TetraVue v. St. Paul Fire & Marine
Casualty Co.
Filed 7/19/13 TetraVue v. St. Paul Fire & Marine
Casualty Co. CA4/1
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
TETRAVUE, INC. et al.,
Plaintiffs and Appellants,
v.
ST. PAUL FIRE & MARINE
INSURANCE COMPANY,
Defendant and Respondent.
D061002
(Super. Ct.
No.
37-2011-00086115-CU-IC-CTL)
APPEAL from
a judgment of the Superior Court
of
County, Randa Trapp, Judge.
Reversed.
Techmark Greenstein Law, Neil David Greenstein; Joseph A.
Hearst for Plaintiffs and Appellants.
McKenna
Long & Aldridge, John T. Brooks and Peter H. Klee for Defendant and
Respondent.
I.
INTRODUCTION
Plaintiffs TetraVue, Inc. (TetraVue)
and Paul Banks appeal from a judgment entered in favor of defendant St. Paul
Fire & Marine Insurance Company (St. Paul)
after the trial court granted St. Paul's
motion for summary judgment and denied the plaintiffs' cross-motion for summary
judgment. TetraVue and Banks sued St.
Paul in a declaratory relief action, seeking a
determination that St. Paul owed
them a duty of defense in an underlying lawsuit against Banks and TetraVue
brought by third party General Atomics by way of a cross-complaint in an action
that Banks originally filed against General Atomics. TetraVue and Banks contended that the General
Atomics cross-complaint raised claims that were potentially covered by the
property damage provision and/or the
of a general liability policy that TetraVue had purchased from St.
Paul. The
plaintiffs and St. Paul filed
cross-motions for summary judgment. The
trial court granted St. Paul's
motion for summary judgment and denied TetraVue and Banks's joint motion for
summary judgment after determining that there was no potential for coverage of
the claims under either the property damage provision or the advertising injury
provision. The court thereafter granted
judgment in favor of St. Paul.
On appeal,
TetraVue and Banks argue that the trial court erred in entering judgment in
favor of St. Paul because General
Atomics's cross-complaint suggests a claim that is potentially covered by the St.
Paul policy under the coverage for advertising
injury. We conclude that TetraVue and
Banks demonstrated the existence of a potential for coverage under the policy
under the advertising injury provision, and that St. Paul
failed to establish the absence of any potential for coverage. St. Paul
thus had a duty to defend TetraVue and Banks in the underlying action. We therefore reverse the judgment of the
trial court, and direct the trial court to enter judgment in favor of TetraVue
and Banks.
II.
FACTUAL AND
PROCEDURAL BACKGROUND
Banks was
employed by General Atomics from June 2000 until July 11, 2008.
Banks is a laser researcher who worked in the Photonics Division of
General Atomics, where he helped the company develop a sophisticated laser
technology that is now used by the United States
government. According to Banks, while he
was employed at General Atomics, he was interested in adapting the laser
technology for commercial use. It
appears that at some point, Banks and General Atomics disagreed as to how, or
whether, to pursue nongovernmental applications of the technology, and in July
2008, Banks resigned from General Atomics.
In May 2008, prior to leaving
General Atomics, Banks founded and incorporated TetraVue. Banks is the president and CEO of the
company.
Banks attempted to reach, and
believed that he had reached, a license agreement between General Atomics and
TetraVue that would enable TetraVue to use materials and technology from
General Atomics. Pursuant to this
belief, Banks took certain materials from General Atomics when he left.
In February 2009, Banks sued
General Atomics for fraud and breach of contract. Banks alleged that General Atomics had
promised to provide him with an ownership interest in its Photonics Division,
and that it had refused to provide him with that interest.
In October 2009, TetraVue was
accepted to be part of a startup incubator and was required to obtain liability
coverage in order to participate in the incubator program. TetraVue applied for a liability insurance
policy from St. Paul in early
November 2009. The policy was issued on December 15, 2009 (the Policy). The Policy, called a "Technology
VisionPak," provided commercial general liability coverage.
