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AMERICAN ECONOMY INS. CO. v. REBOANS

May 2, 1994

AMERICAN ECONOMY INSURANCE COMPANY, et al., Plaintiffs,
v.
REBOANS, INC., et al., Defendants.


Caulfield


The opinion of the court was delivered by: BARBARA A. CAULFIELD

Plaintiff American Economy Insurance Company and American States Insurance Company (hereinafter referred to collectively as "American States") filed this action seeking a declaratory judgment that it has no duty to defend or indemnify its insured, Reboans, Inc. or Reboans, Inc.'s subsidiary stores, Nikaido, Heiseido, and America-Ya, in an action filed against them, their sole shareholder Charles W. Bogar (Reboans, Inc., Mr. Bogar and the stores are hereinafter referred to collectively as "Reboans"), and his wife Jo Ann Bogar by Hunting World, Incorporated ("the underlying action"). This matter comes before the court on the parties' cross-motions for summary judgment. After careful consideration of the parties' oral and written arguments, American States' motion for summary judgment is GRANTED, and Reboans' motion is DENIED.

 BACKGROUND

 A. Factual History

 Charles W. Bogar is the sole shareholder of Reboans, Inc. Reboans, Inc. and its subsidiary retail stores, Nikaido, Heiseido, and America-Ya, specialize in the import, export, and retail sale of famous brand name merchandise, catering especially to Japanese tourists. On April 22, 1992, Hunting World filed suit in federal district court against Reboans, alleging that Reboans was selling counterfeit Hunting World products. The first amended complaint sets forth six causes of action against Reboans: federal trademark infringement, federal trademark counterfeiting, and false representations and designation of origin in violation of the Lanham Act, 15 U.S.C.A. §§ 1114(1) & 1125(a) (West 1963 & Supp. 1993); violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.A. §§ 1961-1968 (West 1984 & Supp. 1993); unfair competition in violation of Cal. Bus. & Prof. Code § 17202 (Deering 1976 & Supp. 1992); and injury to business reputation and dilution in violation of Cal. Bus. & Prof. Code § 14330 (Deering 1976 & Supp. 1992) There is also a cause of action pleaded against Mr. Bogar and his wife for fraudulent transfer in violation of Cal. Civ. Code §§ 3439-3439.12 (Deering 1984 & Supp. 1992).

 Reboans had purchased a commercial general liability ("CGL") insurance policy from American States in 1989, and on May 4, 1992, Reboans tendered its defense costs in the Hunting World lawsuit to American States. American States rejected the tender on July 2, 1992, and Reboans sought reconsideration. American States again denied coverage, and then filed this declaratory relief action.

 B. The Policy Provisions

 Under the policy, American States is obligated to "pay those sums that the insured becomes legally obligated to pay as damages because of 'personal injury' or 'advertising injury,'" and "to defend any 'suit' seeking those damages."

 Advertising injuries must arise out of an enumerated offense committed in the course of advertising the insured's goods, products, or services. The policy enumerates the following offenses:

 
a. Oral or written publication of material that slanders or libels a person or organization or disparages a person or organization's goods, products or services;
 
b. Oral or written publication of material that violates a person's right of privacy;
 
c. Misappropriation of advertising ideas or style of doing business; or
 
d. Infringement of copyright, title or slogan.

 The policy also lists some explicitly excluded offenses, none of which are relevant to this case.

 LEGAL STANDARD

 Where the interpretation of a writing is at the heart of a dispute, the question is one of law. Allstate Ins. Co. v. Miller, 743 F. Supp. 723, 724 (N.D. Cal. 1990). Under California law, insurance contracts are construed so as to give effect to "the mutual intention of the parties at the time the contract [was] formed." AIU Ins. Co. v. Superior Ct., 51 Cal. 3d 807, 821, 274 Cal. Rptr. 820, 799 P.2d 1253 (1990). In determining whether the parties intended an insurance policy to cover specific acts, courts look first to the language of the policy, reading terms in context and in their "ordinary and popular sense." Bank of the West v. Superior Court, 2 Cal. 4th 1254, 833 P.2d 545 (1992) (quoting Cal. Civ. Code § 1644); accord AIU Ins. Co., 51 Cal. 3d at 822. "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." Cal. Civ. Code § 1637 (Deering 1971). If the language is ambiguous or involves an absurdity, courts interpret the language "in the sense in which the promisor believed, at the time of making it, that the promisee understood it." Cal. Civ. Code § 1649 (Deering 1971) (quoted in Bank of the West, 4 Cal. 4th at 1265). "This rule, as applied to a promise ...


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