insurance defense duty to defend type cases because of the fact that the claim was submitted to the insurance company prior to a lawsuit being filed so the insurance investigator came out and question the client between the investigator and my clients the discussion was about what it was that interactive the underlying plaintiffs claimed that paper recovery had done wrong and there's discussion bare bones allegation of the complaint that's right and also my question is what of what is there a side from the use of the word advertising in the complaint that is potentially advertising we did night any activity occurred on what you've got to have something to point to that is potentially advertising in order to get insurance type somebody stole software did not investigate this claim after the lawsuit was filed calling the point is that it is advertising injury copyright infringement in connection with advertising ok so i suppose the copyright infringement comes from the fact that somebody use the software me i would say i don't know i didn't do anything wrong so i can't answer the question it's as if in a in an auto bill a taste you're only covered for liability arising out of use of your auto and you say i wasn't in the auto i was in europe here's a picture means from the eiffel tower with my car i would think there's no possibility and and however the insurance company has to defend because the allegation if even if groundless false and fraudulent must be defended interest if the plaintiffs were able to prove the truth of those allegations there would be coverage under the policy so if the plaintiffs here making these outlandish and ridiculous allegation against my client that he advertised the copyright their duty to defend that has been the long california for forty years and the heart of the relationship between a vos in paper recovery was the boss said here's discarded in returned software and packaging dispose of it right right and paper recoveries job was to take out any printed material tear up the c d s or have them shredded or whatever and otherwise just that is the nature of the allegation was and apparently there were some facts to support this that an employee of paper recovery was taking this product and selling it and making money off it why doesn't the breach of contract exclusion a crime it's entirely possible that this truckload of software never arrived and so again there's an allegation of breach of contract and intel the case goes to trial and it and it finding a breach has been established it's possible that you know breach of contract occurred it's possible that no contract existed my client's a night in his declaration that there the working relationship extent was an implied causing the relationship wasn't that paper recovery coverage told of us look we're going to take this product and if we like it you know we might give it to one of our employees to sell we're not going to dispose of that as you want there would have never been a relationship right right but there's also an exception to that exclusion and it's interesting that a traveler cited a brand new case out of the fifth circuit out of texas there's an exception in the to the exclusion for liability arising of breach of contract for where the liability rises under an implied contract and so the question is do we have an expressed contract here a well documented relationship between the parties where everybody signs a name or do we have an implied contract and the court of appeal in the fifth circuit found that that language implied contract was unclear that was their their feeling about it i'm not sure what travis meant by implied contract but that certainly doesn't seem to me like an express contractual relationship what you have the course of dealing over over a period of time documented not by a single document likelihood implied in that relationship and then for that reason it would fall within the exception to the exclusion of the i'm looking at paragraph fifteen of the complaint it's a d r two sixty two pursuant to the agreement between paper recovery and the loss of ababa loblaw that's an allegation it's not necessarily true i mean that's an allegation that may or may not have been proved at trial my client again denied and declaration first of all there is there are four or five paper recovery entities that got sued how many of them were parties to this contract so i understand your position the allegation in the complaint that that was advertising required travellers to the hook at such time as they took the deposition for example of mr galt and said he said absolutely i agree i'd reached the contract at that point he was entitled to withdraw from they were from the defense but it's travelers own challenges made the case law in this travelers filed a lawsuit against dying day and in that lawsuit which we cited to you the point is that travel is argued and argued successfully that the insurance company can't justify southern district decision by judge brewster in the southern district in travis argued down there that that you cannot justify in trying a contribution from another insurance company they said i know you cannot justify your decision to deny coverage by information you obtain after you deny the duty to defend and in this case what travis is doing is just the opposite they are citing deposition testimony they're citing discovery response that there was a contract and that there was a breach of a contract and so forth at the time they made the decision to deny coverage travelers made the law on that issue and i'll reserve the minister respons series with bright distribute now an offer for sale then you don't have a case absolutely and again the he california supreme court has been very clear the bare possibility of a covered claim requires insurance companies to defend and to the court and the same supreme court except the sure and the courts have been very solicitous of the insurance right to a defense the insurance company has to do an investigation and find out what did what mean when they said we advertised date failed to conduct that investigation the reason they