Opinion ID: 2513961
Heading Depth: 1
Heading Rank: 5

Heading: Did Hameid's Activities Constitute Advertising Under the National CGL Insurance Policy?

Text: The parties do not dispute that KWP's alleged injuries occurred during the time National's policy was in effect. They do, however, disagree on (1) whether Hameid was involved in advertising, and (2) whether KWP's allegations gave rise to a potential for coverage under the advertising injury policy provision. If we assume that taking trade secrets in the form of a customer list is an offense that may inflict advertising injury, we must then decide whether the offense occurred in the course of Hameid's advertising his salon's goods or services. In other words, does solicitation of customers from a customer list constitute advertising within the meaning of the CGL policy, and, if so, did the alleged advertising activity cause advertising injury? The meaning of advertising in a CGL insurance policy has presented a problem for courts interpreting coverage. In Bank of the West, supra, 2 Cal.4th at page 1276, footnote 9, 10 Cal.Rptr.2d 538, 833 P.2d 545, we interpreted a pre-1986 version of the CGL insurance policy. It covered advertising injury arising out of an offense that occurred during the course of the insured's advertising activities. ( Id. at p. 1262, 10 Cal.Rptr.2d 538, 833 P.2d 545.) We observed that, when interpreting CGL insurance policies, courts have disagreed on the question of what constitutes `advertising'.... Most of the published decisions hold that `advertising' means widespread promotional activities directed to the public at large. ( Ibid. ) Although we did not decide the meaning of the term because the question was not before us, Bank of the West acknowledged that only a sparse minority of federal district court cases hold that the term `advertising' can also encompass personal solicitations. ( Id. at p. 1276, 10 Cal.Rptr.2d 538, 833 P.2d 545; see Foxfire, supra, 820 F.Supp. at p. 494; American States Ins. Co. v. Canyon Creek (N.D.Cal.1991) 786 F.Supp. 821; and John Deere Ins. Co. v. Shamrock Industries, Inc. (D.Minn.1988) 696 F.Supp. 434 ( John Deere ).) Here, the Court of Appeal questioned Bank of the West's statement that most courts have defined advertising to mean widespread promotional activities directed to the public at large. The court relied on Foxfire, supra, 820 F.Supp. at page 494, which opined that whether an insured's activity is advertising under a CGL insurance policy hinges on the context of the overall universe of customers to whom a communication may be addressed. Foxfire commented that [w]here the audience may be small, but nonetheless comprises all or a significant number of a competitor's client base, the advertising activity requirement is met.... [W]here the business is one with a small customer base and that base, or a significant part of it, is the target audience, the reach is extensive enough to constitute advertising injury. (Ibid.; accord, Amway Distribs. Benefits Ass'n v. Federal Ins. Co. (W.D.Mich.1997) 990 F.Supp. 936, 945 [advertising comes in many forms and may differ in scope from business to business, depending on the product, the size of the company, the company's marketing system, or the size of the target market]; New Hampshire Ins. Co. v. R.L. Chaides Constr. Co., Inc. (N.D.Cal. 1994) 847 F.Supp. 1452, 1456 (Chaides) [[advertising activity must be examined in the context of the overall universe of customers to whom a communication may be addressed; to hold otherwise would effectively preclude small businesses ... from ever invoking their rights to coverage for advertising injury liability].) The Court of Appeal also relied on Peerless, supra, 82 Cal.App.4th at pages 1008-1009, 98 Cal.Rptr.2d 753, which questioned whether widespread promotional activities in fact [was] the rule adopted by a majority of published opinions. (Ibid.) Peerless, however, does not support the Court of Appeal's analysis. Peerless actually held that an insured's participation in a competitive bidding process on a single product involving a single customer did not constitute advertising under the CGL insurance policy and rejected a duty to defend. ( Ibid.) Peerless discussed several cases interpreting the advertising injury coverage and suggested that a majority of other jurisdictions do require widespread advertising to the public. Peerless also observed that only a few federal courts interpret advertising injury coverage to apply to personal solicitations to a limited number of individual customers. ( Id. at pp. 1008-1010, 98 Cal.Rptr.2d 753 [citing several cases following the widespread promotion approach, including Select Design Ltd. v. Union Mut. Fire Ins. (1996) 165 Vt. 69, 674 A.2d 798 ( Select Design) ]. ) Contrary