Scottsdale Ins. Co. v. MV Transp.

Filed 5/6/02
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or
ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
SCOTTSDALE INSURANCE
COMPANY,
Plaintiff and Appellant,
v.
MV TRANSPORTATION, INC., et al.,
Defendants and Respondents.
B150991
(Los Angeles County
Super. Ct. No. BC231352)
APPEAL from a judgment of the Superior Court of Los Angeles County.
Gregory C. O’Brien, Jr., Judge. Affirmed.
Selman ·Breitman, Neil Selman, Jan L.Pocaterra, Lynette Klawon for Plaintiff
and Appellant.
Heller Ehrman White & McAuliffe, Richard DeNatale, Peter F. McAweeney
Deanna M. Wilcox; John Andrew Biard for Defendants and Respondents.
___________________________________________________

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This appeal concerns an insurance coverage dispute and the meaning of the phrase
“advertising injury,” as used in the commercial general liability (CGL) policies issued by
appellant Scottsdale Insurance Company (Scottsdale) to respondent MV Transportation,
Inc. (MV). We interpret “advertising injury” as not limited to injury only from
widespread promotional activities directed to the public at large. Rather, advertising
injury, as defined in the CGL policies, includes MV’s one-on-one business solicitations
that used a common style and promotional information disseminated to more than one
customer. MV’s complaint potentially sought damages covered by the policies, even
though MV’s promotional solicitations were in the nature of tailored bid proposals sent to
customers in targeted markets.
MV thus correctly tendered to Scottsdale its defense in the underlying action filed
by MV’s competitor, Laidlaw Transit Services, Inc. (Laidlaw), alleging MV
misappropriated information constituting advertising ideas and a style of doing business,
including Laidlaw’s bidding formula and customer lists. Accordingly, after Scottsdale
filed its declaratory relief action in the present case seeking a declaration that it owed no
defense obligations and seeking reimbursement of its defense fees, the trial court properly
denied summary judgment and ruled in favor of MV and its employees (who are also
respondents).
FACTUAL AND PROCEDURAL SUMMARY
The underlying lawsuit by Laidlaw
In January of 2000, Laidlaw filed an action against MV and several of MV’s
employees who had previously worked for Laidlaw, including MV’s new President and
Chief Operating Officer (Jon Monson). Laidlaw’s complaint against MV and several of
its employees alleged causes of action for breach of fiduciary duty, tortious inducement
to breach the duty of loyalty and fiduciary duty, intentional interference with contractual
relations and with prospective business advantage, misappropriation of trade secrets, and
unlawful, unfair and fraudulent business practices.

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In essence, Laidlaw’s suit alleged certain contractual breaches, unlawful business
practices, and misappropriation of trade secrets by using confidential, proprietary
information to compete unfairly in bidding for and obtaining new busing contracts in
urban public transportation services markets. The complaint specified two markets in
particular, Lawrence, Kansas and Indianapolis, Indiana. The confidential, proprietary
information included bidding models, bidding formulas, and other nonpublic information
used in developing Laidlaw’s bids, such as Laidlaw’s overhead costs and financial
objectives allocated to each project. As alleged in the complaint, MV used such
information, as well as Laidlaw’s customer list and other trade secrets, to “significantly
impede Laidlaw’s ability to market itself as a unique provider” of its services.
Soon after Laidlaw filed its complaint, MV’s legal counsel tendered the defense to
its insurer, Scottsdale. Scottsdale asserted that although one Ninth Circuit case had
“concluded that certain trade secret misappropriation claims fall within the scope of the
advertising injury liability coverage of a general liability policy,” the underlying facts in
that case (Sentex Systems, Inc. v. Hartford Acc. & Indem. Co.(C.D. Cal. 1995) 882
F.Supp. 930, affd. (9th Cir. 1996) 93 F.3d 578 (Sentex)) are distinguishable, and
Scottsdale’s defense obligations were not triggered by the Laidlaw suit. Nonetheless,
Scottsdale agreed to provide a defense to MV with a reservation of rights. Specifically,
Scottsdale agreed to provide a defense to MV and the individuals named in the Laidlaw
suit under a reservation of certain rights, including the right to seek a declaration of its
rights and duties under the policy and “[t]he right to seek reimbursement of defense fees
paid toward defending causes of action which raise no potential for coverage, as
authorized by the California Supreme Court in Buss v. Superior Court (Transamerica Ins.
Co.) (1997) 16 Cal.4th 35.”
In December of 2000, Laidlaw and MV agreed to settle the suit by Laidlaw.
Pursuant to the settlement agreement, MV and the individual defendants agreed to return
to Laidlaw documents containing allegedly misappropriated bid models, bid formulas and
other trade secrets, and to refrain from using such material in developing MV’s bids or

