Geoffrey H. PALMER et al., Plaintiffs and Appellants, v. TRUCK INSURANCE EXCHANGE et al., Defendants and Respondents.
This is an insurance dispute arising out of an underlying action for trademark infringement (The Newhall Land and Farming Co. v. Easton Investments II, et al., United States District Court, Central District of California, No. CV91-2162, “Newhall action”.) Appellants Geoffrey Palmer, Easton Investments, II and Westcreek Properties, Ltd. argue the trial court erred in sustaining demurrers without leave to amend. As to policies issued by respondent Truck Insurance Exchange, Palmer and Easton Investments II assert they had standing to sue; that the suit was not barred by the “no action clause” of the policies; and that there were no other grounds for sustaining the demurrer. As to the policy issued by respondents American Casualty Company of Reading, Penn. and Continental Casualty Company, Palmer argues the trial court erred in holding that he was barred from bringing suit by the uninsured partnership exclusion, and that trademark infringement claims are covered by the policy.
We conclude the trial court properly sustained the demurrers of American, Continental, and Truck as to its primary policy only. With respect to the Truck umbrella policy, we cannot say, as a matter of law, that Palmer was not individually insured. We also conclude that the exclusion for willful conduct codified in Insurance Code section 533 does not preclude coverage under the Truck umbrella policy. Moreover, because infringement of title or slogan is covered under the umbrella policy, we conclude that there was coverage for the Newhall action.
Finally, we conclude that the trial court erred in sustaining the Truck demurrer, but that Palmer is not entitled to recover the costs of defense of the Newhall action incurred before notice of the claim was given to Truck.
FACTUAL AND PROCEDURAL SUMMARY
When reviewing a trial court order sustaining a demurrer without leave to amend, we give the complaint a reasonable interpretation, and treat the demurrer as admitting all material facts properly pleaded. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) We do not assume the truth of contentions, deductions or conclusions of law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479.) “The judgment must be affirmed ‘if any one of the several grounds of demurrer is well taken. [Citations.]’․ However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. [Citation.]” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967, 9 Cal.Rptr.2d 92, 831 P.2d 317.)
The Newhall Land and Farming Company, as successor in interest to California Land and to Valencia Corporation, is the owner of a registered service mark for the name “Valencia.” The registration was made on May 16, 1972 based on a first use in October 1965. The trademark covers the renting and leasing of real property interests of the owner including industrial buildings, commercial buildings, and residential apartment housing. Newhall and its predecessors in interest have developed real estate projects in the Santa Clarita Valley since 1967. The new town of Valencia is one of its projects. These developments include the designated neighborhoods known as “Valencia Hills,” “Valencia South Valley,” “Valencia Central Valley,” “Valencia North Valley,” “Valencia Glen,” and “Valencia Summit,” in addition to certain specific housing or commercial projects which utilized the name Valencia.
Geoffrey Palmer is a general partner in Easton Investments II, a California limited partnership. According to the allegations of the underlying trademark infringement action filed by Newhall, the other general partners of Easton Investments II are Alan Goodman and Edward Abraham. We refer to these defendants collectively as “Easton II.” Easton II is the owner of the 384 unit Valencia Village apartments in Santa Clarita. The two general partners in Westcreek Properties, Ltd., also a California limited partnership, are Geoff Palmer and Dan Saxon Palmer. We refer to the partnership, and to them, collectively as “Westcreek.” Westcreek owns a 903 unit complex of apartments and condominiums in Santa Clarita which does business under the names “Valencia Vista Condominiums” and “Valencia Terrace Apartments.”
According to the allegations of the complaint in the Newhall action, in July 1984, Easton II began to construct the Valencia Village Apartments in the Newhall area of Santa Clarita, a few miles from a development by Newhall. The defendants used the name “Valencia Village” in violation of Newhall's Valencia trademark. In 1990, Westcreek constructed and began marketing the Valencia Vista Condominiums and the Valencia Terrace Apartments, infringing on the Newhall trademark. Both the Easton II and Westcreek defendants continued the use of the Valencia name despite Newhall's demands that they cease and desist.
In April 1991, Newhall filed an action in the United States District Court for the Central District of California against the Easton II defendants, alleging trademark infringement and unfair competition (Case No. CV 91-2162, Newhall action). In 1992, the second amended complaint was filed, naming Westcreek and its partners as additional defendants. The case was tried to a jury in February 1993. The jury was given separate special verdict forms: one for the use of the mark in connection with the Valencia Terrace Apartments and the Valencia Vista Condominiums (against the Westcreek defendants) and a second for use of the mark in connection with the Valencia Village Apartments (against the Easton II defendants). The verdicts were returned on February 24, 1993.
On each special verdict form, the jury found defendants' use of the mark “Valencia” was likely to cause confusion, that the use was infringing, and that the use was a false representation or false designation of origin. It awarded Newhall $937,678, representing its calculation of the profits realized by defendants from their use of the Valencia mark in the Valencia Terrace Apartments and the Valencia Vista Condominiums. In the second special verdict, it awarded Newhall $1,360,392, representing its calculation of the profits realized by defendants from their use of the Valencia mark in the Valencia Village Apartments. The jury also found that the conduct of both groups of defendants was willful. Judgment in favor of Newhall was entered in the United States District Court on March 24, 1993. An appeal was filed. During the pendency of the appeal in Newhall, the Newhall Company initiated settlement negotiations with Palmer, the Easton II defendants, and the Westcreek defendants. In June 1995 the Newhall action was settled for $1.59 million and a continuation of the permanent injunction.
On March 5, 1993, Palmer tendered the Newhall action to various insurance carriers including respondents Truck Insurance Exchange (Truck), Continental Casualty Company (Continental) and American Casualty Company of Reading, Pennsylvania (American). Continental and American refused to defend. Truck paid a portion of the defendants' fees and costs on appeal under a reservation of rights. None of the insurance companies contributed to the settlement.
Truck issued two policies relevant to this case. The first, No. 60037-20-76, is a primary policy providing $1 million in coverage for advertising offenses for the period April 28, 1986 to April 28, 1987. (Hereafter Truck primary policy.) The named insured on the Truck primary policy is: “EASTON INVESTMENTS C/O G.H. PALMER & ASSOCIATES 11740 N SAN VICENTE BLVD # 208 LOS ANGELES CA 90049.”
The policy provides coverage for advertising offense: “The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury or advertising offense sustained by named insured's business, if the offense is committed during the policy period within the policy territory, and the Company shall have the right and duty to defend any suit against the insured seeking damages on account of such injury or even if any of the allegation of the suit are groundless, false, or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements.” “Advertising offense” is defined as “libel, slander, defamation, violation of right of privacy, piracy, unfair competition or infringement of copyright, title or slogan, which results in injury sustained during the course of the named insured's advertising activities.”
The Truck primary policy excludes coverage for advertising offense arising out of “infringement of trademark, service mark or trade name, other than titles or slogans, by use thereof on or in connection with goods, products or services sold, offered for sale or advertised․” This policy also excludes coverage for personal injury or advertising offense “arising out of the conduct of any partnership or joint venture of which the insured is a partner or member and which is not designated in the Declarations of the policy as a named insured.”