did was they didn't have the complaint in front of them when they did not coverage it was not anybody's radar screen after the complaint came in there was no investigation there's nothing in the record so to put a rule up to figure out what was meant by this word paper recovery was aware of the potential for this point before the for recovery share with her vos what its coverage was prior to litigation not to my knowledge in fact the original complaint does not even contain the allegation of copyright infringement which is the basis for our belief that there's coverage for this client there was an amended complaint there was an amended complaint that the word advertise appear in the original complaint yes but it was not in was so clear what makes this to me beyond dispute a covered claim is the fact that it says in advertising the paper recovery intrenched the copyright there's a clear causal nexus the word advertisement in there every case that i of the fact that there was advertising was the policy produced in discovery prior to the amendment i doubt i know you know i don't i don't know that i doubt it the denial of coverage didn't honor sir counsel has made a lot of the fact that travelers did not go out and do an additional factual investigation after the complaint was filed but that's because travellers had already done a factual investigation before the complaint was filed they knew what his claim was about they already learned that the claim was about vasos claim that somebody at paper recovery now identified a particular employee they thought it was was diverting the software and selling it to individuals or to unlicensed retailers that's what they knew the claim was about already there was no need to go out and do additional investigation based on that and knowing that the allegation was that an individual employee at the company was diverting the software that's completely inconsistent with any possibility that there was advertising by the company well because they didn't do that investigation they had no idea whether the is distributing this information this product that was supposed to be disposed was advertising or not well they did their own investigation into try to find out what the employee was doing tried to talk to the people that supposedly had bought the product from a recycler time paragraph nineteen appeared in the amended complaint did or did not travelers know w advertising had occurred in connection with these events at the time that the amended complaint came in with that allegation travelers knew that that the allegation was that an individual employee had been diverting us did they know whether or not that employee had engaged in advertising in connection with his illicit sales efforts they had no reason to believe that he had there was no allegation that he had well the nineteen well the bear word advertised is in one thousand along with market to distribute sold a whole list of things and let's let's see what they knew they knew that boston given paper recovery you're insured materials that were supposed to recovering yes to travellers you know whether this employee was acting or not acting on behalf of paper recovery i don't believe they knew one where the other although they had a did they know in the fair assumption of the allegation of the complaint didn't they did have the company's denial that he that if he was doing that he was acting on behalf they've got they're looking at a complaint which said that they did and doesn't it makes sense that if an employee is taking product like this and selling it to the public then he or she would advertise in some way you know why because what you know and ploy allegedly was doing was taking it to recyclers and it was a recycler that had ultimately sold the product to the people who a ly bought it but you didn't know it whether it was being advertised in connection with those sales or not what their ad was put in the local paper or in flyers in handouts or anything of that type you just didn't know that did you there was no for ties correct the word advertised was in there along with a whole host of other words i under california law didn't that put you under a duty to investigate into the thing and at least find out whether advertising had because they had already done the investigation to understand what the alleged facts were and that's what they need to know is what about the investigation did you ever interview the people who actually did this they couldn't find the people so you don't know what they did and well look they know what the allegation was the allegation was not that they went out and advertised it or that there was any harm from the advertising the allegation was there was harm from the sales and that it was this individual employee who was selling the product  complaint says they advertised in connection with these efforts and you didn't know that up down or sideways simply simply throwing in the word advertising in a long list of words similar to that  insurances and it's not with somebody files a complaint and it says you did x even if you didn't do it or there's no way on earth you could have done it the insurance company has to come in at least investigate and the thin end to get that off the table if they did something that was covered even though they say no we didn't do that if they allege they did something that was covered that would be covered then they have a duty to defend the allegation here is that they were selling a product and the facts and well the word advertising is in there but that doesn't determine that it met the policy definition of advertising the policy difference for advertising as the supreme court of california has interpreted means widespread promote the distribution of promotional material and you add that  it was spread or widespread or anything in between there was no allegation that it was none whatsoever and in fact the facts that travelers did know were completely inconsistent with widespread distribution of promotional material and if this person is diverting the software that he doesn't have any right to and is going and selling it knowing