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proposals to customers in the public transportation market. However, the settlement
agreement did not require that MV pay any money to Laidlaw. Attorney fees and costs
incurred in defending the Laidlaw suit were approximately $340,000.
The coverage dispute between Scottsdale and MV
Scottsdale issued two CGL insurance policies to MV, one effective from
December 1, 1998, to December 1, 1999 (hereinafter, the first CGL policy), and the other
from December 1, 1999, to December 1, 2000 (hereinafter, the second CGL policy). The
first CGL policy contained an agreement by which Scottsdale agreed to defend MV
against any suit and to pay any damages due to “‘advertising injury’ caused by an offense
committed in the course of advertising [MV’s] goods, products or services.” The policy
defined the term “advertising injury” as including the “[m]isappropriation of advertising
ideas or style of doing business.”
The second CGL policy also obligated Scottsdale to pay MV’s damages and costs
of suit for any advertising injury. The policy language, however, was somewhat different
from that in the first CGL policy. Specifically, the second CGL policy defined
advertising injury as, in pertinent part, “[t]he use of another’s advertising idea in [the
insured’s] ‘advertisement.’” And the policy defined “advertisement” as “a notice that is
broadcast or published to the general public or specific market segments about [the
insured’s] goods, products or services for the purpose of attracting customers or
supporters.”
During the course of the underlying Laidlaw litigation, in June of 2000, Scottsdale
filed the present declaratory relief action against MV and other defendants named in the
Laidlaw action. After settlement in the underlying action, Scottsdale moved for summary
judgment seeking a determination that it owed no legal defense obligations, and seeking
reimbursement of the full amount paid for defense costs and fees and a declaration that it
owed no further costs and fees. The trial court denied Scottsdale’s motion for summary
judgment and ruled that it had a duty to defend. The court observed that Laidlaw
“alleged a broader audience than simply” the two cities noted in the complaint where MV

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sought business (i.e., Lawrence, Kansas and Indianapolis, Indiana), and concluded that
“[b]roadly construed, the . . . [c]omplaint alleged misappropriation of Laidlaw’s
‘advertising ideas,’ for which there is at the very least the potential of coverage, and
therefore Scottsdale’s duty to defend is established as a matter of law.”
DISCUSSION
Standard of Review
We review the record and determine this appeal in accordance with the customary
rules of appellate review following a summary judgment ruling. (Aguilar v. Atlantic
Richfield Co. (2001) 25 Cal.4th 826, 843-857.) The general rule is, of course, that
summary judgment is appropriate where “all the papers submitted show that there is no
triable issue as to any material fact and that the moving party is entitled to a judgment
as a matter of law. . . .” (Code Civ. Proc., § 437c, subd. (c).)
“‘The trial court must decide if a triable issue of fact exists. If none does, and the
sole remaining issue is one of law, it is the duty of the trial court to determine the issue
of law.’ [Citation.] [¶] On appeal, this court must conduct de novo review to
determine whether there are any triable factual issues. [Citation.] Likewise, because
the ‘interpretation of an insurance policy is a question of law, [we must] make an
independent determination of the meaning of the language used in the contract under
consideration.’ [Citation.]” (Western Mutual Ins. Co. v. Yamamoto (1994) 29
Cal.App.4th 1474, 1481; see also Milazo v. Gulf Ins. Co. (1990) 224 Cal.App.3d 1528,
1534.)
The broad duty to defend
A CGL insurance policy, as here, typically obligates the insurer to defend its
insured, or to pay its insured’s defense costs, in a lawsuit or claim that is potentially
covered. The duty to defend is “broad,” and “California courts have been consistently
solicitous of insureds’ expectations” regarding a defense. (Montrose Chemical Corp. v.
Superior Court (1993) 6 Cal.4th 287, 295, 296 (Montrose).) “Any doubt as to whether

