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Author(s): Stephen H. Sulmeyer and David A. Gauntlett

Source: Tort & Insurance Law Journal, Vol. 29, No. 2, Annual Survey of Tort and Insurance
Law (WINTER 1994), pp. 316-326
Published by: American Bar Association
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Stephen H. Sulmeyer and David A. Gauntlett

This article discusses recent federal and state case law developments in the area of
insurance coverage of intellectual property claims. By necessity the article discusses
cases that do not actually involve intellectual property but nevertheless will affect
resolution of coverage disputes in intellectual property litigation.


Perhaps the most highly publicized, if not the most important, insurance case in the
intellectual property arena to be decided in the last year is Bank of the West v. Superior
Court.1 This case, which expressly limits its focus to indemnity issues, may signal an end
to the comparatively liberal "California approach" to insurance policy interpretation in
intellectual property cases. This approach, dating back to CNA Casualty of California
v. Seaboard Surety Co.,2 usually finds that only a minimal causal connection is required
between "advertising" and resulting "injury" and that the various listed offenses which
constitute "advertising injury" are ambiguous. The ambiguous term is automatically
construed against the insurer,3 resulting in coverage for the insured.
The case underlying the coverage dispute involved a program developed by Bank
of the West to allow consumers to finance automobile insurance premiums through
installment payments. The bank did not advertise the program direcdy to consum
ers. Rather, the bank informed insurance agents of the program, promising to pay
commissions to agents who procured customers for the bank. When a consumer
requested an installment plan, the agent would ask for a down payment of 20%

1. 10 Cal. Rptr. 2d 538, 833 P.2d 545 (Cal. 1992).

2. 222 Cal. Rptr. 276 (Cal. Ct. App. 1986).
3. See Gray v. Zurich Ins. Co., 54 Cal. Rptr. 104, 107, 419 P.2d 168, 171 (Cal. 1966).

Stephen H. Sulmeyer is an intellectual property attorney in Santa Monica, California, and is

chair of the Intellectual Property Committee of the Tort and Insurance Practice Section. David A.
Gauntlett is a partner with Callaban & Gauntlett in Irvine, California, and is chair-elect of the
Intellectual Property Committee of the Tort and Insurance Practice Section.


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Intellectual Property Law 317

to 30%, obtain the consumer's power of attorney, and apply for a loan in the
customer's name. The customer eventually received notice from the Bank of the
loan's acceptance and its terms; but until receipt of such notice, many consumers
were unaware that a loan had been made or what the terms were, which included
substantial interest and penalties.
A consumer class action alleging violations of California's Unfair Business Prac
tices Act4 followed. The class action was eventually setded by the bank for $ 500,000
and a promise to change the program. The bank turned to its CGL carrier, Industrial
Indemnity Company, claiming that the setdement of the litigation constituted
"damages" for "unfair competition" that had occurred in the course of the bank's
"advertising activities." The California Supreme Court, following its earlier decision
in Chern v. Bank of America,5 held that the Unfair Business Practices Act does not
permit recovery of damages, but only injunctive and restitutionary relief, and that
there was therefore no coverage because the class action complaint did not seek
"damages" for "unfair competition," as required by the policy.
The problem came down to interpretation of certain terms in the policy. The
supreme court acknowledged that while the term "unfair competition" in the
abstract might be ambiguous, the term must be construed in the context of the
particular policy at issue.6 It held that in the context of an insurance policy which
provides for indemnification of damages caused by "unfair competition," that term
could not possibly include the Unfair Business Practices Act, because that act does
not provide for recovery of damages.7 The court stated:

If contractual language is clear and explicit, it governs. On the other hand, "[i]f the
terms of a promise are in any respect ambiguous or uncertain, it must be interpreted
in the sense in which the promisor believed, at the time of making it, that the promisee
understood it." This rule, as applied to a promise of coverage in an insurance policy,
protects not the subjective beliefs of the insurer but, rather, "the objectively reasonable
expectations of the insured." Only if this rule does not resolve the ambiguity do we
then resolve it against the insurer.8

