S.B.C.C. INC. v. ST. PAUL FIRE

• Decision Date: 11 June 2010
• Docket Number: No. H034211.,H034211.
• Citation: 186 Cal.App.4th 383,112 Cal.Rptr.3d 40
• Court: California Court of Appeals Court of Appeals
• Parties: S.B.C.C., INC., Plaintiff and Appellant, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Defendant and Appellant.

186 Cal.App.4th 383

112 Cal.Rptr.3d 40

S.B.C.C., INC., Plaintiff and Appellant,

v.ST. PAUL FIRE & MARINE INSURANCE COMPANY, Defendant and Appellant.

No. H034211.

Court of Appeal, Sixth District, California.

June 11, 2010.

COPYRIGHT MATERIAL OMITTED.

Willoughby, Stuart & Bening, Randall E. Willoughby and Ellyn E. Nesbit, San Jose, for Plaintiff.

Lewis, Brisbois, Bisgaard & Smith, Lane J. Ashley, Los Angeles, and Kathleen E. Hegen, San Francisco, for Defendant.

ELIA, J.

In this action for insurance bad faith, plaintiff S.B.C.C., doing business as South Bay Construction Company (South Bay) alleged that its insurer, defendant St. Paul Fire & Marine Insurance Company (St. Paul) had wrongfully refused to defend South Bay in an action brought by its competitor, San Jose Construction, Inc. (SJC). The superior court found no duty to defend because an exclusion in South Bay's liability policy eliminated any potential coverage for advertising injury, and the harm to SJC was not “ personal injury” within the meaning of the policy language. The court accordingly denied South Bay's motion for summary adjudication and granted summary judgment to St. Paul. We conclude that the allegations of SJC's complaint did not trigger a duty to defend South Bay under the contract terms. We therefore must affirm the judgment.

Background

St. Paul insured South Bay under a “Contractors Commercial General Liability Protection” (CGL) policy which was effective between June 4, 2003 and June 4, 2004. It covered both the company and its employees if they were engaged in work within the scope of their employment or performing duties related to the conduct of the business. One of these employees was Richard Foust, who began his employment with South Bay in late March of 2004. Foust's previous employer was SJC, where he was a project manager.

SJC filed the underlying action against both Foust and South Bay on April 2, 2004. In its first amended complaint SJC asserted 11 causes of action related to the allegation that Foust had taken valuable confidential information about SJC's existing customers, including details about ongoing “design build” contracts, and that he had used the information to solicit those customers for the benefit of South Bay, SJC's competitor. ¹ The claims against South Bay were for misappropriation of trade secrets, intentional interference with prospective economic advantage, common-law unfair competition, violation of Business and Professions Code section 17200 et seq. (the unfair competition law), and interference with contract.

South Bay tendered the defense to St. Paul on August 30, 2005, but St. Paul denied coverage. A lengthy exchange followed, but St. Paul refused to accept the defense, maintaining that coverage did not exist because (a) SJC was not alleging personal injury, advertising injury, property damage, or bodily injury within the meaning of South Bay's liability policy, and (b) the policy excluded claims related to breach of contract or infringement of intellectual property. Upon SJC's amendment of its complaint, South Bay again tendered the defense to St. Paul, but again to no avail.

In the course of the SJC litigation South Bay moved for summary judgment, which the trial court granted. On appeal from the January 3, 2007 judgment, SJC challenged the ruling as to all of the claims against South Bay except interference with contract. This court reversed, finding triable issues of fact on all four of the remaining causes of action against South Bay. (See San Jose Construction, Inc. v. S.B.C.C., Inc., supra, 155 Cal.App.4th at pp. 1538–1546, 67 Cal.Rptr.3d 54.)

On April 14, 2008, South Bay brought the present action against St. Paul for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory relief. In the first cause of action South Bay alleged that St. Paul had “breached its contractual obligations by refusing to defend [South Bay], by failing to take reasonable steps to settle the Underlying Action against [South Bay], and by continuing to deny its obligations under its policies.” The second cause of action contained allegations of bad faith for denying coverage “without proper cause,” for failing to investigate the underlying allegations thoroughly to determine whether they were covered, and for failing to work toward a settlement of the underlying action.