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the facts establish the existence of the defense duty must be resolved in the insured’s
favor.” (Id. at pp. 299-300.)
An insurer thus must defend a lawsuit which potentially seeks damages covered
under the policy, even if coverage is in doubt and ultimately does not develop. (Id. at
p. 295.) The defense “obligation can be excused only when the third party complaint
‘“can by no conceivable theory raise a single issue which could bring it within the policy
coverage.”’” (Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group (1996) 50
Cal.App.4th 548, 556, quoting Montrose, supra, 6 Cal.4th at p. 300.)
The general rule is that “[t]he determination whether the insurer owes a duty to
defend usually is made in the first instance by comparing the allegations of the complaint
with the terms of the policy. Facts extrinsic to the complaint also give rise to a duty to
defend when they reveal a possibility that the claim may be covered by the policy.”
(Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081; see also Montrose,
supra, 6 Cal.4th at p. 295.)
In considering whether the allegations give rise to a duty to defend, “it is not the
form or title of a cause of action that determines the carrier’s duty to defend, but the
potential liability suggested by the facts alleged or otherwise available to the insurer.”
(CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 609.)
Because current pleading rules liberally allow amendment, the insurer must defend if
there is any possibility that the complaint could still be amended to state a covered claim.
(Id. at pp. 610-612; see also Montrose, supra, 6 Cal.4th at p. 296.)
Once triggered, the duty to defend continues “until the underlying lawsuit is
concluded [citation], or until it has been shown that there is no potential for coverage.”
(Montrose, supra, 6 Cal.4th at p. 295.) And an insurer seeking to terminate its duty to
defend must “establish the absence of any such potential” with facts that “eliminate the
possibility that resultant damages (or the nature of the action) will fall within the scope of
coverage.” (Id. at p. 300.)

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“If the parties dispute whether the insured’s alleged misconduct is potentially
within the policy coverage, and if the evidence submitted does not permit the court to
eliminate either party’s view, then factual issues exist precluding summary judgment in
the insurer’s favor.” (American Cyanamid Co. v. American Home Assurance Co. (1994)
30 Cal.App.4th 969, 975.) If the insurer cannot prevail on summary judgment, “‘the duty
to defend is then established, absent additional evidence bearing on the issue.’” (Ibid.,
citing Horace Mann Ins. Co. v. Barbara B., supra, 4 Cal.4th at p. 1085; see also
Montrose, supra, 6 Cal.4th at p. 301.)
If and when an insurer establishes that no claim can possibly be covered, then its
duty to defend is “extinguished only prospectively and not retroactively: Before, the
insurer had a duty to defend; after, it does not have a duty to defend further.” (Aerojet-
General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 58.)
Accordingly, in determining whether an insurer has a duty to defend, we first
compare the allegations of the complaint with the terms of the policy. (Gray v. Zurich
Insurance Co. (1966) 65 Cal.2d 263, 276.)
Comparison of the allegations of the complaint with the terms of the policy
According to Scottsdale, no covered activity was alleged in the Laidlaw
complaint. As viewed by Scottsdale, the underlying complaint focused on MV’s use of
Laidlaw’s proprietary information to underbid Laidlaw in busing contracts and to
compete unfairly, and the CGL policies covered advertising injuries that were not at
issue in the complaint. Scottsdale argues that, as construed by relevant case law, the
term “advertising” means “widespread promotional activities directed to the public at
large,” and it can never encompass “solicitation of a customer through a one-on-one
competitive bidding procedure with a product specifically designed for that customer.”
However, Scottsdale’s own definition of “advertising injury” in its two CGL
policies is not so restrictive. The first policy provided that “advertising injury”
includes, in pertinent part, an injury arising out of “[m]isappropriation of advertising
ideas or style of doing business.” (Italics added.) The second policy was worded