Following this principle, the court found that the term "unfair competition," as
used in the policy, unambiguously referred to the common law tort of unfair
competition (which is limited, the court explained, to "palming off'). Because the
complaint did not allege, and could not be amended to allege, "palming off," it
upheld denial of indemnity.9

4. Cal. Bus. & Prof. Code ?? 17200 et seq.

5. 127Cal.Rptr. 110, 115,544P.2d 1310, 1315(Cal. 1976) (interpreting nearly identical language
in Cal. Bus. & Prof. Code ? 17535).
6. 10 Cal. Rptr. 2d at 545, 83 3 P.2d at 552.
7. Id.
8. Id. (citations omitted).
9. The court also justified at great length its finding that the term "damages" could not reasonably
be understood by the insured to include restitution or disgorgement. 10 Cal. Rptr. 2d at 546-51, 83 3
P.2d at 553-58. The court stated: "If insurance coverage were available for monetary awards under the

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318 Tort & Insurance Law Journal, Volume XXIX, Number 2, Winter 1994

The court also affirmed the insurance company's denial of coverage on the
alternative ground that the alleged damages did not have a sufficient causal connec
tion to the bank's "advertising activities." The court emphasized the fact that while
the alleged damages were suffered by consumers, the program, to the extent that
it was advertised at all, was advertised only to insurance agents. Even though the
bank's advertisements to the agents resulted in inadequately disclosed loans being
made to consumers, the court found the causal connection so remote as to constitute
no connection at all.10 The court concluded that the requirement of a causal connec
tion between an "advertising injury" and the policyholder's "advertising activities"
"best articulates the insured's objectively reasonable expectations about the scope
of coverage," and affirmed denial of coverage on this alternative theory as well.11
As mentioned above, this decision appears to depart markedly from the way in
which California courts previously interpreted arguably ambiguous language in insur
ance policies. Just how substantial a departure remains to be seen. Although some
commentators have argued that Bank of the West's influence will be limited to cases
alleging only claims of violation of the California Unfair Business Practices Act, there
are already indications that the case's narrow rule of construction and causation re
quirement will extend to intellectual property cases generally in California, and per
haps elsewhere.12 However, a number of courts have found that a duty of defense
arose from similar policies in a range of cases decided after the California Supreme
Court's ruling in Bank of the West, as discussed infra. The only fair conclusion to be
drawn from the decision is that the law in California is in a state of flux.


In this case the California Supreme Court clarified several critical propositions of
insurance coverage law as they apply to the determination of a duty of defense
following its decision in Bank of the West. The underlying case involved a minor's
claim seeking damages as a result of her junior high school teacher's sexual and
other misconduct. In a separate criminal proceeding, the teacher had pleaded nolo

Unfair Business Practices Act, a person found to have violated the act would simply shift the loss to
his insurer and, in effect, retain the proceeds of his unlawful conduct. Such a result would be inconsistent
with the act's deterrent purpose." 10 Cal. Rptr. 2d at 546, 833 P.2d at 553.
10. 10 Cal. Rptr. 2d at 551, 83 3 P.2d at 558.
11. 10 Cal. Rptr. 2d at 552, 83 3 P.2d at 559. In affirming denial of coverage, the court claimed
to be adhering to the fundamental axiom that the "goal of contractual interpretation is to give effect
to the mutual intention of the parties." 10 Cal. Rptr. 2d at 545, 83 3 P.2d at 552 (citing Cal. Civ.
Code ? 1638). While the court's eminendy reasonable and logical arguments might have been among
the objectively reasonable expectations of the average business lawyer, there is no discussion of how such
an intricate analysis might have entered the consciousness of the average consumer buying the subject
12. See, e.g., Standard Fire Ins. Co. v. People's Church of Fresno, 985 F.2d 446 (9th Cir. 1993);
Chatton v. National Union Fire Ins. Co., 13 Cal. Rptr. 2d 318, 1991 Cal. App. LEXIS 1267 (Cal.
Ct. App. 1992).
13. 17 Cal. Rptr. 2d 210, 846 P.2d 792 (Cal. 1993).

