. 83 (1986). The voice of the plaintiff in the underlying action controls. See Gray v. Zurich Ins. Co., 65 Cal.2d 263, 277, 54 Cal. Rptr. 104, 419 P.2d 168 (1966). Therefore, NHICO's duty to defend "must be analyzed and determined on the basis of any potential liability arising from facts available to NHICO from the Aukerman complaint or other sources available to it at the time of the tender of defense." CNA Casualty, 176 Cal. App.3d at 605, 222 Cal.Rptr. 276; see also Westfield Ins. Co. v. TWT, Inc., 723 F.Supp. 492, 495 (N.D.Cal.1989).

Chaides claims that the Aukerman complaint alleges sufficient facts to create a potential for liability and that NHICO accordingly has a duty to defend under the Policy. However, in determining whether a duty to defend exists, the court must look not only to the allegations in the underlying complaint, but also to any facts available at the time of the defense tender to determine whether there was a potential for liability under the policy. See CNA Casualty, 176 Cal.App.3d at 605, 222 Cal.Rptr. 276.

Additionally, review of the language of the insurance policy itself is essential to determining the existence of a duty to defend. In the instant action, the Policy defines an advertising injury as "injury arising out of 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 right of privacy, piracy, unfair competition or infringement of copyright titles or slogan." Giacoletti Dec., Ex. D, § II. at 10. Thus, an "advertising injury" consists of three elements: (1) an advertising activity by the named insured; (2) allegations that fit into one of the offenses enumerated in the policy; and (3) an injury that arises out of one of those offenses which was committed during the policy period and in the course of the advertising activity. One of the offenses listed in the Chaides Policy is "piracy".

Chaides contends that the claims of patent infringement and inducement to infringe in the underlying complaint are covered by the Policy because they constitute "piracy" within the meaning of the Policy, and that the injuries complained of occurred in the course of plaintiff's advertising activities. In resolving this issue, the court will address each of the three elements required to invoke coverage of an advertising injury.

A. Parent Infringement.

1. "Advertising Activity"

The first element of an advertising injury requires a finding that the insured was engaged in an "advertising activity." While the Policy in this action defines "advertising injury," it does not define "advertising activity." What conduct constitutes "advertising activity" is a question currently in some dispute. Some courts construe the term as broadly as possible,⁴ while others define it in very narrow terms.⁵ The parties dispute whether Chaides' solicitations and related conduct rise to the level of advertising activity within the meaning of Bank of West v. Superior Court, 2 Cal.4th 1254, 1276 n. 9, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992).

Advertising activity must be examined in the context of the overall universe of customers to whom a communication may be addressed; to hold otherwise would effectively preclude small businesses such as Chaides from ever invoking their rights to coverage for advertising injury liability under policies like those issued by NHICO. This court has found in another action, New Hampshire Ins. Co. v. Foxfire, Inc., 820 F.Supp. 489, 494 (N.D.Cal.1993), and concludes here, that where the advertising audience is small but nonetheless constitutes all or a significant portion of the insured's client base, the...