Opinion ID: 1348149
Heading Depth: 2
Heading Rank: 2

Heading: Whether USF & G had a Duty to Defend.

Text: On appeal, Doron argues that the district court erred in holding that USF & G did not owe a duty to defend because Doron's complaint reveals a potential for liability for advertising injury arising out of infringement of copyright. After reading Doron's complaint broadly, we conclude that the complaint does present a potential for liability, thus, giving rise to USF & G's duty to defend. An insurer's duty to defend arises upon the filing of a complaint whose allegations, in whole or in part, read broadly, reveal a potential for liability that would be covered by the insured's policy. Kootenai County v. Western Cas. & Sur., 113 Idaho 908, 910, 750 P.2d 87, 89 (1988) (quoting State of Idaho v. Bunker Hill Co., 647 F.Supp. 1064, 1068 (D.Idaho 1986)) (emphasis in original). Where there is doubt as to whether a theory of recovery within the policy coverage has been pleaded in the underlying complaint, or which may be included in the underlying complaint, the insurer must defend regardless of possible defenses arising under the policy or potential defenses arising under substantive law governing the claim against the insured. Id. An insurer seeking to establish that it has no duty to defend confronts a difficult burden since, at this stage, any doubts as to coverage must be resolved in favor of the insured. Continental Cas. Co. v. Brady, 127 Idaho 830, 833, 907 P.2d 807, 810 (1995). In the case at hand, the insurance policy states that USF & G will provide commercial liability insurance to Denison, which includes coverage for Advertising Injury. USF & G will pay those sums that Denison becomes obligated to pay because of advertising injury, to which the coverage part applies. Moreover, USF & G will have the right and duty to defend any suit seeking such advertising injury damages. The policy goes on to define advertising injury as injury arising out of infringement of copyright, title or slogan. Doron's complaint contained the following relevant allegations: 10. Plaintiff Doron is the owner of all rights, title and interest in the following registered copyrighted works: Wave Blaster; Alpine Challenge; Thriller Run II; Motorcycle Madness; Manhattan Magic; Golden Gate Thrills; Dune Buggy Blast; and Crazy Cart Caper. . . . 16. Beginning possibly as early as 1989 and at various times since that time, continuing until the present, Defendants and each of them have infringed, and continue to infringe Doron's copyrights by copying and placing on the market computer programs and films corresponding to the aforementioned Doron copyrighted works in violation of the rights of Doron secured by the provisions of 17 U.S.C. § 106 and other provisions of the Copyright Act. 17. On or about October 10, 1992, Defendant Denison's Inc. shipped to L.A.R. Enterprises of Farmington, New Mexico, unauthorized and infringing copies of various works, the copyrights for which are exclusively owned by Plaintiff. 18. On or about August 2, 1993, Defendant Denison's Inc. shipped to L.A.R. Enterprises of Farmington, New Mexico, unauthorized and infringing copies of various works, the copyrights for which are owned exclusively by Plaintiff. 19. Plaintiff has recovered various infringing copies described herein at paragraphs 17 and 18 through a civil action brought in the United States District Court for the District of New Mexico. 20. Defendants and each of them, respectively, have infringed Doron's copyrights by copying, selling, giving or otherwise providing copyrighted works to third parties. 21. Upon information and belief, Defendants and each of [them] have in the past shown and displayed and continue to show and display plaintiff's copyrighted works in the State of Idaho. In short, Doron's complaint alleged that Denison violated Doron's copyrights regarding certain films and computer programs by copying such material, by placing the material on the market, by selling or giving away such material, and by showing and displaying such material. Although the allegations do not directly state that the copyright infringement occurred in the course of advertising, these allegations in the complaint, when read broadly, reveal a potential for liability under the insurance policy. Specifically, the allegations that Denison showed and displayed the copyrighted materials, and placed the materials on the market, gave rise to the potential that Denison's copyright infringement activities were related to or connected with advertising. Where there is doubt as to whether the complaint sufficiently alleged advertising injury, USF & G must defend regardless of its potential defenses. Bunker Hill, 647 F.Supp. at 1068. We recognize the daunting task that an insurer faces in determining whether the insurance policy covers such broad ambiguous claims contained in the complaint. However, the proper procedure for the insurer to take is to evaluate the claims and determine whether an arguable potential exists for a claim covered by the policy; if so, then the insurer must immediately step in and defend the suit. At the same time if the insurer believes that the policy itself provides a basis, i.e., an exclusion, for non-coverage, it may seek declaratory relief. However, this does not abrogate the necessity of defending the lawsuit until a determination of noncoverage is made. The insurer should not be allowed to guess wrong as to the potential for coverage. Id. See also Hirst v. St. Paul Fire & Marine Ins. Co., 106 Idaho 792, 683 P.2d 440 (Ct. App.1984). Here, the insurance policy defined advertising injury as injury arising out of infringement of copyright. USF & G took the stance that the policy only covered copyright infringement arising in the course of advertising. However, USF & G narrowly determined the breadth of the policy. The policy provides that advertising injury includes injury arising out of copyright infringement, and does not state any restriction that it only applies to copyright infringement arising in the course of advertising. Thus, whether such copyright infringement is a form of advertising injury reveals a potential for liability, and USF & G was not in the position to guess wrong as to the potential for coverage. We hold that USF & G breached its duty to defend.