Truck also issued an umbrella policy, No. 60043-04-68 (Truck umbrella policy) for the period December 3, 1986 to April 28, 1987. The named insured on that policy is “GEOFF PALMER DBA EASTON INVESTMENTS 11740 SAN VICENTE # 208, LOS ANGELES CA 90049.” The Truck umbrella policy provides up to an additional $10 million in coverage. It covers advertising liability, defined as: “(1) Libel, slander or defamation; [¶] (2) Infringement of copyright or of title or of slogan; ․ committed or alleged to have been committed in any advertisement, publicity article, broadcast or telecast and arising out of the named insured's advertising activities.” The Truck umbrella policy excludes coverage for trademark infringement: “This insurance does not apply: ․ (7) with respect to advertising activities, to claim made against the insured for: ․ [¶] (b) infringement of registered trade mark, service mark or trade name by use thereof as the registered trade mark, service mark or trade name of goods or services sold, offered for sale or advertised, but this shall not relate to titles or slogans; ․”
In 1985, Continental issued a comprehensive general liability policy, No. 3-00035366, to “GEOFF PALMER DBA G.H. PALMER ASSOC. (SEE # 1) 11740 SAN VICENTE BLVD LOS ANGELES, CALIF. 90049.” 1 The policy covers the period October 25, 1985 to October 25, 1986. It includes advertising injury liability coverage: “The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of ․ Advertising Injury to which this insurance applies, sustained by any person or organization and arising out of the conduct of the Named Insured's business, within the Policy Territory, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such injury, even if any of the allegations are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements.”
Advertising injury is defined as “[I]njury arising out of an 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, title or slogan.” (Emphasis omitted.)
The policy excludes coverage of an uninsured partner: there is no coverage for “Advertising Injury arising out of the conduct of any partnership or joint venture of which the Insured is a partner or member and which is not designated in the Declarations of the policy as a Named Insured.” (Emphasis omitted.) The policy also excludes coverage of advertising injuries arising out of “(2) infringement of trademark, service mark or trade name, other than titles or slogans, by use thereof on or in connection with goods, products or services sold, offered for sale or advertised; ․” Finally, with respect to advertising injury, there is an exclusion for “any injury arising out of any act committed by the Insured with actual malice.”
The Continental policy was not renewed. Instead, American issued a comprehensive general liability policy, in force October 25, 1986 to October 25, 1987, listing the named insured as “GH PALMER ASSOCIATES” under the San Vicente address. (Policy No. 3-00035366, (American policy).) A later endorsement changed the named insured to “GEOFF PALMER G.H. PALMER ASSOCIATES AND MALIBU CONSULTING CORPORATION-OWNED 100% BY G.H. PALMER.” Section II of the American policy defines “Who is an Insured.” Paragraph 4 provides that “[a]ny organization you newly acquire or form, other than a partnership or joint venture, and over which you maintain ownership or majority interest, will be deemed to be a Named Insured if there is no other similar insurance available to that organization.” (Emphasis omitted.) Paragraph 4 continues: “No person or organization is an insured with respect to the conduct of any current or past partnership or joint venture that is not shown as a Named Insured in the Declarations.”
Unlike the other three policies we have discussed, the American policy incorporates the 1986 changes to the Insurance Services Office standard form defining advertising injury. (See Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group (1996) 50 Cal.App.4th 548, 558-559, 59 Cal.Rptr.2d 36 (Lebas).) “Advertising injury” under that policy is defined as “injury arising out of one or more of the following offenses: [¶] (c) Misappropriation of advertising ideas or style of doing business; or [¶] (d) Infringement of copyright, title or slogan.” The policy does not expressly exclude coverage for advertising injury arising from trademark infringement.2
In August 1995, Geoffrey Palmer, Alan Goodman, Edward Abraham, Dan Saxon Palmer, Easton Investments II, and Westcreek Properties, Ltd. filed the present action against Truck, Continental, American and other insurance companies which are not a part of this appeal. The charging pleading is the second amended complaint, which alleges causes of action for declaratory relief, breach of the covenant of good faith and fair dealing, and breach of the duty to defend. The policies issued by the defendant insurers are incorporated by reference.
American and Continental demurred to the second amended complaint, arguing that Easton II and Westcreek lacked standing to sue because they were not named insureds. American and Continental also argued that the uninsured partnership exclusion of the policy excluded coverage for an insured with respect to the conduct of any partnership or joint venture that is not shown as a named insured. That provision, they argued, excluded Palmer from coverage. Based on these standing arguments, American and Continental argued the plaintiffs had no basis for a cause of action for breach of the implied covenant of good faith and fair dealing. American and Continental also invoked Insurance Code section 533,3 which provides that an insurer is not liable for a loss caused by the willful conduct of the insured. Since the jury in the federal Newhall action found that the plaintiffs willfully infringed the Valencia trademark, the insurers argued they had no duty to defend or indemnify. In support of their demurrer, American and Continental asked the trial court to take judicial notice of the special verdict forms and judgment in the Newhall case.
Truck also demurred to the second amended complaint and asked the trial court to take judicial notice of the special verdicts and jury instructions in the Newhall action, as well as the relevant insurance policies and records of the California Secretary of State. Truck argued that the “no action” clauses in each of its policies foreclosed the plaintiffs' lawsuit because plaintiffs settled the Newhall action without Truck's authorization. It also contended that plaintiffs were not insured under the Truck policies because they were not named insureds. Truck argued the policies exclude coverage for trademark infringement. It also asserted there was no duty to defend or indemnify plaintiffs because the Newhall jury found these plaintiffs' conduct willful. Finally, Truck argued its failure to contribute to the settlement did not give rise to a cause of action for breach of the implied covenant of good faith and fair dealing because no judgment in excess of policy limits was entered.
After full briefing and argument, the trial court granted Truck's request to take judicial notice and sustained its demurrer without leave to amend. In its ruling, the court stated that it: “[A]dopts the reasoning and authorities set forth in the moving papers. The demurrer to the 1st-5th causes of action as to Truck is sustained without leave to amend for failure to state a cause of action pursuant to Section 430.10(e), Code of Civil Procedure. Plaintiffs lack standing. (The Court notes that it does not rely on Lebas Fashion Imports of USA v. ITT Hartford Insurance Group, 96 DAR 5578 (1996). See Newhall Complaint); Alex Robertson v. Imperial Casualty & Indemnity Co., 8 Cal.App.4th 338, 346, 10 Cal.Rptr.2d 165 (1992) (‘Parol evidence of the subjective, uncommunicated intent of one of the parties is not admissible to contradict the express terms of an agreement.’) [¶] Plaintiffs also fail to state a cause of action based on the No Action Clause. Rose v. Royal Insurance Company of America, 2 Cal.App.4th 709, 715, 3 Cal.Rptr.2d 483 (1991). Truck did not refuse to defend in the appeal; Truck defended Palmer under a reservation of rights․ Palmer then settled the claim without Truck's authorization. The action is barred by Plaintiffs' breach of the No Action Clause. See also Finkelstein v. 20th Century Insurance, 11 Cal.App.4th 926, 929, 14 Cal.Rptr.2d 305 (2d Dist.1992).”
The trial court also sustained the general demurrer of Continental and American without leave to amend to the 6th through 12th causes of action. It held: “The Court adopts the reasoning and authorities set forth in the moving papers. Plaintiffs Easton and [Westcreek] are not named insureds, and lack standing to sue. [Citation.] Plaintiff Palmer was sued in his capacity as a partner and thus falls under the insured Partnership exclusion. [Citation.] Facts appearing in exhibits attached to the complaint or matters judicially noticeable will be accepted as true and, if contrary to the allegations in the pleading, will be given precedence. Del E. Webb Corp. v. Structural Materials Co., 123 Cal.App.3d 593, 604, 176 Cal.Rptr. 824 (1981). (The Court notes that it does not rely on Lebas Fashion Impports [sic] of USA v. ITT Hartford Insurance Group, 96 DAR 5578 [1996 WL 252864] (1996)).”
