Peerless v. Amico

• Citation: 98 Cal.Rptr.2d 753,82 Cal.App.4th 995
• Decision Date: 04 August 2000
• Docket Number: No. A083487.,No. A084373.,No. A082975.,A082975.,A083487.,A084373.
• Court: California Court of Appeals
• Parties: PEERLESS LIGHTING CORPORATION, Plaintiff, Cross-defendant and Appellant, v. AMERICAN MOTORISTS INSURANCE CO., Defendant, Cross-complainant and Appellant. Peerless Lighting Corporation, Plaintiff, Cross-defendant and Respondent, v. American Motorists Insurance Co., Defendant, Cross-complainant and Appellant.

98 Cal.Rptr.2d 753

82 Cal.App.4th 995

PEERLESS LIGHTING CORPORATION, Plaintiff, Cross-defendant and Appellant, v. AMERICAN MOTORISTS INSURANCE CO., Defendant, Cross-complainant and Appellant.

Peerless Lighting Corporation, Plaintiff, Cross-defendant and Respondent, v. American Motorists Insurance Co., Defendant, Cross-complainant and Appellant.

No. A082975.

No. A083487.

No. A084373.

Court of Appeal, First District, Division 3.

August 4, 2000.

Review Denied October 25, 2000.

Johnson, Schachter & Collins, Kim H. Collins, Kellie M. Murphy, Sacramento, Collins & Beeson, Kendall D. Collins, Donald L. Beeson, Oakland, for Plaintiff, Cross-defendant, Appellant and Respondent Peerless Lighting Corporation.

Tressler, Soderstrom, Maloney & Priess, Mary E. McPherson, Los Angeles, Karen M. Costello, Chicago, IL, Robert G. Soper, Irvine, for Defendant, Cross-complainant and Appellant American Motorists Insurance Company (AMICO).

PARRILLI, J.

This case presents the issue of whether a liability insurer providing coverage for "advertising injury" was required to defend and indemnify an insured for infringement of "trade dress" that allegedly arose through the insured's solicitation of a single customer through a competitive bidding process with a product specifically designed for that customer. When the appellant, American Motorists Insurance Co. (AMICO) refused to provide a defense, Peerless Lighting Corporation (Peerless) filed an action for declaratory relief. The trial court granted summary judgment in favor of Peerless on the ground AMICO had a duty to defend as a matter of law. However, after a bench trial, the court concluded AMICO had no duty to indemnify Peerless for the $195,000 it paid to settle the underlying suit.

With respect to "advertising injury" coverage, the policy only provided coverage for offenses "committed in the course of advertising ... goods, products, or services." Because, under the specific facts of this case, there is no evidence the offense (infringement of trade dress) was committed "in the course of advertising" as that phrase is commonly and reasonably understood, we conclude that no potential for coverage existed and thus no duty to defend ever arose. In particular, we hold that the term "advertising" as used in the policy does not include an effort to sell, through a competitive bidding process, a product that was specifically manufactured for a single customer to meet the needs of a specific project. Consequently, we reverse the order granting summary judgment and affirm the judgment after trial finding no duty to indemnify.

I BACKGROUND

In October 1994, AMICO issued a one-year commercial general liability (CGL) policy to Peerless. As pertinent to this appeal, the policy provides coverage for "`Advertising injury' caused by an offense committed in the course of advertising your goods, products or services ...." The policy defines "advertising injury" as an injury "arising out of one or more of the following offenses: [¶] a. Oral or written publication of material that slanders or libels a person or organization ...; [¶] b. Oral or written publication of material that violates a person's right of privacy; [¶] c. Misappropriation of advertising ideas or style of doing business; or [¶] d. Infringement of copyright, title or slogan."

AMICO does not contend that any exclusion in the policy is relevant to the coverage issue. Thus, we are only concerned with the insuring clause quoted above.

The Underlying Action

The underlying action arose out of a dispute between two lighting fixture manufacturers: Peerless, and its competitor, Columbia Lighting, Inc. (Columbia). Both companies sought to supply overhead lighting fixtures for a General Motors (GM) facility expansion in Michigan. GM had used Columbia's "indirect luminairs" in an earlier phase of the project, and Columbia submitted a bid to have the indirect luminairs installed in the expansion facility as well.

Peerless also submitted a bid to have its own Envision brand lighting fixture used in the GM expansion facility. Peerless shipped a sample of its standard Envision fixture to the project site, but GM rejected it because it shined too much light on the ceiling and did not spread the light sufficiently to the sides.