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contenders to a count of child molestation. The teacher's insurer, under an educa

tor's liability policy, accepted the defense under a reservation of rights, but then
filed a declaratory relief action, claiming it had no duty to defend on the grounds
that the policy excluded coverage of civil suits arising from criminal acts. In other
words, the insurer claimed that all damages sought in the civil suit were inextricably
related to the criminal molestation and therefore there was no coverage.
The supreme court reversed the trial court's grant of summary judgment in favor
of the insurer, reasoning that it was a disputed issue of fact as to whether the other
misconduct alleged in the complaint was part of the molestation. The court stated:

As of the time of the summary adjudication proceedings, there remained unresolved factual
disputes concerning [the teacher's] conduct apart from his molestation of Barbara. . . .
Although lacking in specificity, the complaint evinced a possibility that [the teacher] would
be hdd liable for damages within the coverage of the policy stemming from [the teacher's]
negligent nonsexual conduct in his public rdationship with Barbara.14

In reaching its conclusion, the court reaffirmed the principles governing the duty
to defend. First, facts extrinsic to the complaint may give rise to a duty to defend
when they reveal the possibility that the claim may be covered by the policy.15
Second, any doubt whether the facts give rise to a duty to defend are resolved in
the policyholder's favor.16 Third, the court does not look to whether non-covered
acts or claims predominate in the third party's action, but rather to whether there
is any potential for liability under the policy. Fourth, an insurer has a duty to defend
the entire third-party action if any claim encompassed within it potentially may be
covered until the insurer produces undeniable evidence supporting an allocation of
a specific portion of the defense costs to a non-covered claim. Fifth, the insurer's
duty to defend includes the obligation to defend the insured against groundless, false
or fraudulent claims. Sixth, no public policy forbids the defense of claims alleging
intentional acts because a contract to defend a policyholder upon mere accusation
of a willful act does not encourage such willful conduct.
Horace Mann stands out as a resounding reaffirmation of the protective holdings
of Gray v. Zurich Insurance Co.}1 notwithstanding a possible trend toward restricting
coverage and cutting back on the protection of policyholders for which the Califor
nia courts have justifiably gained a reputation.


A. Arbek Manufacturing Co. v. Select Insurance Co.18

Judge James M. Ideman of the United States District Court for the Central District
of California reiterated his earlier finding in Aqua Queen Manufacturing, Inc. v.

14. 17 Cal. Rptr. 2d at 215, 846 P.2d at 797.

15. Eg, Gray v. Zurich Ins. Co., 54 Cal. Rptr. 104, 419 P.2d 168 (Cal. 1966).
16. CNA Casualty v. Seaboard Surety Co., 222 Cal. Rptr. 276 (Cal. Ct. App. 1986).
17. 54 Cal. Rptr. 104, 419 P.2d 168 (Cal. 1966).
18. 28 U.S.P.Q.2d 1435 (BNA) (CD. Cal. 1993).

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320 Tort & Insurance Law Journal, Volume XXIX, Number 2, Winter 1994

Charter Oak Fire Insurance that "selling an infringing product is an infringement

occurring in the course of advertising."19
The patent in the underlying case covered a waterbed which consisted of a frame
mattress and heater. The defendant's products included bed frames. Its only exposure
was therefore for inducing or contributory, but not direct, patent infringement.
Nevertheless, claims of direct patent infringement were asserted against it. Ordering
the insurer to provide a defense, Judge Ideman reasoned: "[H]ere, like Aqua Queen,
Arbek's advertising activities were part and parcel of Arbek's sales, and selling an
infringing product is an infringement occurring in the course of advertising and
therefore covered by the policy as a type of advertising injury."