Geoffrey Palmer, Easton II, and Westcreek filed a timely notice of appeal from the order sustaining the demurrers. The trial court later entered a judgment of dismissal as to Truck, and an order of dismissal as to American and Continental. We treat this as an appeal from the judgment of dismissal rather than from the nonappealable order sustaining the demurrer. (See Gonzalez v. County of Tulare (1998) 65 Cal.App.4th 777, 782, 76 Cal.Rptr.2d 707.)
The threshold issue is whether the plaintiffs are insureds under the policies at issue and therefore have standing to sue for declaratory relief and damages.
We begin our analysis of the standing issues with the named defendants in the Newhall action. They were: Easton Investments II, a California limited partnership; Westcreek Properties, Ltd., a California limited partnership; Geoff Palmer, individually and as a general partner of Easton Investments II and of Westcreek Properties, Ltd.; Alan Goodman, as a general partner in Easton Investments II; Edward Abraham, as a general partner of Easton Investments II; and Dan Saxon Palmer as a general partner of Westcreek Properties. The federal judgment in favor of Newhall was entered against each of these defendants on the first cause of action for trademark infringement and on the second cause of action for false designation of origin and false representation (15 U.S.C. § 1125).
The question is whether the plaintiffs in this coverage action, Geoffrey Palmer, an individual, Easton II, and Westcreek were named insureds or were otherwise covered by the policies issued by the defendant insurers. Counsel for appellants conceded in the trial court that there is no coverage for Easton II and Westcreek under the Continental and American policies because the named insureds on those policies are Geoff Palmer, Geoff Palmer Associates, or Malibu Construction Corporation. On appeal, they make no argument that Westcreek was covered by any of the policies. Failure to brief an issue on appeal constitutes abandonment. (Biljac Associates v. First Interstate Bank (1990) 218 Cal.App.3d 1410, 1420, 267 Cal.Rptr. 819.) That takes us to whether Easton II and Geoff Palmer are insured under the Truck policies, and whether Geoff Palmer is insured under the Continental and American policies as an individual.
We conclude the trial court properly sustained the demurrers by Continental, American and Truck with respect to their respective primary policies, on the ground that the plaintiffs in this action are not named insureds on these policies. For reasons we shall explain, we treat the Truck umbrella policy separately.
As we have seen, the named insured on the Truck primary policy is “EASTON INVESTMENTS C/O G.H. PALMER & ASSOCIATES 11740 SAN VICENTE BLVD # 208 LOS ANGELES, CA 90049.” The declarations page states: “The named insured is individual unless otherwise stated.” This notation is followed by boxes which may be checked to indicate that the named insured is a co-partnership or corporation. Each of these boxes is blank on the Truck primary policy.
The named insured on the Continental policy is “GEOFF PALMER, DBA: G.H. PALMER ASSOC. (SEE # 1) 11740 SAN VICENTE BLVD LOS ANGELES, CALIF. 90049.” Under section 1 of the declarations, a box is checked to indicate that the insured is a corporation. An endorsement changed the named insured to “GEOFF PALMER G.H. PALMER ASSOCIATES AND MALIBU CONSULTING CORPORATIONOWNED 100% BY G.H. PALMER.”
The original declaration on the American policy showed G.H. Palmer Associates as the insured. A box is checked to indicate the insured is a corporation. An endorsement changed the named insured to “GEOFF PALMER, G.H. PALMER ASSOCIATES AND MALIBU CONSULTING CORPORATION-OWNED 100% BY G.H. PALMER.”
Once the standing issue was raised by the defendant insurers, plaintiffs attempted to plead around the problem. As to the Truck insurance policies, paragraph 21 of the charging pleading alleged: “The Truck policies designated the named insured as ‘Easton Investments c/o G.H. Palmer & Associates.’ Truck's policy designated '23700 San Fernando Road' as an insured location. On October 15, 1984, prior to the earliest policy period of any of Truck's policies, Easton Investment granted the property known as 23700 San Fernando Road to Easton Investments II. Geoff Palmer was a general partner of both Easton Investments and Easton Investments II. The mutual intent of both Palmer and Truck was to provide coverage to Easton Investments II by these named insured and property location designations, and neither Palmer nor Truck intended to issue or procure a policy for Easton Investments, an entity which never owned the property designated as an insured location during any Truck policy period.”
There was no attempt to clarify the intended insured on the Continental and American policies in the pleading. The allegations as to these defendants merely set out the named insureds on the policies and the coverage for advertising injury.
Except for the Truck umbrella policy, each of the other three policies at issue here contains an uninsured partnership exclusion. Each excludes coverage for advertising offenses arising out of the conduct of a partnership or joint venture which is not designated in the declarations as a named insured. The provision in the Truck primary policy is typical: “PERSONAL INJURY AND ADVERTISING OFFENSE LIABILITY COVERAGE ․ 2. This insurance does not apply: ․ (g) to personal injury or advertising offense arising out of the conduct of any partnership or joint venture of which the insured is a partner or member and which is not designated on the Declarations of the policy as a named insured.” 4 Since the Truck umbrella policy does not have a similar exclusion, we reserve our treatment of that policy for later in our discussion.
We apply standard principles governing construction of an insurance contract in addressing the identity of the named insureds. “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. [Citation.] If contractual language is clear and explicit, it governs. [Citation.] 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 expectations of the insured.’ [Citation.] Only if this rule does not resolve the ambiguity do we then resolve it against the insurer. [Citation.]” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265, 10 Cal.Rptr.2d 538, 833 P.2d 545.)
In Bank of the West, the Supreme Court explained how these principles are applied: “In summary, a court that is faced with an argument for coverage based on assertedly ambiguous policy language must first attempt to determine whether coverage is consistent with the insured's objectively reasonable expectations. In so doing, the court must interpret the language in context, with regard to its intended function in the policy. [Citation.] This is because ‘language in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract.’ [Citations.]” (2 Cal.4th at p. 1265, 10 Cal.Rptr.2d 538, 833 P.2d 545, emphasis in the original.)
In effect, appellants argue the identification of the named insured is sufficiently ambiguous to allow a construction which extends coverage to Geoff Palmer individually, and to Easton II. The question is whether such an extension of coverage is “consistent with the objectively reasonable expectations” of the insured. We conclude that it is not.
The duty to defend is contractual, limited to the “insured” on the policy. (Alex Robertson Co. v. Imperial Casualty & Indemnity Co. (1992) 8 Cal.App.4th 338, 343, 10 Cal.Rptr.2d 165.) In Alex Robertson Co., the court held: “Parol evidence of the subjective, uncommunicated intent of one of the parties is not admissible to contradict the express terms of an agreement.” (Id. at p. 346, 10 Cal.Rptr.2d 165.) It applied this rule in rejecting an argument that a third party was intended to be an insured under the policy at issue.
The uninsured partnership exclusions which we have set out are dispositive of the standing issue as to the Truck primary policy and the Continental, and American policies. The liability arising from the Newhall action stems from the activity of Geoff Palmer as a general partner in Easton Investments II and Westcreek, neither of which is a named insured on these policies. The policies expressly exclude coverage for activities of a named insured in a partnership or joint venture which is not a named insured. Based on these exclusions, there is no basis for coverage, or a duty to defend, either as to Geoff Palmer or Easton Investments II in relationship to the Newhall action.
The named insured on the Truck umbrella policy is “GEOFF PALMER DBA EASTON INVESTMENTS 11740 SAN VICENTE # 208 LOS ANGELES CA 90049.” The declarations page states: “The named insured is individual unless otherwise stated herein.” This notation is followed by boxes which may be checked to indicate that the named insured is a co-partnership or corporation. Each of these boxes is blank on the Truck umbrella policy. The Truck umbrella policy contained an uninsured partnership exclusion, but it applies only to personal injury and property damage, and does not extend to advertising liability 5
Truck argues “If the contracting parties had intended to insure Palmer for liability he might incur as an individual, Palmer's name alone would have been listed. The declarations page would have designated the named insured as ‘Geoff Palmer.’ ” Truck contends the designation “DBA Easton Investments” “must signify Palmer was to be insured only with respect to liability arising from his activities on behalf of Easton Investments. To conclude that the designation afforded coverage to Palmer for all liability incurred as an individual would be to render the words ‘DBA EASTON INVESTMENTS' meaningless, contrary to well established principles of contract interpretation” that we are to avoid rendering terms surplusage.