to Foxfire, we prefer the majority approach as stated in Bank of the West, supra, 2 Cal.4th at page 1276, 10 Cal.Rptr.2d 538, 833 P.2d 545, and interpret the term advertising as used in CGL policies to mean widespread promotional activities usually directed to the public at large. [3] The definition reflects the commonly understood meaning of the word. [4] As noted, a majority of the other jurisdictions that have considered the question have come to a similar conclusion. In Select Design, supra, 165 Vt. 69, 674 A.2d 798, the insured sought a defense after being sued for allegedly using proprietary information, including a customer list that a competitor's former employee provided, to solicit the competitor's customers. The insured's CGL insurance policy provided coverage for advertising injury. ( Id. at p. 799.) The Vermont Supreme Court stated that the majority view defined advertising as widespread distribution of promotional material to the public at large partially because the majority read the policy provisions according to their plain, ordinary meaning. ( Id. at pp. 801-803.) The court reasoned that defining advertising to include customer solicitations would stretch too far: If the act of contacting potential customers is advertising for the purposes of the policy, then any dispute related to economic competition among businesses is covered by the policy provision for advertising injury. ( Id. at p. 803.) Thus, the court held that solicitation of the competitor's customers did not constitute advertising under the CGL insurance policy. ( Id. at p. 802.) In Monumental Life Ins. Co. v. U.S. Fidelity & Guaranty Co. (1993) 94 Md. App. 505, 617 A.2d 1163, the insured was accused of mailing recruiting letters to a competitor's employees and courting a competitor's customers with a personal solicitation that caused many of them to defect. When the insured sought a defense under the advertising injury coverage of its CGL insurance policy, the trial court determined the insured's alleged activities were not advertising. The Maryland Court of Special Appeals affirmed. It distinguished between advertising and solicitation, stating that [t]he lower court clearly viewed advertising and solicitation as mutually exclusive, the difference being that advertising must be of a public nature. (Id. at p. 1173.) The Court of Appeals agreed with the lower court that there is no bona fide ambiguity in the language of the policies at issue, nor is there any legitimate doubt as to its application under the circumstances. `Advertising' means advertising, i.e., `widespread distribution or announcements to the public' Consequently, Monumental's individual, one-to-one solicitations were clearly not `advertising' within the normal meaning of the word and, accordingly, the lower court acted properly. (Id. at p. 1174.) A federal district court applying Virginia law similarly recognized that advertising means widespread distribution of promotional material to the public at large. ( Solers, Inc. v. Hartford Cos. his. Co. (E.D.Va.2001) 146 F.Supp.2d 785, 795 ( Solers ).) In Solers, a subcontractor sought a defense under the advertising injury provision of its liability insurance policy after allegedly using proprietary information to submit bids on two government contracts. The insured claimed that [widespread public dissemination of solicitation material is not appropriate for [its] business, and that its only advertising mechanism is the submission of written business proposals. (Id. at p. 790.) Thus, the insured asserted that the [c]ourt must find that the proposals constitute advertising because to hold otherwise on the grounds that the proposals are not directed at the public at large would be to hold that companies with small, but well-defined markets cannot, as a matter of law, engage in advertising. ( Ibid. ) The district court rejected the insured's contention, holding that the subcontractor's bids were not covered by the [p]olicy because such submissions were not 'widespread distribution of promotional material to the public at large.' ( Solers, supra, 146 F.Supp.2d at p. 790, quoting Playboy Enterprises, Inc. v. St. Paul Fire & Marine Ins. Co. (7th Cir.1985) 769 F.2d at pp. 428-429 [applying Illinois law].) The district court also pointed out that small businesses are not limited to insurance coverage for claims based in `advertising injury' for the protection of their profession. Small businesses may obtain broad coverage by purchasing several forms of insurance, including coverage for errors and omissions liability, directors and officers liability, and completed operations and products liability. ( Solers, supra, 146 F.Supp.2d at p. 796, fn. 2.) There is no evidence in this action that Hameid obtained any such small