B. Omnitel v. Chubb Group20

In this case, the court granted summary judgment in favor of the insured, finding
a duty to defend in an underlying patent infringement lawsuit. The Alameda,
California, Superior Court held that patent infringement fell within the policy's
coverage for "unfair competition" and "piracy," notwithstanding the insurance
company's argument that the latter term is "meaningless." The court stated that
this argument "raises a troubling issue of why the word was included in the policy
at all except to mislead policyholders."
The court also found the requisite nexus between the alleged injury and the
defendant's advertising activities. The court found a potential for coverage because
the gravamen of the plaintiff s claim was the selling of an infringing product, and
hence an advertising injury, as demonstrated by the plaintiff s introduction at trial
of evidence of the insured's advertising. The court of appeal denied the insurer's
request for issuance of a writ of mandamus.
The case is also noteworthy for its holdings regarding the effect of allegations of
willfulness. Even though "intent" was an element of the claim of inducement of
patent infringement, the court held there was a duty to defend. The court reasoned
that the claim was potentially covered, because there was no way to know at the
time of tender whether the plaintiff would actually prove willful infringement. It
was irrelevant that the underlying case had been decided by the time the coverage
dispute was heard, and the court adjudicating the underlying claim had already
found the defendant liable for willful infringement.

C. Aqua Queen Manufacturing, Inc. v. Charter Oak Fire Insurance Co.21

In this declaratory judgment action, the district court found a duty to defend and
a duty to indemnify in an underlying action claiming patent infringement and
misappropriation of trade secrets. The court held that patent infringement was
encompassed within the term "piracy," relying on National Union Fire Insurance

19. 830 F. Supp. 536 (CD. Cal. 1993).

20. 26 U.S.P.Q.2d 1993 (BNA) (Ala. Co. Super Ct. 1993).
21. 830 F. Supp. 536 (CD. Cal. 1993).

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Co. v. Siliconix, Inc.,22 and that "selling an infringing product is an infringement

occurring in the course of advertising and therefore covered by the policy as a type
of advertising injury."

D. Continental Insurance Co. v. Del Astra Industries.23

In this case, which also arose after announcement of the decision in Bank of the
West, summary judgment was granted sua sponte by the district court in favor of
the insured, finding that the insurer owed a duty of defense in an action alleging
patent infringement. The court also found that inducement of patent infringement24
on the facts before it occurred "in the course of advertising activities, and that,
therefore, the allegations of the complaint triggered a duty of defense under the

E. Big Sur Waterbed v. Maryland Casualty Co.25

Here the court addressed the same issue as in Del Astra with regard to a similar policy
which defined advertising injury to include the offenses of "unfair competition" and
"piracy." Finding that Bank of the West did not preclude finding a duty of defense,
the court held that a claim of inducement of patent infringement arose in connection
with the insured's advertising activities so as to trigger a duty of defense. However,
it declined to find a duty to defend on the ground that the claim of inducement
of infringement required a specific intent to cause direct infringement by another,
and the law in California (Cal. Ins. Code ? 5 3 3) proscribed indemnification of willful
acts. The case is presendy on appeal.

F. St. Paul Fire & Marine Insurance Co. v. Advanced Interventional Systems26
In this federal declaratory relief action Judge Ellis of the Eastern District of Virginia
denied that a duty of defense or indemnity was owed for an underlying claim of
direct infringement or inducement of patent infringement. Applying California law
(which differed markedly in several key aspects from the law of Virginia) under
normal choice of law principles, the court found that patent infringement did not
potentially fall within any of the offenses listed under the definition of advertising
injury. The court rejected the argument, made in the Del Astra case, that patent
infringement arguably was included in the term "misappropriation of style of doing
business," reasoning that this referred to a company's comprehensive manner of
doing business and was essentially the same thing as infringement of trade dress.
The court distinguished the Omnitel decision because here the policy did not contain
the key terms "piracy" and "unfair competition."
On the claim of direct patent infringement, the court denied coverage on the

22. 727 F. Supp. 77 (CD. Cal. 1989).

