The Ninth Circuit Court of Appeals has held that a general liability insurer had a duty to defend a rock band musician and a related corporation against underlying actions filed by former band members alleging improper use of a logo in advertising merchandise and damage to reputation. ( Manzarek v. St. Paul Fire & Marine Ins. Co. (2008) 2008 WL 763385)
Facts
St. Paul Fire & Marine Insurance Company issued commercial general liability policies to Raymond Manzarek (a founding member of the rock group The Doors ) and Doors Touring, Inc. (DTI). The policies each contained a Field of Entertainment Limitation Endorsement (FELE), which excluded coverage for “advertising injury” that “results from the content of, or the advertising or publicizing for, any Properties or Programs which are within your Field of Entertainment.” The policies defined “Field of Entertainment Business” to include”[t]he creation, production, publication, distribution, exploitation, exhibition, advertising and publicizing of product or material in any and all media such as motion pictures…, television programs, commercials or industrial or educational or training films, phonograph records, audio or video tapes, CDs or CD ROMs, computer on-line services or internet or Web site pages, cassettes or discs, electrical transcriptions, music in sheet or other form, live performance, books or other publications.”
Manzarek and DTI sued St. Paul for breach of contract and bad faith after St. Paul refused to defend them against two underlying actions filed by former band members and their heirs. The underlying actions alleged that Manzarek and DTI (1) infringed The Doors name, logo and trademark in advertising their planned show tours and (2) improperly used The Doors logo on their website to market products and merchandise. In one of the underlying actions, a former band member also alleged that he suffered damage to his reputation.
The federal trial court granted St. Paul’s motion to dismiss based on the policies’ FELE. The trial court held that the FELE was conspicuous, plain and clear and that it eliminated St. Paul’s duty to defend the underlying actions.
Manzarek and DTI appealed, arguing that the FELE did not relieve St. Paul of the duty to defend Manzarek and DTI in the underlying actions. Manzarek and DTI also complained that St. Paul had not issued or delivered any policy before Manzarek and DTI tendered the underlying actions to St. Paul.
Holding
The Ninth Circuit Court of Appeal, applying California law, reversed the trial court’s ruling in favor of St. Paul, and held that St. Paul did have a duty to defend Manzarek and DTI under the policies’ “advertising injury” coverage and “bodily injury” coverage.
With respect to “advertising injury” coverage, the Ninth Circuit noted that the underlying actions were silent as to what product the insureds advertised on their website. Further, according to the appellate court, the FELE might not apply to advertisements for products such as t-shirts, salad dressing or guitars outside the insureds’ field of entertainment business. Because the FELE did not necessarily apply in all scenarios, St Paul had a duty to defend Manzarek and DTI under the “advertising injury” coverage. The appellate court also expressed concern about enforcing a limitation of coverage if the policies were not delivered prior to the insureds’ tender of the underlying actions.
With respect to “bodily injury” coverage, the appellate court further held that the former band member’s alleged damage to reputation potentially triggered the “bodily injury” coverage, since St. Paul’s definition of “bodily injury” included mental anguish and emotional distress. Thus, for this independent reason, St. Paul had a duty to defend Manzarek and DTI in the underlying actions.
Comment
A troubling aspect of this case is the Ninth Circuit’s apparent holding that the claim of damage to reputation constituted “bodily injury” within the meaning of the St. Paul policy.
First, in prior cases, the California state courts have held that even when a policy defines “bodily injury” so as to include “emotional distress,” emotional distress resulting from an otherwise uncovered economic loss does not qualify as “bodily injury.” (See, e.g., Ticor Title Ins. Co. v. Employers Ins. of Wausau (1995) 40 Cal.App.4th 1699.) Although the Ninth Circuit was required to apply California law, it appears that the Ninth Circuit either overlooked or ignored this prior California case law.
Second, given the Ninth Circuit’s conclusion that the insurer was required to defend under the “advertising injury” coverage, it was unnecessary for the court to ever reach the issue of “bodily injury” coverage. Under the circumstances, it can perhaps be argued that the Ninth Circuit’s comments about the scope of “bodily injury” coverage are non-binding “dicta.”