In May 2010, General Atomics filed
a cross-complaint against Banks and TetraVue.
The relevant amended cross-complaint, which was filed in November 2010,
alleges causes of action against Banks for breach of contract, breach of the
implied covenant of good faith and fair dealing, conversion, breach of the duty
of loyalty and violations of Labor Code provisions, and unlawful business
practices. In addition, the
cross-complaint alleges causes of action for misappropriation of trade secrets
and unfair business practices against both Banks and TetraVue.
Banks and TetraVue tendered the
defense of General Atomics's cross-complaint to St. Paul
on January 6, 2011. St. Paul
sent a denial letter on January 25. In
its denial letter, St. Paul
asserted a number of grounds for declining to provide a defense, including that
the cross-complaint "does not allege any facts that establish the
existence of any of the enumerated 'personal injury' or 'advertising
injury' offenses."
Banks and TetraVue responded with a
letter in which they outlined their understanding of the basis for coverage in
the Policy. St.
Paul continued to decline to provide a defense. Banks and TetraVue then filed this action in
the San Diego County Superior Court, seeking a declaration that St.
Paul had a duty to provide a defense against General
Atomics's cross-complaint in the underlying action.
The parties filed simultaneous
motions for summary judgment in June 2011.
The trial court issued a tentative order denying Banks and TetraVue's
motion for summary judgment and granting St. Paul's
motion for summary judgment. The court
determined that St. Paul did not owe Banks or TetraVue a duty to defend against
General Atomics's cross-complaint, reasoning in part that, "while
plaintiffs may be seeking customers or increasing sales with property taken
from [General Atomics], the property taken from [General Atomics] was not
advertising material because the allegations are that the property was trade
secret or confidential information," and "[a]s such, it is not used
by [General Atomics] to attract attention in seeking customers or increasing
sales so the Advertising Injury coverage does not apply."
On the same date on which the trial
court issued its tentative rulings, the parties appeared before the court for a
hearing on the motions. At the
conclusion of the hearing, the court affirmed its tentative order.
The trial court entered judgment in
favor of St. Paul and against Banks
and TetraVue. Banks and TetraVue filed a
timely notice of appeal.
III.
DISCUSSION
A.
1. Summary
judgment and review
"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 (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." (
(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 an
element of the cause of action. (
(2003) 31 Cal.4th 990, 1003, quoting Aguilar,
supra, 25 Cal.4th at p. 854.)
2.
to defend
The central issue in this case is whether the Policy
potentially covered any of the claims that General Atomics raised in its
cross-complaint, thereby giving rise to St. Paul's duty to defend TetraVue and
Banks in the underlying action. Because
this question requires interpretation of the policy provisions, we determine it
independently. (See Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377,
390.)
"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
expectations of the insured.'
[Citation.] Only if this rule
does not resolve the ambiguity do we then resolve it against the insurer." (Bank
of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264–1265, quoting
Cal.3d 807, 822.)
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,
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." (
(2005) 36 Cal.4th 643, 654–655 (Scottsdale),
italics added.)
"An
insurer . . . 'cannot construct a formal fortress of the
third party's pleadings and retreat behind its walls. The pleadings are malleable, changeable and
amendable. . . . [C]ourts
do not examine only the pleaded word but the potential liability created by the
suit.' [Citation.] . . . [T]he third party
plaintiff cannot be the arbiter of coverage.'
[Citation.]" (
Cal.App.4th 188, 195 (Eigner).)
It is well established that
"[t]he insurer's duty to defend is broader
than its duty to indemnify." (
(2008) 44 Cal.4th 541, 547, italics added.)
