Nichols v. Great American Ins. Companies

• Decision Date: 25 June 1985
• Parties: Ralph NICHOLS, Loy Nichols, and Stan Darrow, Plaintiffs and Appellants, v. GREAT AMERICAN INSURANCE COMPANIES, and American National Fire Insurance Company, Defendants and Respondents. UNITED PACIFIC INSURANCE COMPANY, Cross-Appellant, and Cross-Respondent, v. Ralph H. NICHOLS, Loy Nichols, Stan Darrow and Adolph B. Gower, Jr., Appellants and Cross-Respondents, Great American Insurance Companies and American National Fire Insurance Company, Defendants, Respondents and Cross-Appellants. Aid Insurance Services, Inc., Cross-Defendant, Respondent. Civ. 21935.
• Court: California Court of Appeals Court of Appeals

Page 416

215 Cal.Rptr. 416

169 Cal.App.3d 766

Ralph NICHOLS, Loy Nichols, and Stan Darrow, Plaintiffs and Appellants, v. GREAT AMERICAN INSURANCE COMPANIES, and American National Fire Insurance Company, Defendants and Respondents.

UNITED PACIFIC INSURANCE COMPANY, Cross-Appellant, and Cross-Respondent, v. Ralph H. NICHOLS, Loy Nichols, Stan Darrow and Adolph B. Gower, Jr., Appellants and Cross-Respondents, Great American Insurance Companies and American National Fire Insurance Company, Defendants, Respondents and Cross-Appellants.

Aid Insurance Services, Inc., Cross-Defendant, Respondent.

Civ. 21935.

Court of Appeal, Third District, California.

June 25, 1985.

Review Denied Sept. 11, 1985.

[169 Cal.App.3d 769] Douglas H. Drake, Sacramento, for plaintiffs, appellants and cross-respondents.

Cris C. Vaughan and Gary L. Hall, Sacramento, for cross-defendant and respondent (Aid Ins. Services).

Bolling, Walter & Gawthrop, George E. Murphy and Craig E. Farmer, Sacramento, for defendant, respondent and cross-appellant (Great American Ins. Cos.).

Greve, Clifford, Diepenbrock & Paras and Lawrence A. Wengel, Sacramento, for cross-appellant and cross-respondent (United Pacific).

CARR, Associate Justice.

This appeal presents questions of the scope of coverage of business and personal liability insurance policies for conduct of the insured parties who are alleged to have sold devices designed to intercept pay television signals, or as more commonly designated, airwave piracy. The trial court found the insurance companies were not obligated to defend or indemnify the underlying lawsuit. We conclude this finding was correct and shall affirm.

FACTS

The instant litigation commenced with the filing of a complaint by California Satellite Systems (Calsat). Named as defendants, among others, were Ralph Nichols Nichols and Gower tendered the defense of this complaint to their respective insurance companies. The insurers refused to provide either a defense or indemnification. Nichols then sought declaratory relief against his business liability insurer, Great American Insurance. ¹ Nichols had also unsuccessfully tendered the defense to his homeowner's carrier, United Pacific Insurance. Shortly after Nichols sued Great American, United Pacific filed a complaint for declaratory relief naming Nichols, Great American and Gower, inter alia, as defendants. The United Pacific action prompted Gower to file a cross-complaint against his business liability insurer, AID Insurance Services (AID). Upon motion by appellants, the trial court consolidated the actions.

(doing business as Phil's Antenna), Nichols' employee Steve Darrow, and Adolph Gower (doing business as Cordova TV) (hereafter referred to collectively as appellants). Calsat alleged the following: It holds the exclusive license for distribution of the signal of "Home Box Office" (HBO) in the Sacramento area; HBO is a video home entertainment service, which is transmitted by microwave signals. Calsat supplies paid subscribers with an antenna and electronic downconverter to permit reception of the HBO signal on the subscriber's television set; appellants are engaged in selling and distributing devices intended solely for the purpose of illegally intercepting the HBO signal. Calsat sought injunctive relief to prohibit the further sale of these devices by appellants as it was suffering irreparable injury consisting of "loss of value of business opportunities in the Sacramento marketing area, reputation and good will [and] of its exclusive license to market and deliver HBO programming...." Compensatory damages were sought as well as punitive damages for alleged willful and malicious conduct by appellants.

Great American demurred to Nichols' complaint for declaratory relief. AID also demurred to Gower's cross-complaint. The insurers contended they had no duty to defend or indemnify appellants as the conduct alleged by Calsat was neither a risk covered by the policies, nor an "occurrence" within the meaning of the policies. The trial court agreed and sustained both demurrers without leave to amend.

United Pacific moved for summary judgment on the grounds that only Nichols was an "insured" under its policy, there was no duty to defend or indemnify Nichols under the policy, and assuming a duty to defend, that duty was excess over the coverage provided by Great American. United Pacific's motion was granted.