Because architectural lighting fixtures for large projects are generally not "off-the-shelf items, but are manufactured in response to a customer's specific order, it is not uncommon for manufacturers to modify an existing product to meet the requirements of a particular project. Thus, in response to GM's rejection of its standard fixture, Peerless modified the Envision fixture by installing a "kicker lens" to modify its optics and light distribution. Peerless sent a sample of the modified Envision fixture to the GM site. GM concluded the modified Envision fixture met its needs, and ultimately awarded Peerless the supply contract.

However, after Peerless sent a sample of the modified Envision fixture to GM, but before Peerless was awarded the contract, Columbia's counsel wrote a letter to Peerless giving notice that the modified Envision fixture infringed on Columbia's patents and trade dress. The letter stated in pertinent part:

"Peerless ... [has] manufactured] a lighting fixture violating United States Patent No. 4,866,584 held by Columbia. Columbia manufactures a fixture known in the industry as `IPR' which has been on the market since the late 1980s. This particular fixture was utilized on a project known as the `General Motors Development Center' [in] Michigan. That project is currently undergoing an expansion, and Peerless Lighting has attempted to manufacture an imitation of Columbia's IPR fixture in an effort to utilize the Peerless fixture in the expansion facility, [¶] ... [T]he Peerless fixture appears to have utilized the Peerless Envision body and added a triangular upper reflector to create a dual reflecting system.

"In addition to infringing Columbia's patent, Peerless Lighting's manufacture and sale of its fixture constitutes infringement pursuant to § 43(a) of the Lanham Act [trade dress].... It is obvious that Peerless has manufactured its fixture in the mockup in an effort to duplicate Columbia's fixture which was utilized in Phase I of the General Motors Development Center.... It appears the sole purpose of the Peerless fixture is to duplicate Columbia's fixture and, consequently, utilize it in the General Motors Development Center expansion."

Peerless responded to Columbia's charges in a letter in which its attorney first refuted the patent infringement charges in detail. The letter then goes on to state: "We are more than puzzled by Columbia Lighting's trade dress allegations under § 43 of the Lanham Act. The trade dress of our client's lighting fixture resides in the shape of its housing.[¹] And as acknowledged in your letter, the lighting fixture submitted by Peerless on the General Motors project utilizes Peerless' own well-known ENVISION® shape. By using the ENVISION® shape on this project, it is, in fact, Columbia Lighting that has copied the trade dress of Peerless, not the other way around."

On August 9, 1995, the same day Peerless sent its response, Columbia filed a complaint in federal court for the Eastern District of Michigan alleging causes of action for patent infringement and "trade dress" violations under the Lanham Act (the Columbia suit). With respect to the trade dress violations, the complaint alleged that Columbia's "indirect luminairs ... have a unique decorative image that is inherently distinctive and which identifies [Columbia's] goods and distinguishes them from goods of others, [¶] ... [¶] Peerless has manufactured an infringing imitation of Columbia's indirect luminair and offered it for sale and use in the General Motors expansion facility...."

In Count II (Lanham Act violations) the complaint states: "Columbia has created a unique, non-functional, decorative appearance in its indirect luminair fixture which constitutes protective trade dress. Moreover, this decorative appearance is inherently distinctive or, in the alternative, has acquired secondary meaning. As a result of promotional and marketing efforts, and the quality of [Columbia's] products, [Columbia's] trade dress has become widely and favorably known, and constitutes a valuable asset ... and a symbol of ... goodwill. Peerless' manufacture and offer for sale of its lighting fixtures recently seen in General Motors' sample room ... infringes [Columbia's] trade dress and constitutes a violation of the Lanham Trademark Act, § 43(a) and 15 U.S.C. § 1125(a) in that [Peerless'] infringing trade dress has and is likely to cause confusion, mistake or deception of the public between [Columbia's] product and [Peerless'] product."

Tender of Defense

On September 1, 1995, Peerless tendered defense of the Columbia complaint to AMICO. A few weeks later, the claims adjuster for the claim spoke with Peerless' counsel, who advised the adjuster that the dispute arose when GM permitted Peerless to bid on the expansion project on the basis of the modified Envision fixture. Counsel told the adjuster that Peerless had created the modified fixture solely for the GM project. Counsel noted that Peerless and GM were still negotiating the contract, and that the Columbia claim could "go away" if Peerless did not get the contract.

Subsequently, the adjuster received copies of Columbia's demand letter and Peerless' response, portions of which we have quoted above.

Finally, in a conference call between the adjuster, Peerless' counsel, and the chief engineer (Mr. Ngai) and the president of Peerless (Mr. Herst), both Messrs. Ngai and Herst told the adjuster they had initially offered GM their standard 16 foot lighting fixture, but GM had rejected it. Messrs. Ngai and Herst said Peerless had modified the standard fixture by adding a "kicker" reflector, and that this modification was made for the GM bid alone. Ngai and...