We conclude that the named insured on the Truck umbrella policy is ambiguous. By leaving the boxes for co-partnership or corporation blank, the declarations of the policy indicate that the insured was an individual. But we take judicial notice of records of the California Secretary of State (which were provided to the trial court). They establish that Easton Investments was a limited partnership which, until midway through the Truck umbrella policy period, was owned by Geoff Palmer as general partner, and Edward Abraham and Gary Abraham, as limited partners. In July 1987, by the sixth amendment to the Limited Partnership Agreement of Easton Investments, Palmer acquired all of Gary Abraham's interest and all but one percent of Edward Abraham's interest.
Two cases interpreting use of the “doing business as” designation support our conclusion that the phrase here is ambiguous. In Providence Washington Ins. Co. v. Valley Forge Ins. Co. (1996) 42 Cal.App.4th 1194, 50 Cal.Rptr.2d 192, the issue was whether general comprehensive liability insurance issued to “Paul Hifai DBA: Tennyson Mobil Service” provided Hifai individual coverage for injuries suffered by third parties in an accident in a van owned by another Hifai business, and serviced by Tennyson Mobil.
Providence Insurance, which issued the policy, claimed that the insured was the business, Tennyson Mobil, rather than Hifai as an individual. The court of appeal rejected the argument. “The designation ‘dba’ or ‘doing business as' simply indicates that Hifai operates his sole proprietorship under a fictitious business name. [Citation.] ‘The designation “d/b/a” means “doing business as” but is merely descriptive of the person or corporation who does business under some other name. Doing business under another name does not create an entity distinct from the person operating the business.’ [Citation.] The business name is a fiction, and so too is any implication that the business is a legal entity separate from its owner. Here, our conclusion that Hifai individually, and not his business, is the insured is supported by the identification of the insured's status, in both policies, as an individual.” (Id. at p. 1200, 50 Cal.Rptr.2d 192.)
As we have discussed, Easton Investments was a limited partnership, not a sole proprietorship, although the declarations of the Truck umbrella policy stated that the named insured was an individual rather than a partnership.
In Milazo v. Gulf Ins. Co. (1990) 224 Cal.App.3d 1528, 274 Cal.Rptr. 632 the issue was whether two comprehensive general liability policies covered an individual partner for damages caused to his partners by his misappropriation of a partnership opportunity. The litigants had formed the partnership “Alexander's Choice Meats,” with Julia Pingle and Morley Pingle as general partners and Michael Milazo and Millard Ellis as limited partners. The named insured on the first policy was “M. H. Pingle, M. Miloza [sic ] & Millard Ellis dba: Alexander's Choice Meats.” (Id. at p. 1535, 274 Cal.Rptr. 632.) The named insured on the second policy was “Duncan Howie, Michael Milaza [sic ] and Millard Ellis, partners, dba Alexanders [sic ] Choice Meats.” (Ibid.)
On each policy, the box indicating that the named insured was a partnership was checked. The Milazo court concluded that only the partnership was insured, and that Milazo, as an individual, was not a named insured and was not covered in his individual capacity. (224 Cal.App.3d at p. 1536, 274 Cal.Rptr. 632.)
The Milazo court quoted the definition of “Persons Insured” in the policies. It specified those who were insured under the policy: “(a) if the named insured is designated in the declarations as an individual, the person so designated but only with respect to the conduct of a business of which he is the sole proprietor, and the spouse of the named insured with respect to the conduct of such a business.” (224 Cal.App.3d at p. 1536, 274 Cal.Rptr. 632.)
The Truck umbrella policy does not contain similar limiting language. In defining the persons insured, it provides in relevant part: “Each of the following is an insured under this insurance to the extent set forth below: [¶] (1) the named insured and, if an individual, the spouse of such insured if a resident of the same household.” The definition goes on to further define the named insured in the event the named insured is designated in the declarations as a partnership or joint venture, or other organization.
We conclude that the trial court erred in sustaining the demurrer as to coverage under the Truck umbrella policy on standing grounds. Truck failed to establish that Palmer is not insured as a matter of law based on the language of the policy. But the error is immaterial if there is no coverage under the Truck umbrella policy. We turn to that issue.
As we have seen, appellants tendered the defense of the Newhall action after the federal jury rendered its verdict. Truck accepted the defense under a reservation of rights but refused to contribute to the settlement.
Truck argues that the exclusion for willful conduct bars Palmer's action in light of the special verdict in the Newhall action, which found that the defendants' conduct was willful. Truck relies on Insurance Code section 533, which precludes coverage for willful acts. The jury in Newhall was given the following instruction: “An act is willfully done if done voluntarily and intentionally, and with the specific intent to commit such an act. Now, this instruction is given to you because in the verdict form you will have you'll notice that one of the questions asks of you is whether or not, depending upon what your findings are, the Defendants' acts were willful.”
“Insurance Code section 533 provides that an insurer is not liable for a ‘willful act of the insured.’ Section 533 is ‘an implied exclusionary clause which by statute is to be read into all insurance policies.’ [Citations.]” (J.C. Penney Casualty Ins. Co. v. M.K. (1991) 52 Cal.3d 1009, 1019, 278 Cal.Rptr. 64, 804 P.2d 689, fn. omitted.)
Palmer relies on Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 887, 151 Cal.Rptr. 285, 587 P.2d 1098 for the proposition that “ ‘even an act which is “intentional” or “willful” within the meaning of traditional tort principles will not exonerate the insurer from liability under Insurance Code section 533 unless it is done with a “preconceived design to inflict injury.” ’ ”
Clemmer does not support so broad a reading of the statute. In J.C. Penney Casualty Ins. Co. v. M. K., supra, 52 Cal.3d at page 1019, 278 Cal.Rptr. 64, 804 P.2d 689, the Supreme Court explained the language in Clemmer on which Palmer relies. “Properly understood, Clemmer, supra, 22 Cal.3d 865, 151 Cal.Rptr. 285, 587 P.2d 1098, and the cases on which it relied do not support [the victims'] view. Because the wrongful act of child molestation is itself the harm, section 533 does not require a showing of the insured's subjective intent to harm. Likewise, Clemmer does not require a showing by the insurer of its insured's ‘preconceived design to inflict harm’ when the insured seeks coverage for an intentional and wrongful act if the harm is inherent in the act itself. Section 533 precludes coverage in this case because child molestation is always intentional, it is always wrongful, and it is always harmful.” (Id. at p. 1025, 278 Cal.Rptr. 64, 804 P.2d 689, italics in original.) Thus, “[s]ome acts are so inherently harmful that the intent to commit the act and the intent to harm are one and the same. The act is the harm.” (Id. at p. 1026, 278 Cal.Rptr. 64, 804 P.2d 689.)
It is not inherently harmful to use the Valencia name to advertise the plaintiffs' apartments and condominiums. Therefore, in order to apply the exclusion for willful acts under Insurance Code section 533, we must be able to conclude from the allegations of the complaint that Palmer acted with a “preconceived design to inflict harm.”