CONTENTIONS

Nichols, Darrow and Gower appeal from the ensuing judgment and orders of dismissal, contending: (1) the damages allegedly suffered by Calsat are within the indemnity and defense coverage of the Great American and AID policies; (2) United Pacific owes a separate duty to defend Nichols; and (3) the conduct alleged in the Calsat complaint constitutes an "occurrence" within the meaning of all the policies. Both Great American and United Pacific have filed protective cross-appeals on the issue of contribution in the event a duty to defend Nichols is found under both policies.

We conclude the Calsat complaint does not allege damages of the type covered by any of the policies. Accordingly, the trial court correctly exonerated the insurers from any duty to indemnify or defend appellants in the pending Calsat action. Our conclusion renders the insurers' protective cross-appeals moot.

DISCUSSION

I

The crux of this appeal is appellants' contention that the kind of injuries alleged by Calsat are within the risks covered by the indemnity and defense provisions of the various insurance policies. Three basic principles have been judicially developed for determining the obligation of a liability insurer to its insured. First, any doubts as to the meaning of the policy, including the extent or fact of coverage, the peril insured against, the amount of liability, and the persons protected, must be resolved against the insurer. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 269, fn. 3, 54 Cal.Rptr. 104, 419 P.2d 168.) Second, because of the difficulty of determining whether the third party suit falls within the policy coverage, the duty to defend is broader than the duty to indemnify. Although the duty to defend is not unlimited, it arises whenever the insurer ascertains facts which give rise to the possibility or potential of liability to indemnify. (Fresno Economy Import Used Cars, Inc. v. United States Fid. & Guar. Co. (1977) 76 Cal.App.3d 272, 278, 142 Cal.Rptr. 681.) Finally, courts must ascertain that meaning of the contract which the insured would reasonably expect. (Id., at p. 279, 142 Cal.Rptr. 681, citing Gray v. Zurich Insurance Co., supra, 65 Cal.2d at pp. 269-270, 54 Cal.Rptr. 104, 419 P.2d 168.) Applying these principles we examine the language of the two business liability policies and the homeowner's policy.

The Great American policy insured against bodily injury and property damage caused by an "occurrence." ² "Bodily injury" was defined to include "personal injury committed in the conduct of the named insured's business." The AID policy insured against "damages because of bodily injury, property damage or personal injury caused by an occurrence...." Since both policies limited the definition of "property damage" to tangible property, it is apparent the kind of economic losses alleged by Calsat are neither physical bodily injury nor property damage within the meaning of the policies. (See Giddings v. Industrial Indemnity Co. (1980) 112 Cal.App.3d 213, 219, 169 Cal.Rptr. 278.) Appellants contend, however, that Calsat has alleged a form of disparagement or defamation which falls within the definition of "personal injury". We disagree.

Both policies include within the definition of "personal injury": "the publication or utterance of a libel or slander or of other defamatory or disparaging material, or a publication or utterance in violation of an individual's right of privacy; except publications or utterances in the course of or related to advertising, broadcasting or telecasting activities conducted by or on behalf of the named insured." Appellants contend the allegations of the Calsat complaint set forth a cause of action for trade libel or disparagement within the above definition of "personal injury" and urge the thrust of Calsat's complaint is that by advertising and selling devices intended to intercept the HBO signal, appellants have disparaged Calsat's exclusive license to distribute that signal. To determine if Calsat has asserted trade libel against the appellants we must first examine the elements of the tort and compare them with the allegations of Calsat's complaint.

"Trade libel is defined as an intentional disparagement of the quality of property, which results in pecuniary damage to plaintiff.... 'Injurious falsehood, or disparagement, then, may consist of the publication of matter derogatory to the plaintiff's title to his property, or its quality, or to his business in general, ... [T]he plaintiff must prove in all cases that the publication has played a material and substantial part inducing others not to deal with him, and that as a result he has suffered special damages.... Usually, ... the damages claimed have consisted of loss of prospective contracts with the plaintiff's customers.' " (Erlich v. Etner (1964) 224 Cal.App.2d 69, 73, 36 Cal.Rptr. 256.) Erlich notwithstanding, it is not absolutely necessary that the disparaging publication be intentionally designed to injure. If the statement was understood in its disparaging sense and if the understanding is a reasonable construction of the language used or the acts done by the publisher, it is not material that the publisher did not intend the disparaging statement to be so understood. (Rest.2d Torts, § 629, com. f, p. 350.) ³ The possibility of liability for negligent disparagement is crucial in the instant case, because if defendant's conduct was intentional, as Calsat alleges, there was no "occurrence" as defined by the policies. (See fn. 2.)

A cause of action for trade...