Both parties moved for summary judgment or summary adjudication of the issue of St. Paul's duty to defend. ² The cross-motions focused on the question of whether there was potential coverage under either the “advertising injury” provision or the “personal injury” provision. After considering the parties' written and oral arguments, the trial court determined that St. Paul was entitled to judgment. The court found no potential coverage under the “personal injury” provisions of the policy. It found a triable issue of fact as to the claim that SJC had alleged “advertising injury,” but there was nonetheless no coverage because the policy excluded underlying claims resulting from intellectual property infringement. The court accordingly granted St. Paul's motion, denied South Bay's, and entered judgment for St. Paul. Both parties filed timely appeals.

Discussion

1. Principles of Review

[1] “The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.” ( Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843, 107 Cal.Rptr.2d 841, 24 P.3d 493 ( Aguilar ).) Summary judgment is appropriate “if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).) A defendant who moves for summary judgment or summary adjudication bears the initial burden to show that the action or cause of action has no merit—that is, “that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action.” (Code Civ. Proc., § 437c, subds. (a), (p)(2).) When the burden of proof at trial will be on the plaintiff by a preponderance of the evidence, the moving defendant “must present evidence that would preclude a reasonable trier of fact from finding that it was more likely than not that the material fact was true [citation], or the defendant must establish that an element of the claim cannot be established, by presenting evidence that the plaintiff ‘does not possess and cannot reasonably obtain, needed evidence’ ” to support a necessary element of the cause of action. ( Kahn v. East Side Union High School Dist. (2003) 31 Cal.4th 990, 1003, 4 Cal.Rptr.3d 103, 75 P.3d 30, quoting Aguilar, supra, 25 Cal.4th at p. 854, 107 Cal.Rptr.2d 841, 24 P.3d 493; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334, 100 Cal.Rptr.2d 352, 8 P.3d 1089.) And where the plaintiff has also moved for summary judgment—or, as in this case, summary adjudication—that party has the burden of showing there is no defense to a cause of action. (Code Civ. Proc., § 437c, subd. (a).) That burden can be met if the plaintiff “has proved each element of the cause of action entitling the party to judgment on that cause of action.” (Code Civ. Proc., § 437c, subd. (p)(1).) If the plaintiff meets this burden, it is up to the defendant “to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(1).) “We need not defer to the trial court and are not bound by the reasons for the summary judgment ruling; we review the ruling of the trial court, not its rationale.” ( Knapp v. Doherty (2004) 123 Cal.App.4th 76, 85, 20 Cal.Rptr.3d 1.)

[2] The central issue between the parties was whether the liability policy potentially covered SJC's lawsuit, thereby giving rise to St. Paul's duty to defend South Bay in the action. As this is a question requiring interpretation of the policy provisions, it is determined independently by the reviewing court. ( Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 390, 33 Cal.Rptr.3d 562, 118 P.3d 589; cf. MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 641, 3 Cal.Rptr.3d 228, 73 P.3d 1205.)

[3] Established rules assist in that interpretation. Whether an insurer has a duty to defend “depends, in the first instance, on a comparison between the allegations of the complaint and the terms of the policy.... If any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer's duty to defend arises and is not extinguished until the insurer negates all facts suggesting potential coverage. On the other hand, if, as a matter of law, neither the complaint nor the known extrinsic facts indicate any basis for potential coverage, the duty to defend does not arise in the first instance.” ( Scottsdale Ins. Co. v. MV Transp. (2005) 36 Cal.4th 643, 654–655, 31 Cal.Rptr.3d 147, 115 P.3d 460.)

[4] [5] “While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. [Citation.] The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. (Civ.Code, § 1636.) If contractual language is clear and explicit, it governs. (Civ.Code, § 1638.) On the other hand, ‘[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’ [Citations.] This rule, as applied to a promise of coverage in an insurance policy, protects not the subjective beliefs of the insurer but, rather, ‘the objectively reasonable...