Where the conduct of the insured is not necessarily willful, section 533 does not preclude coverage. For example, in Melugin v. Zurich Canada (1996) 50 Cal.App.4th 658, 57 Cal.Rptr.2d 781, the plaintiff sought coverage under the insured's comprehensive general liability policy for acts of sexual harassment. The court ruled that Insurance Code section 533 did not preclude coverage: “Under section 533, however, coverage would be barred only for the willful torts of intentionally discriminating against employees in violation of the laws against sex discrimination or pregnancy discrimination. [Citations.] The allegations in the complaint in the underlying action do not necessarily hinge only upon willful, intentional conduct which would be barred by section 533.” (Id. at p. 666, 57 Cal.Rptr.2d 781.)
The Ninth Circuit applied the same analysis in Zurich Ins. Co. v. Killer Music, Inc. (9th Cir.1993) 998 F.2d 674. The court reversed summary judgment in favor of an insurer on the ground that the actions of the insured were not proven to be willful in the underlying copyright suit within the meaning of section 533. The Zurich court reasoned: “A ‘clear line of authority’ in California directs that ‘even an act which is “intentional” or “ willful” within the meaning of traditional tort principles will not exonerate the insurer from liability under [§] 533 unless it is done with a “preconceived design to inflict injury.” ’ Clemmer v. Hartford Ins. Co., 22 Cal.3d 865, 151 Cal.Rptr. 285, 297, 587 P.2d 1098, 1110 (1978); ․ The term ‘willful’ is used to describe ‘an act done with malevolence, [citation], or with ‘malice in fact.’ [Citation.] A ‘ “willful act” within the meaning of section 533 means “something more than the mere intentional doing of an act constituting [ordinary] negligence,” and appears to be something more than the intentional violation of a statute.’ [Citation.]” (Id. at p. 678.)
The Ninth Circuit recognized that under California law, “It is true that a subjective desire to injure or harm need not always be proven and can be assumed by the nature of the act. [Citations.] However, copyright infringement is not one of those activities that is ‘willful’ per se. Zurich admits in its brief that ‘[c]opyright infringement can be innocent or intentional ․ Innocent infringement may be covered.’ ” (Id. at pp. 678-679.)
Trademark infringement, too, is not necessarily “willful.” “It is now well established that in a trade identity infringement case the plaintiff need not show wrongful intent, or facts supporting the inference of such, on the part of the defendant. Infringement does not stand nor fall upon the state of mind of the infringer. It is the objective fact of the infringement that is all-important. The defendant's good faith may influence the measure of damages, i.e., punitive, compensatory or nominal․ But whatever the defendant's subjective intent-whether his conduct is motivated by good or bad faith-his act has the same detrimental effect upon the plaintiff.” (3A Callmann, The Law of Unfair Competition, Trademarks and Monopolies (4th ed. 1994) § 21.00.50, Ch. 21, pp. 2-3.)
Willfulness is a factor to be considered by the court in awarding enhanced damages and attorney's fees for trademark infringement under the Lanham Act.6 A court may award attorney's fees in “exceptional” cases. “ ‘While the term “exceptional” is not defined in the statute, generally a trademark case is exceptional for the purposes of attorneys' fees when the infringement is malicious, fraudulent, deliberate or willful.’ ” (Blockbuster Videos, Inc. v. City of Tempe (9th Cir.1998) 141 F.3d 1295, 1300.)
The rulings of the District Court in the Newhall action are instructive. The court declined to find the basis for willfulness under trademark infringement, refusing to award attorneys' fees or impose enhanced damages. The court found: “There is no evidence of conduct by the Defendants in the present case which falls within the scope of circumstances which mandate any enhancement of award of damages. As in Lindy Pen [Co., Inc. v. Bic Pen Corp. (9th Cir.1993) 982 F.2d 1400], where plaintiff did not assert a proprietary interest over its mark when it was used by three other manufacturers, Plaintiff in the present case made no reference to a trademark to Defendants in 1980 when they made their first demand to Defendants to stop using ‘Valencia’ (the mark owned by Plaintiff) in its project․”
In denying an award of attorney's fees pursuant to the Lanham Act, 15 U.S.C. section 1117, the court explained that it: “[H]as discretion to award attorneys' fees pursuant to 15. U.S.C. § 1117 in ‘exceptional trademark cases' such as the one at bar. ‘A trademark case is exceptional for purposes of attorneys' fees where the infringement is malicious, fraudulent, deliberate or willful.’ Sealy, Inc. v. Easy Living, Inc., 743 F.2d 1378, 1384 (9th Cir.1984). In Sealy, defendant's ‘bad faith infringement of plaintiff's trademark was intended to and did in fact result in deception of the public ․” Id. at 1384. See also Playboy Enterprises v. Baccarat Clothing Co., Inc., 692 F.2d 1272 (9th Cir.1982) (awarding attorneys' fees based on defendant's flagrant and willful conduct to receive and sell counterfeit goods). [¶]․ [T]here is nothing exceptional about this case which warrants the award of attorneys' fees. Unlike Sealy and Playboy Enterprises, there is no evidence in this case that Defendants' conduct was so flagrant as to result in the widespread deception of the public so that an award of attorneys' fees is appropriate. Neither the longevity of the dispute nor plain willful infringement is sufficient to warrant an award of attorneys' fees. [Citation.]”
We cannot say, as a matter of law, that the conduct of the defendants in the Newhall action was “willful” within the meaning of Insurance Code section 533. The trial court erred in sustaining the demurrer on this ground.
Appellants sought a declaration that they had a right to be reimbursed by Truck for the settlement paid to Newhall, and, based on Truck's failure to contribute to the settlement, for breach of the implied covenant of good faith and fair dealing. They argue that the issue is not the duty to indemnify, but Truck's duty to settle, and that the duty to settle may exist independent of the duty to indemnify.
“In order to recover reimbursement from the insurer, the insured must demonstrate that the claim was covered under the policy in question, or that the insurer breached its duty to defend. Once a breach of contract is proved, the insured's act of settling the claim is said to raise the presumption that the third party's claim against him was legitimate, and that he was liable in the amount which he agreed to pay in settlement. [Citation.]” (Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 793-794, 244 Cal.Rptr. 655, 750 P.2d 297.) Isaacson involved an action against the California Insurance Guarantee Association (CIGA) brought after the insureds' own insurance company became insolvent during the pendency of a third-party action for medical malpractice. CIGA assumed the insureds' defense. The malpractice case settled for $500,000, of which CIGA paid $400,000 and the insureds paid $100,000. The insureds then sued CIGA for reimbursement of the $100,000. The Supreme Court concluded that the trial court properly entered nonsuit in favor of CIGA because the insureds failed to offer substantial evidence that CIGA breached its duties in refusing to pay the full settlement. (Id. at p. 794, 244 Cal.Rptr. 655, 750 P.2d 297.)
In the present case, since Truck defended Palmer in the underlying action once the defense was tendered to it, the issue is whether the Truck umbrella policy provided coverage for the Newhall judgment in order to establish a breach of contractual duties, a prerequisite to an action for reimbursement.
Truck argues the judgment was not covered because it was for trademark infringement, which is excluded from coverage. It makes a two-pronged argument. First, Truck argues that the Newhall judgment does not come within the coverage provision of the umbrella policy because only copyright infringement is covered. Second, Truck argues that exclusion for trademark infringement precludes coverage. Palmer argues the judgment is covered. He relies on the exception to the exclusion for infringement by use of titles or slogans. Palmer asserts that the scope of the exclusion is ambiguous, and therefore, the question of coverage cannot be resolved on demurrer.
We find no California case on point, but Palmer has the better argument.
