Third Eye Blind v. Near North Entertainment

• Decision Date: 29 March 2005
• Docket Number: No. A102803.,A102803.
• Citation: 26 Cal.Rptr.3d 452,127 Cal.App.4th 1311
• Court: California Court of Appeals Court of Appeals
• Parties: THIRD EYE BLIND, INC., et al., Plaintiffs and Appellants, v. NEAR NORTH ENTERTAINMENT INSURANCE SERVICES, LLC, et al., Defendants and Respondents.

26 Cal.Rptr.3d 452

127 Cal.App.4th 1311

THIRD EYE BLIND, INC., et al., Plaintiffs and Appellants, v. NEAR NORTH ENTERTAINMENT INSURANCE SERVICES, LLC, et al., Defendants and Respondents.

No. A102803.

Court of Appeal, First District, Division 3.

March 29, 2005.

Rehearing Denied April 19, 2005.

Review Denied July 13, 2005.^*

Farella, Braun & Martel LLP, Dennis M. Cusack, Sandra A. Kearney, Heather A. Steiner, San Francisco, for Plaintiffs and Appellants.

Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP, Linda E. Klamm, Walter Schneider, Yvette C. Green, San Francisco, for Defendant and Respondent Near North Entertainment Insurance Services, LLC.

Andrews & Kurth L.L.P., Ralph W. Tarr, Los Angeles, for Defendant and Respondent Provident Financial Management.

McGUINESS, P.J.

When an insured sues its insurer for coverage and also brings negligence claims against its business manager and insurance broker for failing to advise about a policy exemption and failing to obtain additional coverage, are the negligence claims barred as a matter of law if the court rules in the insured's favor on the coverage claim? In this case, after the trial court concluded on a motion for summary adjudication that an insurer breached its duty to defend appellants, respondents filed motions for judgment on the pleadings arguing this ruling negated appellants' negligence claims against them as a matter of law. The trial court agreed and granted the motions without leave to amend, and appellants dispute this ruling on appeal. We conclude the judgment must be reversed because the prior order did not negate an element of the causes of action alleged against respondents. We also conclude attorneys fees appellants incurred in pursuing coverage are a recoverable item of damages in their claims against respondents.

BACKGROUND

Appellants are members and associated corporate entities of the musical performance group Third Eye Blind.¹ During the relevant time period, appellants' business manager, respondent Provident Financial Management (Provident), was responsible for, among other things, assessing the band's insurance needs, facilitating insurance planning and obtaining appropriate insurance policies. Appellants also retained an insurance broker, respondent Near North Entertainment Insurance Services, LLC (Near North), a company they selected based on its claimed expertise in the field of entertainment insurance and risk management.

Respondents obtained a commercial general liability (CGL) insurance policy for appellants from North American Specialty Insurance Company (NAS) covering the period of January 31, 1999 to January 31, 2000. Provident paid premiums on the policy and was responsible for obtaining renewals. Despite their responsibilities and expertise, however, neither Provident nor Near North advised appellants that the NAS policy excluded coverage for some liability under a Field of Entertainment Limitation Endorsement (FELE). The FELE in appellants' policy excludes coverage for personal injury or advertising injury arising out of the "Field of Entertainment Business." Specifically, coverage is excluded for claims of: (1) invasion, infringement or interference of the right to privacy or publicity; (2) copyright or trademark infringement; (3) defamation, except for claims arising out of a public appearance unrelated to the band's professional entertainment work; (4) plagiarism, piracy or unfair competition regarding unauthorized use of others' ideas or works; and (5) breach of contract regarding the band's professional entertainment work.

In January 2000, Third Eye Blind fired one of its band members, Kevin Cadogan. Cadogan immediately threatened to sue the band, claiming any further performances it gave under the name Third Eye Blind would violate Cadogan's rights under the Lanham Act. (15 U.S.C. § 1125(a).) Cadogan ultimately filed suit against appellants, and others, in June 2000. In addition to several other claims against individual band members, the complaint in Cadogan v. Third Eye Blind, et al. alleged appellants had misappropriated Cadogan's right of publicity by making unauthorized use of his name, likeness and goodwill and had violated the Lanham Act by creating public confusion regarding Cadogan's affiliation with the band and his role in creating or sponsoring the band's music. Cadogan also claimed appellants' continued use of the name Third Eye Blind constituted trademark infringement under the Lanham Act.