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somewhat differently. It defined “advertising injury” as including the “use of another’s
advertising idea in [the insured’s] ‘advertisement,’” with the term “advertisement”
defined, in pertinent part, as “a notice that is . . . published to . . . specific market
segments about [the insured’s] . . . services for the purpose of attracting customers.”
(Italics added.)
It is thus apparent that the broad concept of “advertising injury,” used in the two
policies, encompasses more than Scottsdale’s narrow interpretation would permit. The
notion of injury from advertising reasonably encompasses MV’s alleged
misappropriation of Laidlaw’s proprietary bidding formula, bidding models and
customer lists used by MV in its “style of doing business,” as described in the first
policy. And the second policy’s use of the term “advertisement” includes use of
another’s ideas by disseminating information in “specific market segments” with the
intention “of attracting customers.”
The complaint alleged that MV used confidential, proprietary information,
including “customer lists,” to “significantly impede Laidlaw’s ability to market itself as
a unique provider” of its services. This denotes more than a single, isolated incident
and bespeaks of MV’s move into the market for Laidlaw’s services, even beyond the
two cities specified in the complaint.
MV’s solicitation of busing contracts on an individual basis by exploiting
Laidlaw’s customer lists, its proprietary bidding model and formula, and Laidlaw’s
financial profiles of objectives and project costs is within the broad scope of the
policies’ definitions of advertising injury. It is of no consequence that MV sent
seriatim, to one potential customer at a time, each of its bid solicitations and
promotional material. The point is that the complaint alleged facts indicating, in the
language of the policies, that MV used Laidlaw’s “customized style of doing business”
and sent information to “a specific market segment” about its services “for the purpose
of attracting customers.” The language in the policies is broad enough to encompass

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focused and sequential customer contact to several customers, and no language
specifically precludes such coverage.
Applicable case law
It is appropriate to construe the disputed policy language “in the context of [the]
instrument as a whole, and in the circumstances of [the] case.” (Ziman v. Fireman’s
Fund Ins. Co. (1999) 73 Cal.App.4th 1382, 1388.) Any ambiguity in the terms of the
policy must be construed to protect the “‘objectively reasonable expectations of the
insured.’” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265, citation
omitted (Bank of the West.) Therefore, “[s]o long as coverage is available under any
reasonable construction, the insurer will be held liable.” (ML Direct, Inc. v. TIG
Specialty Ins. Co. (2000) 79 Cal.App.4th 137, 142.)
Here, it is reasonable to expect that Scottsdale’s policies would provide for MV
“protection against the type of liability which would ordinarily grow out of its kind of
business.” (Ritchie v. Anchor Casualty Co. (1955) 135 Cal.App.2d 245, 257.) There is
no indication that MV directed its solicitation of busing contracts to the public at large,
and Scottsdale is presumed to have understood the nature of MV’s promotional and
business activities when it sold it insurance that covered advertising injury. (Ibid.; see
also Southeastern Express Systems v. Southern Guaranty Ins. Co. (1995) 34
Cal.App.4th 1, 11.) Courts will “not sanction a construction of the insurer’s language
that will defeat the very purpose or object of the insurance.” (Ritchie v. Anchor
Casualty Co., supra, 135 Cal.App.2d at p. 257.)
Contrary to Scottsdale’s contention, MV’s interpretation of “advertising injury” is
also consistent with the California Supreme Court’s analysis in Bank of the West, supra,
2 Cal.4th 1254. The Court in Bank of the West rejected the insured’s arguments that the
definition of a covered injury, in that case damage from “unfair competition,” should be
based on its dictionary meaning or its statutory definition in the Business and
Professions Code, and it limited the scope of insurance coverage to an injury based on
the common law tort of unfair competition. (Id. at pp. 1263, 1265.) The Court