“[W]hile an insurer has a duty to defend suits which potentially seek covered damages, it has a duty to indemnify only where a judgment has been entered on a theory which is actually (not potentially) covered by the policy. [Citations.] )” (Collin v. American Empire Ins. Co. (1994) 21 Cal.App.4th 787, 803, 26 Cal.Rptr.2d 391.) “[A]lthough exclusions are construed narrowly and must be proven by the insurer, the burden is on the insured to bring the claim within the basic scope of coverage, and (unlike exclusions) courts will not indulge in a forced construction of the policy's insuring clause to bring a claim within the policy's coverage. [Citations.]” (Ibid., see also Aydin Corp. v. First State Insurance Co. (1998) 18 Cal.4th 1183, 77 Cal.Rptr.2d 537, 959 P.2d 1213 [insured bore the burden of proving that a claim came within an exception to a general pollution exclusion].)
There is an important difference between policies covering advertising injury prior to the changes to the standard form made in 1986 and those written under the new form. “The 1973 standard Insurance Services Office (ISO) form defined ‘advertising injury’ to include: ‘Injury arising out of an 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 to privacy, piracy, unfair competition, or infringement of copyright, title or slogan.’․ Coverage for trademark infringement was expressly excluded.” (Lebas, supra, 50 Cal.App.4th at p. 558, 59 Cal.Rptr.2d 36, italics omitted.)
As the Lebas court explained, the definition of advertising injury was significantly modified in 1986: “Advertising injury is now defined ․ as an injury arising from either (1) ‘misappropriation of an advertising idea or style of doing business' or (2) ‘infringement of copyright, title or slogan.’ The offenses of unfair competition and piracy have been deleted, as has the exclusion for trademark infringement. While the fact of these changes is consistent with the proposition that a potential for coverage of a claimed trademark infringement might now exist, it is hardly determinative. The terms ‘misappropriation,’ ‘advertising idea’ and ‘style of doing business' are not defined.” (50 Cal.App.4th at p. 558, 59 Cal.Rptr.2d 36.)
The insurance policy at issue in Lebas contained the 1986 modifications. The Truck umbrella policy before us does not. Therefore, we do not rely on the Lebas court's conclusion that advertising injury coverage may extend to infringement of a trademark under the new definition. (50 Cal.App.4th at p. 565, 59 Cal.Rptr.2d 36.) The court in Lebas did not reach the argument made by Palmer here: that infringement of title or slogan may be covered under advertising injury. “[W]e need not reach or discuss Lebas' argument that a trademark infringement also constitutes an infringement of ‘title’ or ‘slogan.’ This argument is based upon Lebas' particular interpretation of the policy's fourth defined advertising injury offense: ‘infringement of copyright, title or slogan.’ There is no California case on the point. It is the contention of Hartford and amici curiae that this offense must be narrowly read to provide coverage only for matters protected by the copyright laws or for literary, musical or artistic titles and slogans which are protected under principles of unfair competition. While this is an interesting and important unresolved issue, we decide this case by our interpretation and application of the third advertising injury offense, ‘misappropriation of an advertising idea or style of doing business'; therefore, there is no need for us to reach this question.” (50 Cal.App.4th at p. 567, fn. 15, 59 Cal.Rptr.2d 36.)
The issue of advertising liability coverage for infringement of title and slogan is squarely presented here. The question is whether the plaintiffs infringed a “title or slogan” within the meaning of the advertising liability provisions of the Truck umbrella policy. If so, there is coverage. Neither term is defined in the policy. We invited the parties to submit supplemental briefs on the question of coverage for infringement of title or slogan. They have done so, and we have considered their responses.
We first consider the provision for advertising liability coverage. “Advertising liability” is defined in the disjunctive as “(2) Infringement of copyright or of title or of slogan; ․” (Emphasis added.) As we shall explain, this language, by itself, is not ambiguous, and provides coverage here.
Applying standard principles of insurance policy construction, we consider the use of the terms “titles” or “slogans” as they appear in the Truck umbrella policy. “It is also clear that we are required, in interpreting a policy, to read the disputed terms as a layman would read [them] and not as [they] might be analyzed by an attorney or an insurance expert. [Citation.] [Citations.]” (Lebas, supra, 50 Cal.App.4th at p. 559, 59 Cal.Rptr.2d 36, quoting Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 271, 203 Cal.Rptr. 672; internal quotation marks omitted.)
Truck takes the approach advanced, but not decided in Lebas, 50 Cal.App.4th at p. 567, fn. 15, 59 Cal.Rptr.2d 36: that infringement of title or slogan must be narrowly read to include only literary or artistic works. Truck argues: “The first entry for ‘title’ in Webster's II New Riverside University Dictionary (1984) at page 1283 defines the term as ‘an identifying name given to a book, play, film, musical composition, or work of art. (Emphasis added.) The American Heritage Dictionary (1991) at page 1273 contains the same definition. These definitions reflect, and are consistent with, the ordinary and popular meaning of ‘title,’ which pertains to a literary or artistic work. In ordinary parlance, people speak of the ‘title’ of a book or film but the ‘name’ of a business or other nonartistic enterprise. ‘Valencia would be described as the name, not the title, of a planned community.7
Truck contends the terms “title” and “slogan” in the policy before us must be construed in the context of infringement of copyright: “Here, likewise, the term ‘title’ must be construed in the context of the surrounding terms and with an eye toward its function in the policy. (Bank of the West v. Superior Court, supra, 2 Cal.4th at p. 1265, 10 Cal.Rptr.2d 538, 833 P.2d 545.) ‘Title’ appears in the clause providing coverage for ‘infringement of copyright, title or slogan.’ [Citation.] ‘Copyright’ pertains to ‘ “original works of authorship.” ’ (1 Nimmer on Copyright (1997) Subject Matter of Copyright, § 2.03, p. 2-28.) Construing ‘title’ in context, then, it must pertain to works of authorship as well.”
Truck goes on to explain that its policy specifies “title” and “slogan” separately from “copyright” “only because copyright protection does not extend to the title of an original work of authorship or to a slogan. [Citations.]” But in making this argument, Truck fails to examine the precise language of the policy before us. As we have seen, the definition of advertising liability includes: “(2) Infringement of copyright or of title or of slogan.” (Our emphasis.) The use of the disjunctive “or” clearly is intended to separate the concept of “copyright” from “title” or “slogan.”
We do not endorse the narrow definition of “title” or “slogan” advanced by Truck. Black's Law Dictionary defines “title” (used in this context) as: “A mark, style, or designation; a distinctive appellation; the name by which anything is known.” (Black's Law. Dict. (5th ed.1979) p. 1331, col. 1.) “Title” is defined in Webster's New World Dictionary (2nd College ed.1980) as “1. the name of a book, chapter, poem, essay, picture, statue, piece of music, play, movie, etc. ․ 3. a descriptive name or appellation; epithet.” (Webster's New World Dict. (2d college ed.1980) p. 1492.) “Epithet” in turn, is defined as “1. an adjective, noun, or phrase used to characterize some person or thing, ․ 2. a descriptive name or title.” (Id. at p. 472.) “Appellation” is defined as “1. the act of calling by a name 2. a name or title that describes or identifies a person or thing; designation” (Id. at p. 66.) Similarly, Webster's Third New International Dictionary (1993) gives 14 definitions for “title,” at page 2400, including: “7: a descriptive name: a distinctive appellation or designation․”
“Slogan” is not defined in Black's. Webster's New World Dictionary defines it as: “3. a catch phrase used to advertise a product” (Id. at p. 1341, 10 Cal.Rptr.2d 538, 833 P.2d 545.) Webster's Third New International Dictionary (1993) gives several definitions of “slogan,” including: “2: a brief striking phrase used in advertising or promotion ․” (Id. at p. 2145.)