"The . . . duty [to indemnify] runs only to
claims that are actually covered by the policy, while the duty to defend
extends to claims that are merely potentially covered. [Citations.]" (Ibid.) In addition, a court must look "not to
whether noncovered acts predominate in the third party's action, but rather to
whether there is any potential for liability under the policy." (Horace
Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1084.) "Any doubt as to whether the facts
establish the existence of the defense duty must be resolved in the insured's
favor. [Citations.]" (Montrose
Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 299-300 (
" ' "A duty to defend
arises upon the tender to the insurer of a potentially covered claim and continues
until the lawsuit is concluded or until the insurer shows that facts extrinsic
to the third party complaint conclusively negate the potential for
coverage. [Citations.] If a duty to defend arises, the insurer must
defend the action in its entirety, including claims that are not potentially
covered. [Citation.]" ' [Citation.]" (Sprinkles
v. Associated Indemnity Corp. (2010) 188 Cal.App.4th 69, 77; see also
supra, 44 Cal.4th at p. 547 [" 'The [insurer's] defense duty is a
continuing one, arising on tender of defense and lasting until the underlying
lawsuit is concluded [citation], or until it has been shown that there is no
potential for coverage . . . .' [Citation.]"].)
The broad duty to defend shapes each
party's burden of proof in seeking summary judgment in a declaratory relief
action regarding the duty to defend, such as the declaratory relief action at
issue here. "[T]he insured must
prove the existence of a potential for
coverage, while the insurer must establish the absence of any such potential.
In other words, the insured need only show that the underlying claim
insurer must prove it cannot. Facts merely tending to show that the claim
is not covered, or may not be covered, but are insufficient to eliminate the
possibility that resultant damages (or the nature of the action) will fall
within the scope of coverage, therefore add no weight to the scales. Any seeming disparity in the respective
burdens merely reflects the substantive law." (Montrose
I, supra, 6 Cal.4th at p.
300.) A court may conclude that no duty
to defend exists only where the underlying complaint " '
issue which would bring it within the policy coverage.' " (Ibid.,
quoting Gray v. Zurich Insurance Co.
(1966) 65 Cal. 2d 263, 276, fn. 15.)
B.
1. The
relevant Policy provisions
The Policy,
identified as "Technology VisionPak Commercial General Liability
Protection," states generally that it "provides general liability
protection for your business." In
addition to coverage for bodily injury and property damage liability, as well
as for personal injury liability, the Policy provides coverage for "[a]dvertising
injury liability." With respect to
this coverage, the Policy tells insureds:
"We'll pay amounts any protected person is legally
required to pay as damages for covered advertising injury that:
"• results from the advertising of your products,
your work, or your completed work; and
"• is caused by an advertising injury offense
committed while this agreement is in effect."
The Policy
defines "[a]dvertising injury" as "injury, other than bodily
injury or personal injury, that's caused by an advertising injury
offense."
An "[a]dvertising injury
offense," in turn, is defined as any of the
following:
"• Libel of an individual, other than an individual
as a sole owner of a business, in or with covered material.
"• Slander of an individual, other than an
individual as a sole owner of a business, in or with covered material.
"• Unauthorized
use of any advertising material, or any slogan or title, of others in your
advertising." (Italics added.)
An endorsement that is attached to
the policy replaces the above definition of "advertising injury offense"
with the following:
"Advertising injury offense means any of the
following offenses:
"• Libel, or slander, in or with covered material.
"• Making
known to any person or organization covered material that disparages the
business, premises, products, services, work, or completed work of others.
"• Making known to any person or organization
covered material that violates a person's right of privacy.
"• Unauthorized
use of any advertising material, or any slogan or title, of others in your
advertising."
name="_ftnref2" title="">[2] (Italics added.)
The Policy broadly defines
"[a]dvertising" as "attracting the attention of others by any
means for the purpose of" either "seeking customers or
supporters" or "increasing sales or business," and defines
"[a]dvertising material" as "any covered material that: [¶] [] is subject to copyright law; and [¶]
[] others use and intend to attract attention in their advertising."
The Policy generally excludes
coverage for intellectual property claims.
However, consistent with its coverage for advertising injury liability,
the Policy contains the following exception to the intellectual property
exclusion:
"Nor will we apply this exclusion to advertising
injury that results from the unauthorized use of any:
"• Copyrighted advertising material;
"• Trademarked slogan; or
"• Trademarked title;
"of others in your advertising."