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concluded that the term “unfair competition” only referred to a civil wrong that could
support an award of damages. (Id. at pp. 1263, 1265.)
Scottsdale inappropriately focuses on a footnote in Bank of the West in which the
Court observed, “Although we need not address the issue, we note that courts have
disagreed on the question of what constitutes ‘advertising’ for these purposes. Most of
the published opinions hold that ‘advertising’ means widespread promotional activities
directed to the public at large[] . . . [and does not] also encompass personal
solicitations.” (Id. at pp. 1276-1277, fn. 9.) Apart from MV’s assertion that the
Supreme Court’s dicta 10 years ago regarding the narrow definition of “advertising” in
other jurisdictions is now outdated by more recent case law, Bank of the West did not
address the language in the insurance policies at issue in the present case.
The relevant policy language in Bank of the West provided that “‘“Advertising
injury” means injury arising out of an offense committed during the policy period
occurring in the course of the named insured’s advertising activities, if such injury
arises out of libel, slander, defamation, violation of right of privacy, unfair competition,
or infringement of copyright, title or slogan.’” (Bank of the West, supra, 2 Cal.4th at p.
1262, italics omitted.) As discussed above, the relevant language of the policies in the
present case is worded quite differently.
In fact, the policy language at issue here is similar to that in Sentex, supra, 882
F.Supp. 930, affd. 93 F.3d 578. In Sentex, the insured sued its CGL insurer asserting
that the insurer had a duty to defend against a competitor’s allegations that a former
employee had misappropriated trade secrets and confidential information used while
employed by the insured. Much as in the present case, the complaint in Sentex alleged
misappropriation of customer lists, methods of billing jobs, marketing techniques, and
other inside and confidential information. And the insured used such information to
solicit business from customers of its competitor. (Id. at p. 935.) The District Court
held that the competitor’s allegations in the complaint were potentially within the scope

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of the CGL policy which covered “advertising injury” that included, as here,
“[m]isappropriation of advertising ideas or style of doing business.” (Id. at p. 934.)
The District Court in Sentex found that some “courts have defined ‘advertising
activity’ as broadly as possible ‘to encompass a great deal of activity,’” and that “the
term ‘advertising’ encompasses the kind of personal, one-on-one and group
solicitations” engaged in on behalf of the insured. (Sentex, supra, 882 F.Supp. at
p. 939.) The court reasoned, in part, that giving “‘advertising activity’ a narrow
interpretation is only reasonable if the term is contained in an advertising injury
exclusion,” and that “[i]f an insurer wants to avoid such a broad interpretation of the
term ‘advertising,’ it can narrow the term’s scope by defining it in the policy.” (Id. at
p. 940.) The Ninth Circuit affirmed, aptly observing: “This policy’s language, given
its ordinary meaning, does not limit itself to the misappropriation of an actual
advertising text. It is concerned with ‘ideas,’ a broader term.” (Sentex, supra, 93 F.3d
at p. 580.) “In this day and age, advertising cannot be limited to written sales materials,
and the concept of marketing includes a wide variety of direct and indirect advertising
strategies.” (Ibid.) We agree with that analysis.
Moreover, Scottsdale’s reliance upon language in El-Com Hardware, Inc. v.
Fireman’s Fund Ins. Co. (2001) 92 Cal.App.4th 205, 209 (El-Com Hardware) is
misplaced. That case addressed a CGL policy defining “advertising injury” as
including, as here, “[m]isappropriation of advertising ideas or style of doing business.”
The court found that the offending product had been advertised in the insured’s catalog
and that use of a catalog met the “commonly understood meaning of advertising” (id. at
p. 217), which entails “widespread promotional activities.” (Ibid.)
We agree with El-Com Hardware that a commonly understood meaning of
advertising is widespread promotional activities. But we find the term may include
other contexts as well, and that the critical facts in El-Com Hardware are
distinguishable. That case addressed use of a widely distributed catalog and did not
have to confront, as here, an insured’s dissemination of individual proposals tailored to