We conclude that the terms “title” and “slogan” as they appear in the definition of advertising liability are not ambiguous when read in their ordinary and popular sense. The clause provides coverage for infringement of title or slogan. But Truck invokes the exclusion for trademark infringement. We turn to an examination of that provision of the umbrella policy.
The exclusion at issue provides that the policy does not cover advertising activities for “infringement of registered trade mark, service mark or trade name by use thereof as the registered trade mark, service mark or trade name of goods or services sold, offered for sale or advertised, but this shall not relate to titles or slogans; ․” (Emphasis added.) The exclusion for trademark infringement contemplates that there may be an infringement of title or slogan without reference to copyright. This construction is consistent with decisions which have considered whether a title or slogan may be protected under the trademark law.
For example, in A Touch of Class Imports, Ltd. v. Aetna Casualty and Surety Co. (S.D.N.Y.1995) 901 F.Supp. 175, an insured sued its liability insurer seeking coverage for a civil judgment the insured had suffered for trademark infringement. The insured used the phrase “Touch of Class” in advertising and selling jewelry, although another company had a trademark for that name.
The dispositive issue in the case was whether the phrase “Touch of Class” constitutes a “title” or “slogan” within the meaning of the applicable insurance policy. The policy provided coverage for advertising injury, which was defined to include “infringement of copyright, title, or slogan.” (A Touch of Class Imports, Ltd. v. Aetna Casualty and Surety Co., supra, 901 F.Supp. at p. 176.) The policy excluded coverage for “infringement of trademark, service mark or trade name, other than titles or slogans, by use thereof in connection with goods, products or services sold, offered for sale or advertised․” (Ibid.)
The insured argued the policy was ambiguous “by stating in one clause that it covers ‘infringement of title or slogan’ while in another clause stating that it does not cover ‘trademark infringement, other than titles or slogans.’ ” (A Touch of Class Imports, Ltd. v. Aetna Casualty and Surety Co., supra, 901 F.Supp. at p. 176.) This argument was rejected. The court found: “The policy states that it will not cover trademark infringement, other than in the context of titles and slogans. Thus, the policy represents that it does cover those instances of trademark infringement that do implicate a product's title and/or slogan.” (Ibid.)
The court explained: “Trademarks can consist of something ‘other than a title or slogan,’ as the insurance policy suggests. Trademarks can be the color of an item, e.g. pink sugar substitute packets, the location of a patch on a pair of jeans, e.g. on the back hip of one brand of jeans, the scent of an item, e.g. that of a household deodorizing spray, and the design of a package, e.g. the wrapper of a candy bar. None of these trademarks involves the product's title or slogan.” (A Touch of Class Imports, Ltd. v. Aetna Casualty and Surety Co., supra, 901 F.Supp. at p. 176.)
The court in Touch of Class concluded that the phrase “Touch of Class” was used as a title or slogan, and as such, was within the coverage for advertising liability. “English dictionaries generally define ‘slogan’ as any word or combination of words that acts as an attention getting device. I take judicial notice of the several following slogans: ‘We try harder;’ ‘Just for the taste of it;’ ‘You're in good hands with Allstate;’ and ‘Good to the last drop.’ Dictionaries generally define ‘title’ as a name or appellation. I take judicial notice of the following titles: ‘Big Mac,’ ‘Chap Stick,’ and ‘Cheerios.’ ” (901 F.Supp. at p. 177.)
In Dial-A-Mattress Operating Corp. v. Mattress Madness, Inc. (E.D.N.Y.1994) 841 F.Supp. 1339, the court ruled that the holder of a federally registered service mark for the name “Dial-A-Mattress” was entitled to a preliminary injunction to enjoin the defendant's use of the name. The court explained: “A service mark is a word or combination of words used to identify and distinguish a particular service as being the labors of a unique, albeit anonymous, source. 15 U.S.C. § 1127. Thus, ‘while a trademark serves to identify and distinguish the source and quality of a tangible product, a service mark functions to identify and distinguish the source and quality of an intangible service.’ [Citation.]” (Id. at p. 1345.)
The court went on to discuss circumstances under which words or symbols may receive protection under the trademark statutes: “A generic term that merely identifies the genus rather than the species of the product or service belongs to the public at large and may not be appropriated as a trademark. [Citation.] Similarly, words that merely describe the substance of the goods or services offered lack distinction and hence cannot serve as a valid mark. [Citation.] However, words that are descriptive in their common usage may gain ‘secondary meaning’ through use as a trade name or mark such that the terms become commonly associated with a particular source or the products or services of that source in the minds of the relevant consuming public. [Citation.] In such a case, the user may accrue property rights in the descriptive terms, but only from such time as he or she can establish secondary meaning in the relevant market.” (Id. at p. 1347; see also cAlamari FIsheries, iNc. v. tHe vIllage cAtch (d.MAss.1988) 698 f.SUpp. 994, 1006 [“A service mark can be a word, name or symbol used in the sale or advertising of services of one person to distinguish them from services of others.”].)
We find no ambiguity in the wording of the exclusion for trademark infringement in the Truck umbrella policy. The exception to the exclusion clearly states that the exclusion does not apply to titles or slogans. But Truck argues that Newhall did not charge plaintiffs with infringing a title or slogan, but with the infringement of a trademark. It contends Newhall's complaint mentioned the slogan “Come Home to VALENCIA” only by way of background; the cause of action for trademark infringement did not allege that plaintiffs had infringed or even used the slogan. Finally, Truck argues that the plaintiffs were not held liable for infringing a title or slogan, and that the judgment was for use of the mark “Valencia.” We disagree with Truck's construction of the pleadings and judgment in the Newhall action.
The Newhall company alleged that the trademark “Valencia” had acquired a distinct secondary meaning with respect to real estate developments in the Santa Clarita Valley. The first amended complaint alleged that Newhall had established a superior reputation associated with the trademark “Valencia” through “years of effort and expensive advertising promotions and relies extensively upon this goodwill for the conduct of its business. In its advertising, the Plaintiff Newhall has used certain unique color combinations in its display flags and has created unique slogans utilizing the registered Trademark including: ‘Come Home to VALENCIA.’ ”
Defendants were charged with the following infringing activities: “Beginning in July, 1984 the Easton Defendants began to construct a residential project known as ‘Valencia Village Apartments' and/or ‘The Valencia Village at Newhall.’ The ‘Valencia Village’ project is located in the Newhall area of the City of Santa Clarita, a few miles from Plaintiff's developments. The use of the name ‘Valencia Village’ for this project infringed the registered Trademark ‘VALENCIA,’ a mark which is owned by Plaintiff.”
Similarly, the Newhall plaintiff alleged that the use of the names “Valencia Vista Condominiums” and “Valencia Terrace Apartments” by the Westcreek defendants infringed the “Valencia” mark. It alleged that the use of the name “Valencia” by the defendants “is likely to confuse, mislead and deceive the public regarding the source and origin of Defendants' projects.”
Truck's arguments do not address Palmer's contention that the conduct of the Newhall defendants in using the word “Valencia” is within the common meaning of “title” or “slogan.” We conclude that the terms “title” or “slogan” as used in the Truck umbrella policy are not limited to artistic or literary works which may be copyrighted. The judgment in the Newhall action was broad enough to encompass infringement of title or slogan. The trial court erred in sustaining the demurrer on the ground that there was no coverage.
Truck also argues: “Since the coverage clauses [of the policies] do not mention trademark infringement, the conclusion is inescapable that Truck had no intention to provide coverage for trademark infringement, and the insureds had no reason to expect the policies to afford that coverage.” This argument is based on Bank of the West v. Superior Court, supra, 2 Cal.4th at pages 1264-1265, 10 Cal.Rptr.2d 538, 833 P.2d 545 which sets out the analysis to be employed if a policy provision is found ambiguous. “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 expectations of the insured.’ [Citation.] Only if this rule does not resolve the ambiguity do we then resolve it against the insurer. [Citation.]” But as we have discussed, we find no ambiguity in the policy language at issue here.