23. 26 U.S.P.Q.2d (BNA) 1319 (N.D. Cal. 1992).
24. 35 U.S.C. ? 271(b).
25. No. CV-92-4298 WMB (CD. Cal. 1992).
26. 824 F. Supp. 583 (E D. Va. 1993).

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322 Tort & Insurance Law Journal, Volume XXIX, Number 2, Winter 1994

ground that there was no connection between the harm alleged and the insured's
advertising activities. Relying on Bank of the West, the court held that there was no
causal connection if the infringement claim is based on the sale of the product rather
than the advertisement itself. As to the claim of inducement of infringement,
however, the court found that "this claim does clear one of the hurdles, because
any successful claim premised on this theory would certainly 'result from' the
advertising of AIS' products."
Nevertheless, the court found that nothing in the facts alleged would permit AIS
to plead any of the five offenses enumerated in the policy in lieu of, or alternatively
to, the inducement claim. As a consequence, it held that the inducement of infringe
ment claim triggered no duty to defend or indemnify under the policy.

G. Norton Alcoa Proppants v. American Motorists Insurance Co.27

In an action by Norton Alcoa to declare certain patents owned by Standard Oil
Company of Ohio and another company invalid, the defendants counterclaimed,
alleging inducement of infringement. In the declaratory judgment action which
followed, the Texas District Court held that the post-1986 ISO advertising injury
language provided coverage for patent infringement under the phrase "misappropria
tion of advertising ideas or style of doing business," notwithstanding the absence
of the term "piracy."

H. Adantic Mutual Insurance Co. v. L.A. Gear, Inc.28

In this duty-of-defense case, the trial court granted summary judgment in favor of
the insured, finding a potential for coverage for a patent infringement claim on the
basis of the ambiguity of the term "misappropriation of style of doing business."


A. Federal Insurance Co. v. Microsoft Corp.29

In the underlying case, Apple Computer sued Microsoft for copyright infringement
based upon, inter alia, its "distribution and sales of Windows 2.03." In its answer
to Microsoft's counterclaim, Apple alleged that "Microsoft has infringed Apple's
copyrights by marketing, distributing and licensing Windows 2.03... ." Microsoft
tendered defense of the action to its insurer, Federal Insurance Company, which
responded by suing Microsoft for a declaration that it had no duty to defend under
its policy.
The district court rejected Microsoft's argument that only a minimal causal
connection was required between its advertising and the alleged injury and instead
held that the advertising itself had to infringe Apple's copyrights. Yet even under

27. No. C-4012-91-A (Hidalgo City, Tex. Dist. Ct. 1992).

28. No. BC38042 (Los Angeles, Cal. Super. Ct. Feb. 28, 1992).
29. 1993 U.S. Dist. LEXIS 5467 (W.D. Wash. 1993).

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this exceedingly stringent definition of "advertising activities," the court found a

duty to defend, holding that Apple's allegations that Microsoft infringed its copy
rights by "distributing" and "marketing" its Windows program included promoting
goods through advertising, and thus the requisite causal connection was present.
Ruling on a motion for reconsideration, Judge Dimmick of the Western District
of Washington, Seatde Division, reaffirmed her earlier decision, finding that a
defense was owed to the policyholder.30 Relying upon applicable Washington State
law, the court held that "the duty of an insurer to defend an action against an
insured arises when the complaint is filed, and the allegations of the complaint could,
if proven, impose liability upon the insured within the coverage of the policy."31
The court further held that

an insurance company is required to look beyond the allegations of the complaint if

(a) the allegations are in conflict with the facts known to or readily ascertainable by
the insurer, or (b) the allegations in the complaint are therein ambiguous or inadequate.
In the event of ambiguity or inadequacy, the insurer must investigate to discover
whether there is a potential for liability.32

The case is presendy on appeal.