Under the
policy, in order for a defense obligation to exist pertaining to advertising
injury liability, three factors must be present: (1) an allegation by General Atomics
that TetraVue took material that General Atomics itself used and intended to attract the attention of others by any
means for the purpose of seeking customers or supporters or for increasing its
sales or business; (2) the material in question is subject to copyright law;
and (3) an accusation by General Atomics that TetraVue used or was using that
material to attract the attention of others for the purpose of seeking
customers or supporters, or for the purposes of increasing sales or business.
2. General
Atomics's allegations in the operative cross-complaint that are relevant to
potential coverage
General
Atomics asserted in its cross-complaint that it brought the action to
"remedy the misappropriation of its trade
secrets . . . which [Banks] is now using in order to
improperly exploit the technology, business plans and strategy and other trade
secret information he misappropriated from [General Atomics]." General Atomics further asserted that it was
seeking "to redress other wrongful conduct by Banks and TetraVue not
involving [General Atomics's] trade secrets . . . with
respect to their misuse of [General Atomics's] confidential non-trade secret
information or physical property."
The cross-complaint further alleged that Banks and TetraVue are using
this confidential and trade secret information, that they "are
exploiting" this confidential and trade secret information, including
"printed materials," "for their own profit in connection with
TetraVue's business pursuits and capital raising activities" and "to
unlawfully and unfairly compete with [General Atomics]."
General
Atomics alleged that the unit in which Banks worked at General Atomics had
worked "on several technologies that were intended to develop general
commercial/industrial promise—i.e., for customers other than the United States
government."
Among the
information and documents that General Atomics alleged Banks improperly took
when he left the company were a "proprietary draft white paper" (the
White Paper) in which Banks, who authored the White Paper, explained how the
company could "leverage" its 3D imaging technology for shorter-range
commercial and/or industrial applications.
General Atomics also alleged that Banks improperly took another document
that he had authored, titled " 'Proof of Principle (POP) plan for Advanced
3D diagnostics for industrial applications' " (the POP). According to General Atomics's
cross-complaint, the "objective of this document was to demonstrate the
utility of [General Atomics's] [specialized] technology for 3D high-resolution
imaging for commercial industrial inspection." General Atomics alleged that Banks had
written, in the POP, that " 'General
Atomics (GA) has developed a new technology,' " and elsewhere in that
document stated "that GA ' has
developed an exciting new technology using laser
illumination . . . .' "
General
Atomics further alleged that Banks improperly took another document, titled
" 'Short Range 3D video and imaging,' " to which General Atomics
referred in its cross-complaint as "the 'Short Range Presentation.'
" General Atomics asserted that
this document contained trade secrets and confidential information, including
"extensive market information and revenue and sales projections."
In addition to alleging that Banks
had taken materials that involved trade secrets or confidential information,
the complaint alleged that Banks had taken
"non-confidential . . . presentation materials from
conferences which he had attended on [General Atomics's] behalf . . . (which
are copyrighted and thus could not be lawfully
reproduced) . . . ."
General
Atomics specifically alleged that Banks and TetraVue had "improperly used
and disclosed [General Atomics's] Trade Secrets in their submission to the
[National Science Foundation] regarding 'TetraVue's' proprietary plan for
commercial/industrial applications because, as Banks stated during the
negotiations to license GA's technology, 'it would be good to use in the new
entity [TetraVue] without reinventing it.' " According to General Atomics, "the language
and description from [TetraVue's] SBIR [Small Business Innovation Research]
grant application mirror the White Paper
that Banks misappropriated from [General Atomics]." (Italics added.) The cross-complaint also specifically alleged
that TetraVue had " 'sent [the] white paper' to at least one prospective
customer." Elsewhere, General
Atomics alleges that Banks and TetraVue "have begun directly soliciting current and/or potential customers of [
General
Atomics asserted that the "[o]nly . . . conclusion
[that] can be drawn from [the allegations concerning Banks's purported misdeeds
is that] Banks and TetraVue have misappropriated—and continue to
misappropriate—[General Atomics] Trade Secrets for their own commercial
purposes, and have used and continue to use [General Atomics] Confidential
Information other than [General Atomics] Trade Secrets to unlawfully and
unfairly compete with [General Atomics] . . . ."