Shortly after it was filed, appellants tendered the Cadogan complaint to NAS for defense and indemnity. NAS denied the claim a month later, asserting the FELE in appellants' policy excluded coverage for the Cadogan complaint's Lanham Act claims and claims alleging a violation of Cadogan's right of publicity. Although appellants sought reconsideration based on case law holding the FELE's language ambiguous, NAS continued to refuse coverage. Appellants therefore proceeded to defend the Cadogan suit on their own and ultimately settled the case. Appellants estimate the amount of settlement proceeds paid, combined with attorney fees and costs they incurred, exceeds $3 million.

On March 15, 2002, appellants filed the instant action against NAS and respondents Provident and Near North. The complaint alleged NAS had breached its policy obligations by unreasonably refusing to defend and indemnify appellants in the Cadogan case. In addition to breach of contract and declaratory relief claims against NAS, the complaint alleged causes of action against respondents for negligence, breach of implied contract and declaratory relief. Appellants alleged that, despite their claimed expertise in the field of entertainment industry insurance and despite the duties they owed appellants, respondents failed to advise or notify them that the NAS policy contained an FELE, such that an additional errors and omissions insurance policy would be necessary to guarantee full coverage. Appellants further alleged they would have obtained an errors and omissions policy if they had been so advised. The complaint sought general damages from respondents, including "all covered defense costs" appellants had incurred.

In the summer of 2002, appellants and NAS filed cross-motions for summary judgment and summary adjudication regarding NAS's duty to defend the Cadogan suit. After two hearings, the court (Hon. A. James Robertson, II) concluded Cadogan's claims against appellants were potentially covered under the CGL policy and NAS therefore had a duty to defend appellants in the Cadogan lawsuit. In granting appellants' motion for summary adjudication against NAS, the court also ruled the FELE was ambiguous as applied to the allegations and claims set forth in the Cadogan complaint. This court summarily denied NAS's petition for writ of mandate on November 7, 2002, and the trial court denied a motion for reconsideration of the order on December 20, 2002. During this time, counsel for NAS advised appellants' attorney that NAS believed the trial court's rulings were erroneous and NAS planned to appeal any final judgment. Appellants and NAS participated in two mediation sessions in January 2003 and ultimately reached a settlement.

On February 28, 2003, Provident filed a motion for judgment on the pleadings, arguing the complaint did not state a cause of action against it in light of the court's recent summary judgment and summary adjudication orders. Characterizing these orders as a judicial determination that NAS owed appellants a duty to defend the Cadogan lawsuit, Provident asserted it could not be held liable on the complaint's claims for breach of implied contract, negligence and declaratory relief because "these claims were alleged as alternative causes of action, and predicated on a finding that the NAS policy did not cover [appellants'] underlying claim." A week later, Near North filed a motion for judgment on the pleadings reciting the same arguments. Both motions requested judicial notice of the court's orders granting appellants' motion for summary adjudication and denying NAS's motion for summary judgment. After a hearing, the trial court (Hon. Ronald Evans Quidachay) granted the requests for judicial notice and granted the motions for judgment on the pleadings without leave to amend. The order explained appellants' causes of action against Provident and Near North no longer stated claims for relief because they were "predicated" on a claim that the NAS policy was insufficient to provide coverage in the Cadogan lawsuit, yet the court had found in prior orders that the policy was sufficient. Accordingly, the trial court also denied appellants' claim for attorney fees. This appeal followed from the judgment.²

DISCUSSION

In the trial court, "`A defendant is entitled to judgment on the pleadings if the plaintiff's complaint does not state a cause of action. In considering whether a defendant is entitled to judgment on the pleadings, we look only to the face of the pleading under attack.... All facts alleged in the complaint are admitted for purposes of the motion, and the court determines whether those facts constitute a cause of action. The court also may consider matters subject to judicial notice. [Citations.]' [Citations.]" (Howard Jarvis Taxpayers Assn. v. City of Riverside (1999) 73 Cal.App.4th 679, 684-685, 86 Cal. Rptr.2d 592.) On appeal, "Review of a judgment on the pleadings requires the appellate court to determine, de novo and as a matter of law, whether the complaint states a cause of action. [Citation.] For purposes of this review, we accept as true all material facts alleged in the complaint. [Citation.]" (Ott v. Alfa-Laval Agri, Inc., supra, 31 Cal.App.4th at p. 1448, 37 Cal. Rptr.2d 790.)

I. Complaint Alleged Claims Against Respondents Independent of Coverage

Appellants argue the trial court erred in granting judgment on the pleadings because they alleged independent causes of action against respondents and the court's...