business insurance coverage that may have assisted him in defending the KWP action. Massachusetts, Missouri, Illinois, and Kansas have also defined advertising as widespread promotional activities directed to the public at large. [5] (See Smartfoods, Inc. v. Northbrook Property & Cas. Co. (1993) 35 Mass.App.Ct. 239, 618 N.E.2d 1365, 1368 (Smartfoods ) [affirming judgment that insurer owed no duty to defend when insured allegedly solicited distributors by mail because [w]ide dissemination of information is typically the objective of advertising]; American States Ins. Co. v. Vortherms (Mo.Ct.App. 1999) 5 S.W.3d 538, 542 [affirming determination based on numerous cases as authority for holding `advertising' involves the widespread distribution of promotional material to the public at large]; Intern'l Ins. Co. v. Florists' Mut. Ins. Co. (1990) 201 Ill.App.3d 428, 147 Ill.Dec. 7, 559 N.E.2d 7, 10 [stating the term `advertising' has been held to refer to the widespread distribution of promotional material to the public at large]; MGM, Inc. v. Liberty Mut. Ins. Co. (1992) 17 Kan. App.2d 492, 839 P.2d 537, 540 [We find that, in sum, the term `advertising' as used in Liberty Mutual's policy means public or at least widely disseminated solicitation or promotion].) [6] Recent decisions interpreting California law also apply the majority definition of advertising. The Seventh Circuit, applying California law, concluded individual solicitations are not advertising because California would not depart from the normal understanding of `advertising.' ( Zurich Ins. Co. v. Amcor Sunclipse N.A., supra, 241 F.3d at p. 608 ( Amcor Sunclipse ); see also El-Com Hardware, Inc. v. Fireman's Fund Ins. Co. (2001) 92 Cal. App.4th 205, 217, 111 Cal.Rptr.2d 670 [commonly understood meaning of the term advertising is widespread promotional activities]; Ziman v. Fireman's Fund Ins. Co. (1999) 73 Cal.App.4th 1382, 1388-1389, 87 Cal.Rptr.2d 397 [insured could not reasonably have thought painting placed in lobby of building to attract new tenants fell under advertising injury coverage].) In addition to propounding Foxfire's minority view, Hameid asks us to adopt the approach taken in John Deere, supra, 696 F.Supp. 434. In John Deere, a Minnesota district court held that three letters extolling the virtues of a pail-filling machine constituted advertising. The district court noted that [w]hile activity directed at one customer seems to stretch the meaning of advertising, Black's Law Dictionary's definition of `advertise' encompasses any form of solicitation, presumably including solicitation of one person. ( Id. at p. 440.) Mirroring this argument, Hameid contends that [advertising is defined by Black's Law Dictionary as: `To advise, announce, apprise, command, give notice of, inform, make known, publish. To call a matter to public attention by any means whatsoever. Any oral, written, or graphic statements made by the seller in any manner in connection with the solicitation of business and includes: ... statements and representations ... contained in any notice, handbill, sign, catalog, or letter.' National points out, however, that the most recent edition of Black's Law Dictionary has deleted the sentences on which both Hameid and the John Deere court rely. (See Black's Law Diet. (7th ed.1999) p. 55 [defining advertising as [t]he action of drawing the public's attention to something to promote its sale or [t]he business of producing or circulating advertisements].) [7] Black's less expansive definition, and its use of the words public attention, indicate that advertising does not encompass personal solicitations. In addition, Smartfoods, supra, 618 N.E.2d at page 1368, criticized John Deere, calling it unpersuasively reasoned and noting that [w]e doubt that every pitch made by one businessman in a letter to another constitutes advertising as the word is understood in American usage. Thus, John Deere, which frankly acknowledged that its interpretation seemed to stretch the meaning of advertising, offers Hameid little support. [8] ( John Deere, supra, 696 F.Supp. at p. 440.) Hameid also relies on Ford Dealers Assn. v. Dept. of Motor Vehicles (1982) 32 Cal.3d 347, 355, 185 Cal.Rptr. 453, 650 P.2d 328 ( Ford Dealers ) and its definition of advertising found in a regulation promulgated under the Vehicle Code. As defendant National observes, Ford Dealers reviewed an administrative regulation the Department of Motor Vehicles adopted under the former Administrative Procedure Act to address vehicle licensing and business. As National also observes, Ford Dealers recognized that its role was a limited one that involved inquiring into a regulation's validity, not its wisdom. ( Ford Dealers, supra, 32 Cal.3d at p. 355, 185 Cal.Rptr. 453, 650 P.2d 328.) The