No Insurance Policy Covers Every Possible Risk of Loss
Barry Zalma
Oct 13, 2023
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Defendant Timed Out, LLC appealed a summary judgment declaring plaintiff AIX Specialty Insurance Company had no duty to defend, and thus no duty to indemnify, its insured in an action Timed Out brought against the insured. The trial court concluded a policy exclusion for personal and advertising injuries “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights” eliminated AIX’s coverage obligations in the underlying lawsuit.
In AIX Specialty Insurance Company v. Timed Out, LLC, B320255, California Court of Appeals, Second District, Third Division (October 5, 2023) the Court of Appeals interpreted the meaning of the exclusion.
BACKGROUND - The Policy
Godtti Entertainment, the AIX insured operated a bar and nightclub where its patrons can “dance,” see “live DJ performances,” and attend “an assortment of events.” In February 2019, AIX issued a commercial general liability (CGL) insurance policy to Godtti. The policy insures against liability for damages stemming from, among other things, certain “personal and advertising injury” offenses.
The policy excluded coverage for “‘Personal and advertising injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights” (the IP exclusion).
Timed Out’s Lawsuit Against Godtti
Timed Out filed a three-count complaint against Godtti for statutory misappropriation of likeness; common law misappropriation of likeness; and negligent hiring, supervision, and/or retention of employees. According to the complaint’s allegations, between 2017 and 2019, Godtti knowingly used the models’ “image and likeness” in “various marketing, advertising, and promotional material[s]” without the models’ consent and in violation of their statutory and common law right of publicity. Godtti also allegedly failed to train and supervise its employees who “stole the [m]odels’ [i]mages and used the [i]mages without [the models’] permission.”
AIX’s Declaratory Relief Action Against Godtti and Timed Out
AIX filed a declaratory relief action against Godtti and Timed Out seeking a declaration that it had no duty to defend or indemnify.
AIX moved for summary judgment asserting the IP exclusion precluded any potential for coverage for the claims asserted in Timed Out’s complaint. Specifically, AIX argued all claimed injuries arose out of Godtti’s alleged infringement of the models’ right of publicity-an “other intellectual property right[ ]” subject to the IP exclusion.
The Order Granting Summary Judgment
The trial court granted AIX’s summary judgment motion, concluding the IP exclusion precluded coverage for Timed Out’s misappropriation of likeness claims. The court entered judgment in favor of AIX. Timed Out filed a timely notice of appeal.
DISCUSSION
In determining whether a claim creates the potential for coverage under an insurance policy appellate courts are guided by the principle that interpretation of an insurance policy is a question of law. Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation.
The IP Exclusion Precludes Coverage for Timed Out’s Claims Based on Godtti’s Alleged Misappropriation of the Models’ Likenesses
Specifically, the court determined Timed Out’s claimed injuries all stemmed from Godtti’s alleged misappropriation of the models’ likenesses and the IP exclusion unambiguously precluded coverage for those claims.
Godtti’s policy expressly excludes coverage for “‘[p]ersonal and advertising injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” (Italics added by the court)
As the California Supreme Court explained in Hameid v. National Fire Ins. of Hartford (2003) 31 Cal.4th 16, only a “widespread promotional” campaign using the image constitutes “advertising” under a CGL policy like the one AIX issued to Godtti. Timed Out’s complaint alleges only that Godtti misappropriated the models’ likenesses as they appeared in digital images-not that Godtti misappropriated an advertisement or advertising idea using those likenesses or images.
The Court of Appeals agreed with the trial court’s conclusion that Timed Out’s claims arise out of an alleged infringement of the models’ right of publicity and the IP exclusion therefore unambiguously precludes coverage.
The IP Exclusion Does Not Render Coverage for Personal and Advertising Injury Illusory
The Court of Appeals construed the IP exclusion according to its plain terms to give effect to the exclusion and AIX’s obligation to provide coverage for personal and advertising injuries.
Simply put, because the IP exclusion applies only to injuries “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights,” and claims such as disparagement and false light do not necessarily arise out of intellectual property rights, the exclusion does not render illusory AIX’s promise to cover personal and advertising injuries under the CGL policy issued to Godtti.
The judgment was affirmed. Plaintiff AIX Specialty Insurance Company is entitled to costs.
ZALMA OPINION
Appellate courts must interpret insurance contracts as a matter of law. The AIX IP exclusion was clear and unambiguous and fit clearly the wording and intent of the IP exclusion. The Court of Appeals had no choice, based on the facts, precedent and interpretation of clear policy wording but to affirm the trial court.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Happy Law Day
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THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
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BACKGROUND
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Post number 5347
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In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
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