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the individual needs of each of at least two customers identified in the complaint, as
well as likely others on the list of customers taken by MV. We thus deem injury from
even such individual and focused solicitations, made sequentially to more than one
customer, as within the scope of the policy’s broad definition of “advertising injury.”
Finally, we find Scottsdale’s reliance on Peerless Lighting Corp. v. American
Motorists Ins. Co. (2000) 82 Cal.App.4th 995 (Peerless) unpersuasive. Peerless
involved the same policy language as here, covering “advertising injury” arising out of
“[m]isappropriation of advertising ideas or style of doing business.” (Id. at p. 1000.) In
Peerless, the insured was a lighting manufacturer that submitted a bid to another
company looking for specialized lighting. To make its bid more acceptable to the
company, the insured responded to the company’s requirements by submitting a
modified sample lighting fixture with its proposal. The sample lighting fixture
allegedly was very similar in overall appearance to that of another manufacturer, which
sued alleging violations of trademark laws; i.e., infringement of so-called trade dress.
The insured tendered its defense to its insurer, which rejected the tender of defense on
the ground that the allegations in the complaint did not meet the definition of
advertising injury. (Id. at pp. 1001-1002.)
If confronted with the facts in Peerless, we would agree with the insurer, as did
the appellate court in Peerless. The insured in Peerless was involved in one episode
stemming from a single solicitation by one bid with one offending sample product. As
previously discussed, the present case involves individual and focused solicitations,
made sequentially to more than one customer, and is thus within the scope of the
policies’ broad definition of “advertising injury.” As did the court in Peerless, we
reject the notion that “solicitation of a single customer with a tailor-made product in the
course of a competitive bidding process . . . amounts to ‘advertising.’” (Id. at p. 1012.)
But here there was, as previously discussed, more than just a single customer.

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Conclusion
The pertinent allegations in the complaint potentially sought damages within the
coverage of the CGL policies issued by Scottsdale. The trial court properly denied
Scottsdale’s motion for summary judgment on its complaint seeking a declaratory
judgment and reimbursement of its defense costs.1
DISPOSITION
The judgment is affirmed.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS.
BOREN, P.J.
We concur:
NOTT, J.
ASHMANN-GERST, J.
1 It is thus unnecessary to address MV’s assertion that the hundreds of e-mail
announcements Mr. Monson sent after starting his new position at MV, as revealed in
MV’s opposition to summary judgment, are cognizable as extrinsic evidence that
constituted advertising activity or even caused Laidlaw’s alleged damages.
It is also unnecessary to address MV’s claim that Scottsdale is not entitled to
retroactive reimbursement, pursuant to Buss v. Superior Court (1997) 16 Cal.4th 35,
because Scottsdale allegedly never attempted to extinguish its duty to defend while the
underlying Laidlaw litigation was ongoing. We note in that regard that although
Scottsdale moved for summary judgment after settlement in the underlying action, it filed
the present declaratory relief action against MV during the course of the underlying
Laidlaw litigation. And Scottsdale asserts that it delayed its motion for summary
judgment in deference to MV’s complaints about prejudice from having to defend at the
same time the then-pending underlying action.

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