General
Atomics acknowledged that it was engaged in marketing the specialized laser
technology to customers, and alleged that during a meeting with representatives
of a division the United States Army, a General Atomics employee had discussed
whether that division of the Army might be "interested in acquiring any of
[General Atomics's] new technology," including the laser technology. The Army representatives "revealed"
that they had been approached by a " 'little company' " that was
using similar technology. Although the
Army representatives did not inform General Atomics of the name of the
" ' little company,' " General Atomics believed that
company to be TetraVue. General Atomics
expressly asserted that TetraVue had "solicited the same customer to whom
[General Atomics] was marketing its
technology." (Italics added.)
3.
St. Paul argues that it was entitled
to summary judgment because "[t]here is simply no reference in [General
Atomics's] cross-complaint to the unauthorized use of any materials that
[General Atomics] used to attract the attention of others," and further
contends that "nothing in the cross-complaint supports a reasonable
inference that [General Atomics] was suing for unauthorized use of materials
that it used to attract the attention of others."
operative cross-complaint. There are a
number of allegations in the operative pleading document from which one could
reasonably infer that General Atomics was suing Banks and TetraVue, at least in
part, for their unauthorized use of materials that General Atomics, itself, had
used to "attract the attention of others" in order to seek customers
or supporters, or to increase its sales or business. Further, the operative cross-complaint
clearly does not negate this possibility.
In fact, the cross-complaint suggests potential coverage.
St. Paul cites General Atomics's
assertion in the cross-complaint that much of the allegedly misappropriated
materials contained trade secret and confidential materials as supporting St.
Paul's contention that the cross-complaint does not contain any allegation that
General Atomics used any of the materials in question to attract the attention
of others. St. Paul essentially
maintains that because General Atomics alleges that the materials that Banks
misappropriated and improperly used involved trade secrets and/or confidential
information, those materials could not have been "advertising"
materials. According to St. Paul, given
the nature of the material as involving trade secret and/or confidential
information, and given the absence of specific allegations that General Atomics
had provided these materials to "anybody outside of [General
Atomics]," one cannot "reasonably" interpret the cross-complaint
"as alleging a claim based on [General Atomics's] advertising materials."
It is far too simplistic to
conclude that because the materials in question may have included trade secret
and/or confidential information, they could not constitute
"advertising" or "advertising materials" within the meaning
of the Policy definitions unless General Atomics expressly identified the
materials as such in its cross-complaint.
The Policy's definition of "advertising" is extremely broad,
and there is no requirement in the Policy that in order to constitute
"advertising material," General Atomics must have distributed the
materials to the public or even made the materials widely available to people
outside of General Atomics. Rather, the
Policy requires merely that General Atomics have used the materials to
"attract[] the attention of others by any means for the purpose of"
either "seeking customers or supporters," or "increasing sales
or business."
The cross-complaint need not have
contained specific allegations that General Atomics used the material to
attract the attention of others in order to seek customers or supporters or to
increase sales or business in order for it to be deemed to have triggered a
duty to defend based on the possibility of coverage. The law provides that if the facts "stated
or fairly inferable in the complaint, or otherwise known or discovered
by the insurer, suggest a claim
potentially covered by the policy" (Scottsdale,
supra, 36 Cal.4th at p. 655, italics added), the insurer's duty to defend
is triggered. The facts fairly inferable
from the cross-complaint clearly suggest a claim that is potentially covered by
the Policy. Specifically, many of the
allegations are sufficient to create the reasonable inference that General
Atomics used some of the materials that it was alleging Banks and TetraVue
misappropriated in its own efforts to attract the attention of others to gain
their support and/or increase its business.