Legislature amended Vehicle Code section 11713 to make it unlawful for an auto dealer to `make or disseminate ... before the public ... in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, any statement which is untrue or misleading.' ( Ford Dealers, supra, 32 Cal.3d at p. 357, 185 Cal.Rptr. 453, 650 P.2d 328.) As National points out, Ford Dealers upheld the administrative regulation that defined advertising in the broad context of Vehicle Code Section 11713[, subdivision] (a) to include statements communicated to the public. ( Ford Dealers, supra, 32 Cal.3d at p. 356, 185 Cal.Rptr. 453, 650 P.2d 328.) Initially, we note that we do not find compelling the interpretation of regulations in a statutory context like the Vehicle Code rather than an insurance context. (See, e.g., Bluehawk v. Continental Ins. Co. (1996) 50 Cal.App.4th 1126, 1131-1132, 58 Cal.Rptr.2d 147.) But as National also observes, the challenged regulation also provided, that advertising refers to a `statement, representation, act or announcement intentionally communicated to the public generally for the purpose of arousing desire to buy or patronize.'  ( Ford Dealers, supra, 32 Cal.3d at p. 357, 185 Cal.Rptr. 453, 650 P.2d 328.) Thus, even under Ford Dealers, the common understanding of the term advertising includes its public character. Finally, we consider the approach the Foxfire court itself took. ( Foxfire, supra, 820 F.Supp. at p. 494.) As mentioned, Foxfire held that courts should determine whether activities are advertising on a case-by-case basis, noting to whom the promotions are directed. ( Ibid. ) We disagree. Due to the pervasiveness of CGL insurance policies, and of advertising, if we adopted Foxfire's malleable definition, we likely would encourage litigation. Giving identical policy language different meanings for different insureds would eliminate the clarity and certainty that is essential to the insurance industry. Standardization of policy terms is important to insurers and insureds alike. It enables insurers to compare losses and calculate rates and premiums so that rates remain stable and not based on destabilizing ad hoc views of a particular coverage. It also gives effect to the parties' mutual intent as it existed at the time of contracting, so far as that intent is ascertainable and lawful. (Civ.Code, § 1636.) In other words, the majority view defines advertising to mean the widespread distribution of promotional materials to the public at large because it interprets the contractual term under its ordinary and popular meaning. It allows uniformity in interpretation under different factual circumstances that may or may not lead to coverage. (See Amcor Sunclipse, supra, 241 F.3d at p. 608 [concluding individual solicitations are not advertising because California would not depart from the normal understanding of the term].) Because the parties' mutual intention is to be inferred, if possible, solely from contract's written provisions, the clear and ordinary meaning of those terms should control our interpretation. (See AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d at pp. 821-822, 274 Cal.Rptr. 820, 799 P.2d 1253.) In addition, we are not persuaded by Foxfire's assertion that adopting the majority approach would effectively preclude small businesses ... from ever invoking their rights to coverage for advertising injury liability. ( Foxfire, supra, 820 F.Supp. at p. 494; see also Chaides, supra, 847 F.Supp. at p. 1456.) Under the proposed definition of advertising, small businesses like Hameid's may still rely on CGL coverage for advertising injury if they place spots on the radio or television, buy space on billboards or bus benches, or take out advertisements in newspapers directed to the public at large, and their content caused advertising injury. Therefore, we conclude that excluding personal solicitations from the definition of advertising in the CGL insurance policy will not foreclose small businesses from invoking their rights under CGL insurance policies or from otherwise purchasing insurance protection that does cover potential liability for such solicitations. ( Solers, supra, 146 F.Supp.2d at p. 795, fn. 2.) Here, KWP alleged Howard and Billington made telephone calls and sent mailers to Bellezza customers advising them of their new location and of Hameid's lower prices. These activities strongly resemble the solicitations of a competitor's customers in Select Design, supra, 674 A.2d at pages 801-803, the recruiting letters to a competitor's employees in Monumental Life Ins. Co. v. U.S. Fidelity & Guaranty Co., supra, 617 A.2d at page 1173, and the subcontractor's submission of bids in Solers, supra, 146 F.Supp.2d at page 795 all of which were held to be solicitation, not advertising. [9]