B. Zurich Insurance Co. v. Killer Music, Inc.33

In the underlying copyright infringement case, the complaint alleged breach of a

contract to pay for certain musical compositions, as well as copyright infringement.
After setdement of the case, the defendant, Killer Music, attempted to recover its
attorneys' fees from its insurers. Although acknowledging that the definition of
"advertising injury" in the policy explicidy included "copyright infringement," the
insurance company denied coverage on the ground that the policy expressly excluded
coverage for advertising "arising out of breach of contract."
The Ninth Circuit rejected the insurer's position, holding that there was a duty
to defend because there was "at least a potential of liability" under the copyright
claim. The court also rejected the insurance company's position that there was no
coverage because of California Insurance Code ? 533, which forbids indemnification
of intentional acts, and because the complaint had alleged willful misconduct. The
court stated:

A "clear line of authority" in California directs that "even an act which is 'intentional'
or 'willful' within the meaning of traditional tort principles will not exonerate the
policyholder from liability under ? 53 3 unless it is done with 'preconceived design to
inflict injury.' "34

30. Id.
31. E-Z Loader Boat Trailers v. Traveler's Indem. Co., 726 P.2d 439 (Wash. 1986).
32. Id.
33. 998 F.2d 674 (9th Cir. 1993).
34. Id. at 678.

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324 Tort & Insurance Law Journal, Volume XXIX, Number 2, Winter 1994

Because the plaintiff had not proven an intent to cause harm in the underlying
case, the court found that the "intentional acts" exclusion did not apply.


A. Industrial Indemnity Co. v. Apple Computer, Inc.35

On cross-motions for summary adjudication regarding the duties to defend and
indemnify the insured, the California Superior Court found that both duties prop
erly arose under 1973 ISO policy language. That language covered the offense of
"unfair competition," but not "piracy." The duties also arose under a later policy
covering "misappropriation of advertising ideas or style of doing business." The
court found that the case posed a clear potential for asserting the cause of action
of "passing off," which constitutes the classic meaning of unfair competition. The
court invited the parties to brief the issue whether the insurer was also liable for
payment of setdement costs, having breached its duty of defense.

B. J.A. Brundage Plumbing and Roto-Rooter, Inc. v. Massachusetts Bay

Insurance Co.36

Here, the court found an express duty to defend claims of trademark infringement
within the policies' 1986 ISO coverage for "misappropriation of advertising ideas
or style of doing business" as well as "infringement of . . . tide or slogan." The
court distinguished the earlier New York cases of A. Myers & Sons v. Zurich American
Insurance Group*7 and Jerry Madison Enterprises v. Grasant Manufacturing,39 stating
that "these cases clearly required a causal connection between 'advertising injury'
and 'advertising activities'?i.e., the injury must occur as a result of advertising."
The court reasoned that the earlier cases had denied coverage because "advertising"
was not a "necessary ingredient" of the copyright and patent infringement alleged
therein. Here, however, the trademark allegations clearly involved advertisements
per se.
The court noted that the appropriate definition of "advertising" is, as defined
in Black s Law Dictionary: "To advise, announce, apprise, command, give notice of,
inform, make known, publish. To call a matter to public attention by any means
whatsoever.. . ."39 Interpreting the scope of the phrase "misappropriation of adver
tising ideas or style of doing business," the court found that these terms had no
clear definition in the common law. It reasoned: "However, in the ordinary sense
of these terms, misappropriation of an 'advertising idea' would mean the wrongful

35. No. 93-8668 (San Francisco County, Cal. Super. Ct. July 30, 1993).
36. 818 F. Supp. 553 (W.D.N.Y. 1993).
37. 545 N.E.2d 1206, 546 N.Y.S.2d 818 (N.Y. 1989).
38. No. 89-CV-2345, 1990 U.S. Dist. LEXIS 1649 (S.D.N.Y. 1990).
39. Black s Law Dictionary 54 (6th ed. 1990).