For example, at a minimum, it is
reasonable to infer that the
"non-confidential . . . presentation materials from
conferences which [Banks] had attended," that General Atomics alleged
Banks had improperly taken, were "advertising" materials under the
Policy definition. General Atomics
specifically alleged that while employed at General Atomics, Banks had used
these materials in presentations at conferences. A reasonable implication is that these
materials were presented to individuals outside of General Atomics who attended
these conferences. A further reasonable
inference is that in having Banks give these presentations, General Atomics was
intending to "attract the attention of others" in order to seek
customers or supporters, or to increase its sales or business. A claim that after leaving General Atomics
and starting TetraVue, Banks used these materials to try to market the
technology to potential customers is, at a minimum, a claim that is potentially
covered by the Policy.
St. Paul seizes on one particular
allegation in the cross-complaint to assert that the documents that General
Atomics accused Banks of misappropriating were intended for internal General
Atomics use only, and could not have constituted "advertising"
materials. Specifically, St. Paul cites
to the allegation that, in describing TetraVue's business, as set forth in the
summary of the grant that Banks received from the National Science Foundation,
Banks copied "nearly verbatim from non-public internal [General Atomics]
documents . . . created to educate [General Atomics]
management about potential commercial applications for [General Atomics's] 3D imaging
technology . . . ." However, the mere allegation that
creating his grant application were "non-public internal documents"
does not eliminate the possibility that other documents that Banks was accused
of taking from General Atomics and using to promote TetraVue to potential
customers were not "internal" General Atomics documents. The cross-complaint does not expressly
identify the documents to which it is referring in this paragraph. Although St. Paul assumes that the cross-complaint is referring to all three of the
specific documents that General Atomics identified as being misappropriated by
Banks—i.e., the White Paper, the POP and the Short Range Presentation—in
claiming that the documents were nonpublic, there is no basis for such an
assumption. The cross-complaint's
reference to some materials being used solely for internal purposes does not
conclusively establish that General Atomics did not use any of the other identified materials to attract the attention
of others for the purpose of gaining supporters and/or increasing its
business. Further, other allegations of
the cross-complaint reasonably imply that at least some of the documents that
Banks is accused of misappropriating were not
intended solely for internal dissemination.
In particular, the wording of these documents, as quoted in the
cross-complaint, implies that the documents may very well have been used to
attract attention from
support or business.
For example, the POP states that
" 'General Atomics (GA) has
developed a new technology that captures all three
coordinates . . . .
This enables GA to provide a low cost solution with high resolution
images . . . .' "
The italics are in the original and highlight the manner in which this
document was written. The document
informs the audience that "General Atomics" will be referred to as
"GA" throughout the remainder of the document. This would be an odd statement to include if
this document was written solely for internal use at General Atomics, whose
employees would presumably know that "GA" is an acronym for General
Atomics. In addition, the fact that the
sentence appears to highlight for the reader that General Atomics has developed
"new technology" suggests that the writing was intended for an
external, rather than an internal, audience.
One could clearly infer that this language was intended to attract the
attention of others for the purpose of gaining their support, or to sell the "
'new technology' " to a potential customer. The same document is also alleged to state
"that GA 'has developed an exciting
new technology using laser illumination . . . .'
" The language used and
highlighted—i.e. " 'exciting new
technology' "—appears to be
typical advertising content, intended to attract the attention of those outside
of General Atomics.
Further, the cross-complaint
alleges that the Short Range Presentation concludes with the following
statement: " '[T]o be most effective [3D] instruments typically need to
possess high capture speeds to eliminate any motion-induced blurring, high
resolution in all three spatial dimensions, [and] high
throughput . . . .
It has been difficult to meet all of these requirements simultaneously,
now be changed.' " (Italics
added.) By referring to the technology
as "GA's" technology, rather than "our" technology, this
document reads more like material meant for an outside audience than for an
internal one.
St. Paul cannot rely on the absence
of express allegations in the cross-complaint that General Atomics used the
relevant materials to "attract the attention of others" to justify
its conclusion that there was no potential for coverage. First, one would not expect that in a
complaint alleging misappropriation of trade secrets by Banks and TetraVue,
General Atomics would discuss how it,
General Atomics, may have used the materials in question. Specifically, it is not surprising that the
cross-complaint would not directly allege that General Atomics used the
materials to attract the attention of others to seek customers and/or increase
its business. The cross-complaint is
directed at Banks's and TetraVue's conduct, and thus focuses on how
Further, as noted, " 'pleadings are malleable, changeable and
amendable,' " and for this reason " '[c]ourts do not examine only the
pleaded word but the potential liability
created by the suit.'