that he doesn't have any right to sell it and is selling it to recyclers who are not licensed by the the owner of the product it doesn't make any sense that he's going to go out and distribute promotional material in a widespread manner advertising the fact that he's doing this to the product so the product were a cd for windows x heath and paper recovery been hired to dispose properly dispose of that pro duct in an employee and taken it out and sold it on the open market and advertised in papers i suspect mr gates with the upset about that and would feel that it had illegitimate improper probably defective product was being marketed to people under the name of windows and when he went to the company and said we have a problem because this is going on he would have said we have a problem because you're advertising this product instead what they did is they came to paper recovering said we have a problem because this employee is we believe selling this product they didn't say anything about having any indication that there was advertising all they knew was that a couple of people had bought this product from a recycler and they thought that it was this particular employee of paper recovery who was diverting it to the recycler nothing about any advertising and so it's in the complaint and so then this complaint shows up let me get the graph of the paragraph in the complaint that we're talking about well the word advertising there i mean that is a boilerplate assertion designed to say that they are in some manner capitalizing on the marks so if i don't know what manner so if i have an  automobile policy from travellers and it covers permissive users and i leave my car at home in phoenix following here in san francisco and a neighbor find kid finds the key and goes out and drives the car and gets in an accident and there's a lawsuit and the plaintiff comes against me and i say look i can give anybody permission to use my my car travelers would have no duty to defend that l in that case if the entire liability is hindering on whether it was permissible not and that's an issue in the case i think they would have a duty to defend it in this case have to go out and investigate whether it was permissive use or not well i think they would beyond what had been done before the complaint was filed ok and the other point i wanted to make about that was that in this case the word advertising there were there were no factual allegations of advertising there was just the word advertised thrown into the complaint as laundry list of things that they were saying might have been done with it in this way in case of boilerplate allegation of negligence that is not consistent with the actual facts alleged was not to support a duty to defend and in this case we have a laundry list of advertising not a litany case the california supreme court which requires widespread distribution of promotional material to the public at large you can promote something by an intern individual one on one solicitation you can offer for sale obviously in a one on one solicitation those truly are not advertising the fact that they struck the word advertising here doesn't mean that they were referring to widespread distribution of promotional material and in fact in looking at the actual facts that travelers knew from having done the investigation before the lawsuit was filed there wasn't any widespread distribution of promotional material involved or alleged and so in short the saying there wasn't any the claimant was not claiming there was any and there was absolutely no basis to believe that this claim had anything to do with widespread distribution of promotional material that was what when we were living this in the trial court i understood to be the main issue in the case was whether white distribution of promotional material was required or if this individual employee going to a recycler and offering this for would constitute advertising since then the california supreme court has resolved that issue and made it quite clear that it does have to be widespread distribution of promotional material and there simply was never any evidence or allegation of anything like that in this  i suppose that would depend on what the basis of the allegation against paper recovery was that if it was alleged that they had authorized it i mean here we're getting this speculation obviously but if it's alleged that they had authorized it and didn't know that he was advertised with that men be sufficient to trigger well there would have to be some indication that the employee had advertised well that would that would be i don't like that all goes to the truth of the allegations but we now have allegations which somebody is going to have to defend if you're going to have sorts going to travelers on behalf of well the stray word advertised does not give rise to a duty to defend the stray word advertised as a boilerplate allegation along with the rest of that laundry list of things there and what you look at in  generic boilerplate pleading like that the insurer is entitled to look beyond the pleadings to the facts makes the word more in the well i say if you put complaints this deal is that what we're it's a case by case basis in this case the word an authorized that's not the kind of boilerplate allegation that shows up in a complaint when you're trying to say they might have done this that or the other thing with the product that's in that water place you like well no i don't think it's for the place i understand what you're getting at i disagree i think there's a distinction a duty to defend that in support of points that are given no they were making a specific allegation when they said that pursuant to an agreement there was no need to have that in there for their trademark or copyright claim they said pursuant to an agreement they did this that and the other  and and that's not the kind of boilerplate that you see in every single trademark or copyright complaint whether there was actually advertising or not the later one that lists advertised distribute sold offered for sale that is the kind of boilerplate that is in every