The opinion of the court was delivered by: SPENCER WILLIAMS
Plaintiff State Farm Insurance Company ("State Farm") brought this action against Sheila Antenucci d/b/a Santa Clara Dental Lab, Sheila Antenucci and Pia Long (referred to collectively as "Santa Clara Dental") seeking a declaratory judgment that it has no duty to defend or indemnify Santa Clara Dental in a patent infringement claim brought against the lab by Yukiyo, Ltd., another defendant in this action. State Farm moves for summary judgment. In addition to opposing the motion, Santa Clara Dental requests a four month stay of this action. Yukiyo, Ltd. filed no opposition to State Farm's motion. For the reasons expressed below, State Farm's motion for summary judgment is GRANTED; and Santa Clara Dental's request for a stay is DENIED.
In 1987, State Farm issued a Comprehensive General Liability insurance policy (No. 97-59-7278-9) to Santa Clara Dental, a dental prosthetics laboratory. In June 1993, Yukiyo contacted Santa Clara Dental and charged it with infringing Yukiyo's patented process for manufacturing porcelain veneers. In response, Santa Clara Dental contacted State Farm to obtain insurance coverage for the claim. While State Farm was evaluating its duty to provide a defense and indemnification, Yukiyo filed a patent infringement action against Santa Clara Dental in this Court. In addition to its claim against Santa Clara Dental, Yukiyo brought separate actions against a number of other dental labs alleging similar infringing activity.
After the Yukiyo action was filed, State Farm retained counsel to represent Santa Clara Dental and other dental laboratories involved in patent infringement litigation with Yukiyo, subject to a reservation of rights. In June 1994, the Judicial Panel on Multidistrict Litigation ordered those actions consolidated before Judge Ware. Last month, Judge Ware appointed lead counsel for all the defendants in the underlying cases, but deferred ruling on defendants' motion for an order certifying a defendant class of dental laboratories. Judge Ware also ordered the dental laboratories to file a motion for summary judgment by January 20, 1995 as to the validity of Yukiyo's patent.
Summary judgment is appropriate where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears "the initial responsibility of informing the district court of the basis for its motion . . . ." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). To satisfy this burden, the moving party must demonstrate that no genuine issue of material fact exists for trial. Id. at 322, 106 S. Ct. at 2552. However, the moving party is not required to negate those portions of the nonmoving party's claim on which the nonmoving party bears the burden of proof. Id. at 323, 106 S. Ct. 2553.
Once the moving party demonstrates that there is no genuine issue of material fact, the nonmoving party must designate "'specific facts showing that there is a genuine issue for trial.'" Id. at 324, 106 S. Ct. at 2553 (quoting Fed.R.Civ.P. 56(e)). The nonmoving party must "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322, 106 S. Ct. at 2552.
As this is a diversity action, the substantive law of California applies. St. Paul Fire & Marine Ins. Co. v. Weiner, 606 F.2d 864, 867 (9th Cir. 1979). In California, an insurer must furnish a defense if the complaint in the underlying action contains language, or extrinsic facts reasonably available to the insurer at the time of the tenders for defense, create the potential of liability under its policy. Gray v. Zurich Ins. Co., 65 Cal.2d 263, 275-277, 54 Cal.Rptr. 104, 112-113, 419 P.2d 168 (1966); CNA Casualty of California v. Seaboard Surety Co., 176 Cal.App.3d 598, 605, 222 Cal.Rptr. 276, 279 (1986). Questions concerning the scope of coverage must be resolved against the insurer to afford the greatest possible protection to the insured. State Farm Mutual Auto. Ins. Co. v. Partridge, 10 Cal.3d 94, 101, 109 Cal.Rptr. 811, 816, 514 P.2d 123 (1973). Where the terms and conditions of an insurance policy constitute the entire agreement between the parties, its interpretation is essentially a question of law, particularly well-suited for summary judgment. See St. Paul Fire & Marine, 606 F.2d at 867; Stearns v. Title Ins. & Trust Co., 18 Cal.App.3d 162, 166, 95 Cal.Rptr. 682, 684 (1971).
Yukiyo contends that it is entitled to summary judgment because there is no coverage under any of the policy provisions. Santa Clara Dental does not dispute this contention. Rather, it argues that (1) equitable considerations obligate State Farm to provide a defense; (2) State Farm waived its coverage defenses by settling another one of Yukiyo's actions; and (3) the action should be stayed pending Judge Ware's resolution of the defendant laboratories' motion for class certification and motion for summary judgment.
In support of its first two arguments, Santa Clara Dental contends that State Farm had a duty to make reasonable settlement offers and failed to do so, putting Santa Clara Dental in a worse position than it otherwise would have been had State Farm settled the matter soon after receiving notification of the claim. The laboratory also notes that State Farm settled a similar Yukiyo claim against another dental laboratory (the "Watanabe matter") but has chosen to contest coverage for all other claims.
Santa Clara Dental's arguments are unpersuasive. An insurer's duty to defend obligates it to negotiate and evaluate settlement offers and to accept a reasonable settlement offer within policy limits if it is likely that judgment against the insured will exceed policy limits. Johansen v. California State Auto. Ass'n Inter-Ins. Bureau, 15 Cal.3d 9, 16, 123 Cal.Rptr. 288, 292, 538 P.2d 744 (1975); Travelers Ins. Co. v. Lesher, 187 Cal.App.3d 169, 188, 231 Cal.Rptr. 791, 799 (1986). A coverage dispute between the insurer and the insured does not affect these duties. Johansen, 15 Cal.3d at 16, 123 Cal.Rptr. at 292-293; Travelers, 187 Cal.App.3d at 188, 231 Cal.Rptr. at 799. Santa Clara Dental offers no evidence that State Farm failed to carry out these duties. Furthermore, nothing in the record suggests that State Farm unreasonably refused an offer by Yukiyo to settle the Santa Clara Dental claim. Given that all discovery in the Yukiyo action was stayed pending resolution of the class certification issues, see Declaration of Preston DuFauchard, Jr., Ex. H, ...