Even if there were an ambiguity, we would reach the same conclusion. The coverage provision is clear. If there were an ambiguity it would have to arise from the provision excluding coverage for trademark infringement. But that exclusion is itself subject to an exception for titles and slogans, and titles and slogans are specifically included in the coverage provision. The test for resolution of an ambiguity is the objectively reasonable expectations of the insured. (Bank of the West v. Superior Court, supra, 2 Cal.4th at pp. 1264-1265, 10 Cal.Rptr.2d 538, 833 P.2d 545.) The reasonableness of Palmer's expectation that infringement of title or slogan would be covered is amply demonstrated here.
In the trial court, Truck invoked the “no action” clauses of its policies as a ground for its demurrer. The Truck primary policy provided: “No action shall lie against the Company under any coverage unless, as a condition precedent thereto, there shall have been full compliance with all the terms of this policy, nor (a) as respects Coverages C, D, and E until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the Company, ․” The Truck umbrella policy required the insured to “cooperate with the underlying insurers as required by the terms of the underlying insurance and comply with all the terms and conditions thereof, ․”
In the trial court, Truck's theory was that the plaintiffs had violated these terms by settling the action without its consent after Truck had assumed the defense on appeal. On appeal, rather than invoking the complete defense of the “no action clause,” Truck now argues that the plaintiffs are not entitled to reimbursement of defense costs incurred before tendering the defense to Truck.
The reasoning of the court in Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 42 Cal.Rptr.2d 295 is instructive. That case involved an action, unlike ours, in which the insurers did not accept defense of the action at any point. The insured reached a stipulated judgment with the third party plaintiff and assigned its rights against the insurers to the plaintiff. Plaintiff sued its insurers. The court concluded that an insured must prove three foundational facts: “(1) the insurer wrongfully failed or refused to provide coverage or a defense, (2) the insured thereafter entered into a settlement of the litigation which was (3) reasonable in the sense that it reflected an informed and good faith effort by the insured to resolve the claim. [Citations.]” (Id. at p. 528, 42 Cal.Rptr.2d 295.) The insured may satisfy the prima facie burden of showing the settlement was reasonable by presenting the type evidence which would support a determination of good faith under Code of Civil Procedure section 877.6. (Ibid.)
Once the insured has made that showing, the burden of proof shifts to the insurer to persuade the trier of fact, by a preponderance of the evidence, that the settlement did not represent a reasonable resolution of the claim or that the settlement was the product of fraud or collusion. (Pruyn v. Agricultural Ins. Co., supra, 36 Cal.App.4th at p. 530, 42 Cal.Rptr.2d 295.) The Pruyn court concluded that the trial court had erred in sustaining the insurers' demurrers and reversed the judgment. The complaint in that case alleged that the insured had been unreasonably abandoned by at least some of its liability insurers, and that a reasonable settlement had been made. Those allegations, “if supported by evidence at trial, would be sufficient to raise a presumption that the settlement reflected the existence and amount of [the insured's] liability to [the third party plaintiff]. The defendant insurers would at trial then have to bear the burden of proving that the settlement and the resulting stipulated judgment did not represent a reasonable resolution of plaintiff's claim against [the insured] or were the product of fraud or collusion. Unless the defendant insurers are able to meet that proof burden, the stipulated judgment will be binding upon them and they can not avoid liability by reliance on the ‘no action’ clause to bar plaintiff's suit.” (Id. at p. 531, 42 Cal.Rptr.2d 295.)
In this case, the defense was not tendered until the federal verdicts were rendered. Truck accepted the defense from that point forward under a reservation of rights, but refused to participate in the settlement of the action during the pendency of the appeal. The cause of action seeking declaratory relief on the duty of Truck to reimburse the plaintiffs for the settlement of the Newhall action and the causes of action for breach of the implied covenant of good faith and fair dealing for failure to pay the settlement are sufficient under the analysis we adopt from Pruyn v. Agricultural Ins. Co., supra, 36 Cal.App.4th at pp. 529-531, 42 Cal.Rptr.2d 295.
We agree with Truck, however, that it cannot be held liable for the costs of defense incurred by the plaintiffs before the claim was tendered to Truck. (See Xebec Development Partners, Ltd. v. National Union Fire Ins. Co. (1993) 12 Cal.App.4th 501, 566-567, 15 Cal.Rptr.2d 726.)
The orders of dismissal are affirmed as to American and Continental. The judgment of dismissal is affirmed as to the Truck primary policy. The judgment as to the Truck umbrella policy is reversed with respect to coverage of Geoff Palmer as an individual. American and Continental are to have their costs on appeal from Palmer, Easton Investments II, and Westcreek. Geoff Palmer is to have his individual costs on appeal against Truck.
1. Under section 1 of the declarations, a space was marked designating the insured as a corporation.
2. The policy excludes coverage for “ ‘Advertising Injury’ arising out of: [¶] (1) Breach of contract, other than misappropriation of advertising ideas under an implied contract; [¶] (2) The failure of goods, products or services to conform with advertised quality or performance; [¶] (3) The wrong description of the price of goods, products or services; or [¶] (4) An offense committed by an insured whose business is advertising, broadcasting, publishing or telecasting.”
3. “An insurer is not liable for a loss caused by the willful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured's agents or others.”
4. Paragraph 2 of the “Personal Injury and Advertising Injury Liability Coverage” of the Continental policy provides that the insurance does not apply: “(e) to Personal Injury or Advertising Injury arising out of the conduct of any partnership or joint venture of which the Insured is a partner or member and which is not designated in the Declarations of the policy as a Named Insured.”Section II of the American policy defines “Who is an Insured.” Paragraph 4 provides: “No person or organization is an insured with respect to the conduct of any current or past partnership or joint venture that is not shown as a Named Insured in the Declarations.”
5. The Truck umbrella policy definition of “person insured” includes this exclusion: “This insurance does not apply to personal injury or property damage arising out of (1) the conduct of any partnership or joint venture of which the insured is a partner or member and which is not designated in this policy as a named insured․”
6. The Lanham Act, 15 U.S.C. section 1117 provides: “(a) When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, or a violation under section 1125(a) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed. In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstances shall constitute compensation and not a penalty. The court in exceptional cases may award reasonable attorney fees to the prevailing party. (b) In assessing damages under subsection (a) of this section, the court shall, unless the court finds extenuating circumstances, enter judgment for three times such profits or damages, whichever is greater, together with a reasonable attorney's fee, in the case of any violation of section 1114(1)(a) of this title or section 380 of title 36 that consists of intentionally using a mark or designation, knowing such mark or designation is a counterfeit mark (as defined in section 1116(d) of this title), in connection with the sale, offering for sale, or distribution of goods or services. In such cases, the court may in its discretion award prejudgment interest on such amount at an annual interest rate established under section 6621 of title 26, commencing on the date of the service of the claimant's pleadings setting forth the claim for such entry and ending on the date such entry is made, or for such shorter time as the court deems appropriate.”
7. Truck confined its supplemental briefing to the meaning of “title.” It explained: “Since the only trademark litigated in the underlying Newhall action was the term ‘Valencia,’ the judgment against plaintiffs for trademark infringement could not have rested on a finding that they infringed any slogan.․ We have therefore limited our discussion to the question whether the judgment could have rested on a finding that plaintiffs infringed a title. As we have explained, it could not have.”
EPSTEIN, Acting Presiding Justice.
HASTINGS and F.M. COOPER*, JJ., concur.