single complaint that's ever been filed for trademark or copyright infringement it doesn't mean any advertising is the actual basis of the claim and in fact when we look at the actual facts both as travelers knew them at the time based on its investigation and as they further developed later which shows that travelers understanding was correct there was no advertising and lost never claimed that there was an advertising of oss claimed was that an employee had diverted it and sold it to a recycler and from there it had gotten into the hands of ultimate consumers the breach of contract exclusion it's important to recognize applies whenever there is an incidental relationship between a breach of contract and the conduct and in this case i think it's undisputed that in fact there was at the very least an agreement between her boss and paper recovery certainly that was alleged in the complaint it was something that travelers knew about before the complaint was filed just as they knew but what vos this claim was they knew that her boss and paper recovery had an arrangement where paper recovery would get the product from her boss and destroy it and if you agreed not to sell it and so when the complaint came out unless there was an agreement supervise their employees to ensure that it was instinct promised it would be done and i got it that they would make sure that exactly what they agreed to do would be done and what they agreed to do was to destroy the products part of the reason i assume the four have os wanting to do this is to avoid exactly what happened they don't want these these products that they were unable to sell for whatever reason to get on to the market they want them destroyed so they're gone forever that's what they hire people recovery to do your position hundred number that's right because that's a breach of the contract that of oss had with paper recovery ok also referred to the exception to the exclusion for misappropriation of advertising i d s under an implied contract what that refers to is there are there's a line of cases in which someone has come up with an advertising idea approached a company about it and said i've got this great idea for advertising your product i think you ought to advertise well didn't it the first case that i remember this coming up and was taking out an ad that shows the old wanting to be a clydesdale in terms of coverage i don't think so if it's an advertisement and it's infringing the trademark in the advertisement if the product nothing about advertising it nothing about the content of any advertising causing any harm to her boss simply the sale of the product contrary to the agreement that it had if if the boss had recovered against  paper recovery in this in this suit with damages has been limited to contract damages i don't believe they would have been limited to contract damages depends on the basis of course on which they recover though they had claims both for beach  if it's in the course of advertising for copyright infringement yes for trademark infringement that's an open question that has not been resolved in california there's been some authority going both ways but but if it's related to a breach of  contract with an even an incidental relationship to a breach of contract then the breach of contract exclusion applies and there is no duty to defend the trademark infringement or copyright infringement claim absent the contract connection copyright infringement in the course of advertising would be something the travelers would have to found in this case no advertising and it was pursuant to a contract so investigators contained pages three and four of the brief of travellers and verbatim it says the information that they were given and they doing paper recovery it's possible that a trucking firm intercepted the material before it got to the recycling facility and some trucker sold it and advertise it we don't know and it's the duty and responsibility of the insurance company to appeal by the way that's the only case i found in california that that criticizes the complaint says as containing boilerplate the allegation of negligence was completely inconsistent with a lawsuit that was all about intentional conduct i asked myself the question this is why are we being so restrictive here about the duty to defend the the rule the california supreme court said is the benefit of the doubt any doubt as to what happened here has to be given to insured at that point in time when the insurance company comes forward with conclusive evidence that no advertising existed for example by taking the deposition of the hamas people and saying you allege this where is it where's the proof of the advertising at that after after that they decided to deny coverage to the contract require the destruction of software it certainly would be a reasonable implication but again i think that takes us within the the was the software ever delivered to paper recovery the software that was allegedly infringed if if if the if a boss is unable to prove that it actually delivered the software then how can paper recovery be guilty of anything breach of contract advertising anything insurance company has to defend the case and sell intel it proves and so there is proof that that happened when is that proof going to come up it's going to happen at the trial at the trial between  us and paper recovery a trial that never happened because the largest one of the largest producers of this type of software in the world was going after a client that was small and didn't have that the kind of legal resources it needed to defend itself those resources would have been available for travelers had travelers feel this obligation to defend versus direct where remember the allegation there was that dr gray willfully maliciously brutally and intentionally assaulted the client the underlying plaintiff and the court found that even with all of those a it was still possible it was still possible that it was self defense and therefore the duty to defend continued all the way to trial here it is possible that there was no contract that if there was that there was no breach that