Opinion ID: 2575976
Heading Depth: 1
Heading Rank: 3

Heading: The coverage dispute between Scottsdale and MV

Text: Scottsdale issued two CGL policies to MV, one effective from December 1, 1998, to December 1, 1999 (hereinafter, the first CGL policy), and the other from December 1, 1999, to December 1, 2000 (hereinafter, the second CGL policy). The first CGL policy [included Scottsdale's agreement] to defend MV against any suit and to pay any damages due to `advertising injury' caused by an offense committed in the course of advertising [MV's] goods, products or services. The policy defined the term advertising injury as including the [m]isappropriation of advertising ideas or style of doing business. The second CGL policy also obligated Scottsdale to pay MV's damages and costs of suit for any advertising injury. The policy language, however, was somewhat different from that in the first CGL policy. Specifically, the second CGL policy defined advertising injury as, in pertinent part, [t]he use of another's advertising idea in [the insured's] `advertisement.' And the policy defined advertisement as a notice that is broadcast or published to the general public or specific market segments about [the insured's] goods, products or services for the purpose of attracting customers or supporters. During the course of the underlying Laidlaw litigation, in June of 2000, Scottsdale filed the present declaratory relief action against MV and other defendants named in the Laidlaw action. After settlement of the underlying action, Scottsdale moved for summary judgment seeking a determination that it owed no legal defense obligations, and seeking reimbursement of the full amount paid for defense costs and fees and a declaration that it owed no further costs and fees. The trial court denied Scottsdale's motion for summary judgment and ruled that it had a duty to defend. The court observed that Laidlaw alleged a broader audience than simply the two cities noted in the complaint where MV sought business (i.e., Lawrence, Kansas, and Indianapolis, Indiana), and concluded that [b]roadly construed, the . . . [c]omplaint alleged misappropriation of Laidlaw's `advertising ideas,' for which there is at the very least the potential of coverage, and therefore Scottsdale's duty to defend is established as a matter of law.[ [1] ] Recognizing that the trial court's ruling on the motion for summary judgment disposed of the entire case, the parties stipulated to a final judgment against Scottsdale. In April 2001, the superior court entered a stipulated judgment. Scottsdale appealed, urging that advertising, as used in standard CGL policies covering advertising injury, was limited to widespread promotional activities directed to the public at large. ( Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1276, fn. 9, 10 Cal.Rptr.2d 538, 833 P.2d 545 ( Bank of the West ).) Hence, Scottsdale argued, advertising did not include one-on-one solicitation of individual customers through a competitive bidding process for tailor-made services. In a 2002 opinion, the Court of Appeal disagreed. It concluded that advertising could include MV's one-on-one business solicitations that used a common style and promotional information disseminated to more than one customer. The Court of Appeal thus found a potential for coverage giving rise to Scottsdale's duty to defend. It affirmed the judgment against Scottsdale. We granted Scottsdale's petition for review and held the case for Hameid v. National Fire Ins. of Hartford (2003) 31 Cal.4th 16, 1 Cal.Rptr.3d 401, 71 P.3d 761 ( Hameid ), then pending. In Hameid we adopted the language of Bank of the West, supra, 2 Cal.4th at page 1276, footnote 9, 10 Cal.Rptr.2d 538, 833 P.2d 545, quoted above, and interpreted advertising, as used in a standard CGL policy covering liability for advertising injury, to mean widespread promotional activities usually directed to the public at large. ( Hameid, supra, 31 Cal.4th 16, 24, 1 Cal.Rptr.3d 401, 71 P.3d 761.) We held that use of a competing hair salon's customer list to identify the competitor's clients, and to solicit them through mailers and telephone calls, did not constitute advertising under such a policy. Accordingly, we concluded that the insurer had no duty under its advertising injury clause to defend the competitor's suit seeking damages for harm caused by such activities. We noted we had no occasion to decide whether widespread promotional activities directed at specific market segments constitute advertising under the [standard] CGL policy. ( Id., at p. 24, fn. 3, 1 Cal.Rptr.3d 401, 71 P.3d 761, italics added.) We transferred this case to the Court of Appeal for reconsideration in light of Hameid. Upon reconsideration, the Court of Appeal concluded, contrary to its prior determination, that neither CGL policy issued by Scottsdale to MV afforded potential advertising injury coverage for MV's improper use of Laidlaw's trade secrets to prepare tailored competitive bids for specific urban transportation contracts, as alleged in the Laidlaw complaint. As to the first CGL policy, which used advertising injury language substantially identical to that construed in Hameid, supra, 31 Cal.4th 16, 1 Cal.Rptr.3d 401, 71 P.3d 761, the Court of Appeal directly applied Hameid to conclude that the policy did not cover solicitations of individual customers. As to the second CGL policy, which defined advertising as a notice . . . broadcast or published to the general public or specific market segments about [the insured's] goods, products or services for the purpose of attracting customers or supporters (italics added), the Court of Appeal reasoned that the Laidlaw complaint did not allege information was broadcast or published as the policy required. Though it concluded that neither Scottsdale policy ever afforded potential coverage of the Laidlaw suit, and that MV should not have tendered to Scottsdale its defense in the [Laidlaw] action (italics added), the Court of Appeal nonetheless ruled that Scottsdale could not recover fees and costs previously advanced toward MV's defense. The Court of Appeal reasoned that Scottsdale's defense duty arose and continued until extinguished by a judicial determination that no potential for coverage existed. In the Court of Appeal's view, Scottsdale's reimbursement claim was an unavailing attempt to terminate its defense duty retroactively. To limit its defense obligation, the Court of Appeal asserted, Scottsdale could have (1) denied MV a defense, thus risking a bad faith suit by MV, or (2) obtained a prompt declaration of its rights and duties while the Laidlaw action was still pending. Having failed to do either, the Court of Appeal held, Scottsdale could not recover defense costs already advanced. We granted Scottsdale's petition for review. We now agree with Scottsdale that the Court of Appeal erred in its analysis of the reimbursement issue. The Court of Appeal ruled, as a matter of law, that Scottsdale never had a duty to defend MV in the Laidlaw action. Accordingly, Scottsdale is entitled to reimbursement of the costs and expenses it advanced, under a reservation of rights, toward the defense of that action on behalf of MV. To the extent the Court of Appeal denied such reimbursement, we will therefore reverse its judgment. [2]