[Citation.]" (
the arbiter of coverage.'
[Citation.]" (
Thus, the absence of express allegations that General Atomics was using
or had used at least some of the documents in a manner that would qualify as "advertising"
under the broad definition provided in the Policy does not negate the
possibility that General Atomics in fact did use those documents in such a
manner.
In order for St. Paul's duty to
defend Banks and TetraVue against General Atomics's cross-complaint to have
been triggered, it is necessary only that the cross-complaint reveal the
"potential" or "possibility" of coverage. As we have explained, if the facts
"stated or fairly inferable in the complaint, or otherwise known or discovered
by the insurer, suggest a claim
potentially covered by the policy" (Scottsdale,
supra, 36 Cal.4th at p. 655, italics added), the insurer's duty to defend
is triggered. "The scope of the
duty does not depend on the labels given to the causes of action in the third
party complaint; instead it rests on whether the alleged facts or known
extrinsic facts reveal a possibility that the claim may be covered by the
policy." (Atlantic Mutual Ins. Co. v. J. Lamb, Inc. (2002) 100
Cal.App.4th 1017, 1034.) An insurer may
decline to defend an insured only where the allegations of the cross-complaint,
or extrinsic facts of which the insurer becomes aware, exclude the possibility that the underlying complaint alleges a
covered claim. Thus, in this case, St.
Paul could decline to provide a defense to Banks and TetraVue only if it could
conclusively eliminate the possibility that General Atomics was alleging that
it suffered harm from the misappropriation and use of its advertising
material. As the allegations of the
cross-complaint adequately demonstrate, the cross-complaint does not
asserted by General Atomics against Tetravue and Banks may have been covered by the Policy, thereby triggering St. Paul's
duty to defend.
title="">[4]
TetraVue
and Banks have established that the potential for coverage under the Policy
existed based on the allegations of the cross-complaint, and St. Paul has not
pointed to any allegations in the cross-complaint that establish the
I, supra, 6 Cal.4th at p.
300.) TetraVue and Banks are therefore
entitled to have summary judgment entered in their favor in the declaratory
relief action regarding St. Paul's duty to defend.
IV.
DISPOSITION
The judgment is reversed and the
cause is remanded with directions to enter judgment in favor of TetraVue and
Banks. TetraVue and Banks are awarded
their costs on appeal.
AARON, J.
WE CONCUR:
McDONALD,
Acting P. J.
IRION,
J.
name="_ftn1" title="">[1] Banks
and TetraVue filed a request that this court take judicial notice of the jury
verdict form and a related court order entitled, "Statement of Decision
and Order on Inconsistent Damages," both of which were filed in the
underlying action between General Atomics and Banks/TetraVue. St. Paul opposed the request, arguing that
the merits of General Atomics's claims against Banks and TetraVue are
irrelevant to the question whether the duty to defend exists in this case, and
also arguing that the "only facts that matter are the facts known at the
inception of the suit." We conclude
that the documents for which Banks and TetraVue seek judicial notice are
unnecessary to our determination of this appeal, and we therefore decline to
take judicial notice of the documents.
name="_ftn2" title="">[2] This
endorsement evidences a copyright date of 2006.
It would appear that the definition of "advertising injury
offense" provided in this endorsement was applicable at the time the
underlying events are alleged to have taken place. However, Banks and TetraVue appear to refer
to the definition of "advertising injury" in the text of the Policy,
as opposed to the endorsement definition.
For purposes of the questions raised in this appeal, the difference in
the language of the Policy and the related endorsement is irrelevant. The relevant portion of the definition of
"advertising injury offense"—i.e., "Unauthorized use of any
advertising material, or any slogan or title, of others in your
advertising"—is the same in both the text of the Policy and the
endorsement.