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taking of the manner by which another advertised its goods or services. This would
include the misuse of another's trademark or trade name."40
Similarly, the court noted that the offenses of "tide" and "slogan" are not defined
in the policy. Accordingly, it is necessary to look at the meaning of these terms in
the common law and in ordinary language. Because "tide" is defined as "a mark,
style or designation; a distinctive appellation; the name by which anything is
known,"41 infringement of tide can include trademark or trade name infringe

C. Feinberg v. Canadian Insurance Co.43

The underlying case involved a claim by a potato chip manufacturer, which mar
keted its product under the name "Rusty's Island Chips," against the insured for
trademark infringement and unfair competition arising out of the insured's market
ing of its potato chips under the same name. The original complaint sought an
injunction only. It was only later that the plaintiff informed the insured that it
intended to amend its complaint to seek damages. The insurer refused to reimburse
the insured for defense costs incurred prior to the amendment seeking damages.
The court of appeals disagreed, holding that the insurer could not rely on the
strict language of the original complaint, but had to consider the potential for
liability, particularly in light of the fact that the original cease and desist letter from
the plaintiff had threatened to sue for damages. The insurer was therefore liable for
all defense costs in the case. The California Supreme Court subsequendy ordered
that the case be depublished.


A. Kurisu v. Michigan Millers Mutual Insurance Co.44

The plaintiff, Vern Kurisu, filed suit in November 1985 to force the dissolution
of MTI, a company of which he had been a founding shareholder. MTI and its
majority shareholders cross-complained for breach of fiduciary duty, conversion,
abuse of process, an accounting, imposition of a constructive trust and intentional
infliction of emotional distress. The majority shareholders claimed that plaintiff had
been fired for embezzling corporate funds and that plaintiff had stolen proprietary
and trade secret information, including customer lists and chemical formulae for the
protective solder used by the company in carrying out its business of coating
computer circuit boards.
The court held that there was no justiciable controversy concerning Reliance's
duty to defend or indemnify the plaintiff against the counterclaim because the parties

40. 818 F. Supp. 557 (W.D.N.Y. 1993).

41. Black's Law Dictionary 1485 (6th ed. 1990).
42. 818 F. Supp. 559 (W.D.N.Y. 1993).
43. 15 Cal. Rptr. 2d 871 (Cal. Ct. App. 1993).
44. 28 U.S.P.Q.2d 1430 (BNA) (Cal. 4th Dist. Ct. App. 1993).

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326 Tort & Insurance Law Journal Volume XXIX, Number 2, Winter 1994

had already settled their differences. However, the court found that another insurer
owed a duty of defense under its policy. The court reasoned:

Despite Michigan Miller's protestations to the contrary, [plaintiffs'] allegedly tortious

conduct meets the common law test: MTI sought damages for plaintiff s wrongful
appropriation and use of proprietary information, which included not only the formula,
but the confidential customer list.45

Although citing the Bank of the West decision, the court noted that "This sort
of conduct was recognized under the common law as unfair competition." The
court also found that it was a reasonable inference, from the evidence presented,
that "some sort of advertising activity took place in [plaintiff s] solicitation of
customers using the allegedly stolen customer list." The court concluded that this
solicitation was enough to give rise to a duty to defend.

B. Merchants v. American Motorists Insurance Co.46

The complaint in the underlying action pleaded claims against the insured, Mer
chants, for intentional interference with business relations and misappropriation of
trade secrets (specifically, a customer list). The policy's list of offenses included in
the definition of "advertising injury" did not include trade secret misappropriation.
Nevertheless, the court held that policy term "infringement of copyright, tide or
slogan" arguably included a claim of infringement of the plaintiff s "tide to the
customer list."
The court went on to hold that the offense entided "misappropriation of advertis
ing ideas" was vague enough to include theft of a customer list. The court found
the requisite causal connection with "advertising activities" because the customer
list was used by the insured as part of its direct mailing campaign. Based on the
foregoing analysis the court found both a duty to defend and to indemnify.

45. Id.
46. 794 F. Supp. 611 (S.D. Miss. 1992).

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