Everest and Jennings, Inc. v. American Motorists Insurance Company
Docket: 92-56351
Court: Court of Appeals for the Ninth Circuit; April 13, 1994; Federal Appellate Court
Burke Incorporated, a wheelchair manufacturer, sued Everest and Jennings (E.J.) for patent infringement concerning the 'CARRETTE Scooter.' E.J. sought defense and indemnification from its insurer, American Motorists Insurance Company (AMICO), but AMICO declined based on the assertion that the insurance policy's advertising injury and personal injury provisions did not apply to patent infringement claims. E.J. subsequently filed a lawsuit for a declaratory judgment regarding AMICO's obligations, along with claims for breach of contract and breach of an implied covenant of good faith and fair dealing.
The district court ruled in favor of AMICO, determining that it had no duty to defend or indemnify E.J. because the claims did not fall under the specified provisions of the insurance policy. E.J. appealed, arguing that the district court erred by concluding that the advertising injury provision did not cover patent infringement and by dismissing the case without considering the personal injury provision. The Ninth Circuit Court of Appeals affirmed the district court's decision, agreeing that there was no potential for coverage under either provision.
Review of a district court's dismissal for failure to state a claim is conducted de novo, applying the same standard as the district court. Facts presented by the nonmoving party are accepted, and all inferences are drawn in their favor to determine if the plaintiff can prove any set of facts supporting their claim. In this diversity action, California law governs the proceedings. E. J argues that Burke's patent infringement claim falls under the 'advertising injury' provision of the AMICO policy, which covers injuries arising from offenses committed during advertising, including misappropriation of ideas and copyright infringement. The key issue is whether E. J had a reasonable expectation of AMICO’s duty to defend or indemnify in the Burke action.
California law stipulates that an insurer's duty to defend is broader than its duty to indemnify; as long as the complaint suggests a potential liability under the policy, the insurer must provide a defense. However, it was concluded that E. J could not reasonably expect coverage, and thus AMICO had no obligation to defend or indemnify. To compel coverage under the advertising injury provision, there must be a causal connection between the plaintiff's claim and the insured's advertising. In the referenced Iolab case, the court affirmed that the insured’s policy did not cover the patent infringement claim since it was not connected to advertising activities. The statutory definition of patent infringement focuses on the making, using, or selling of a product, not advertising, meaning that unless the claim explicitly involved advertising, it would not be covered by the policy.
E. J's advertising was not covered under its insurance policy with AMICO for the patent infringement claims brought by Burke. E. J argued that Burke's complaint implicitly involved its advertising, citing that Burke discovered the infringement through E. J's advertising, attempted to quantify damages based on E. J's advertising efforts, and that E. J's advertising aimed to boost sales of the Scooter. However, the court found no causal link between E. J's advertising and Burke's infringement claim, as Burke did not allege that E. J's advertising was the cause of the infringement. Consequently, E. J could not reasonably expect coverage under the advertising injury provision.
E. J also claimed that the personal injury provision of the policy required defense and indemnity due to Burke's patent infringement implying disparagement of title. AMICO countered that patent infringement does not fall within the personal injury definition of disparagement under the policy. The district court agreed with AMICO, stating that accepting E. J's interpretation would expand coverage beyond what the policy intended. Ultimately, the court concluded that AMICO had no duty to defend or indemnify E. J in the underlying suit, affirming the district court's judgment.
E. J's insurance policy from AMICO, a standard 'Commercial General Liability' contract, obligates AMICO to pay damages for 'personal injury' or 'advertising injury' and provides a duty to defend related lawsuits. 'Advertising injury' includes misappropriation of advertising ideas or infringement of copyright, while 'personal injury' involves non-bodily injury from disparaging publications about a person's or organization's products. The appeal related to Burke, Inc. v. Everest, Jennings, Inc. is pending. The court concluded that AMICO has no duty to defend or indemnify E. J, rendering E. J's claims of breach of contract and good faith moot. The motion to dismiss under Fed. R.Civ. P. 12(b)(6) also requested summary judgment under Fed. R.Civ. P. 56(b), and the trial court's consideration of materials beyond the pleadings led to a summary judgment dismissal.
