This is an action for declaratory relief brought by an insured, American Cyanamid Company, to determine the duty of its various insurers to defend and indemnify American Cyanamid in an underlying lawsuit for anticompetitive conduct. The action was brought against three primary insurers and numerous excess insurers, all of whose policies were in effect from 1966 to 1986.
The three primary insurers — Insurance Company of North America (INA), American Home Assurance Company (AHA) and Commercial Union (CU) — moved for summary adjudication of the duty to defend. The trial court granted the motion, finding no duty to defend.
The Underlying Lawsuit
American Cyanamid is a research-based biotechnology and chemical company which since 1967 has developed, manufactured and sold "chemical light products," e.g., chemical lightsticks, safety lights, light wands and other products used especially by the United States military.
In 1989 CDC filed suit in federal court against American Cyanamid seeking damages for CDC's loss of business resulting from American Cyanamid's monopolistic and anticompetitive conduct. CDC's complaint alleged two broad courses of conduct by American Cyanamid — one from 1967 to 1986 and the second from 1986 to the present. The pivotal date, 1986, was the date CDC itself entered the market for chemical light products.
Because the insurance coverage action before us pertains only to insurance policies in effect before 1986, the allegations in the underlying lawsuit of most interest are those concerning American Cyanamid's pre-1986 conduct. In essence, the complaint alleges that American Cyanamid abused its patents in an effort to restrict competition and monopolize the market. Specifically, the complaint alleges that American Cyanamid developed certain chemical light products with funding from the United States Government pursuant to research and development contracts. These contracts required American Cyanamid to grant to the government a royalty-free license for its inventions and, further, to disclose in its patent applications, and in any resulting patents, that the patent was the result of a government-funded research and development contract. The purpose of this disclosure was to make competing suppliers aware of the government's royalty-free license and to enable the government to purchase chemical light products from those suppliers without being exposed to patent infringement claims.
The complaint further alleges that from 1972 to 1986 American Cyanamid failed to make the requisite disclosure on its patent applications and thus failed to provide the government with a royalty-free license for its inventions. As a result, the government and potential competitors were led to believe that potential competitors would infringe American Cyanamid's patents if they manufactured and sold chemical light products to the government. American Cyanamid thereby created a monopoly in the government market for chemical light products.
As to the post-1986 conduct, the complaint alleges that in February 1986 CDC submitted a bid to the United States Government's buying agent for the military services and thereby presented the first competition for the sale of chemical light products to the government. American Cyanamid thereupon engaged in a variety of activities designed to destroy the competition and perpetuate its monopoly over the market.
The Insurance Policies
American Cyanamid was insured under eight separate primary policies during the period from 1966 to 1986. Although the liability policies are all worded differently, all provide coverage for damages the insured must pay for "advertising injury," which is defined to include damage resulting from, among other things, unfair competition. The dispute here concerns timing: whether the pre-1986 policies provide coverage even though the injury to CDC did not occur (and indeed could not have occurred as CDC did not even exist) until after the policies had expired.
The Insurance Coverage Action
In its action for declaratory relief American Cyanamid alleged that the pre-1986 insurance policies provided coverage for the CDC lawsuit because that lawsuit was based on "acts or offenses occurring throughout the [policy] periods." It was American Cyanamid's position that coverage was triggered by the alleged anticompetitive conduct during the policy periods.
In their motion for summary adjudication, the primary insurers did not directly raise the issue of when the insurance coverage was triggered. Instead, the insurers asserted that the "offense" of unfair competition could not have been committed before 1986 as CDC did not exist as a competitor.
For purposes of the motion, American Cyanamid and the primary insurers stipulated to certain facts, including the following: "CDC was incorporated on or about January 28, 1986. CDC makes no claim in the Underlying Litigation that it was either in business or otherwise in competition with plaintiff Cyanamid prior to January of 1986." The parties also stipulated that the sole issue to be adjudicated was the following: "Does the fact that CDC did not exist as a competitor of American Cyanamid prior to January 28, 1986 preclude a duty to defend American Cyanamid in the underlying litigation under the advertising injury liability provisions of each of the primary policies at issue?"
The trial court concluded as follows: "The Court finds that the fact that CDC did not exist as a competitor of American Cyanamid prior to January
A. Nature of Underlying Claim
At the outset, a brief discussion seems necessary on the nature of CDC's claim. As noted, CDC's complaint asserts, among other things, that American Cyanamid monopolized the market in violation of section 2 of the Sherman Act and that American Cyanamid's course of conduct "constitutes unfair competition within the meaning of Section 17200 et seq. of California's Business and Professions Code...."
In Bank of the West v. Superior Court (1992) 2 Cal.4th 1254 [10 Cal.Rptr.2d 538, 833 P.2d 545], the Supreme Court construed the term "unfair competition" within a liability insurance policy and held that it does not refer to conduct prohibited by the Unfair Business Practices Act (Bus. & Prof. Code, § 17200 et seq.). The court drew a distinction between the common law tort of unfair competition and the statutory definition. (2 Cal.4th at pp. 1263-1264.) The court reasoned that the liability policy covers damages caused by unfair competition but damages are not available under the Unfair Business Practices Act. (2 Cal.4th at pp. 1265-1266.)
It is clear, then, that CDC's claim for unfair competition, as pleaded, is not covered. CDC's complaint alleges a violation of the Unfair Business
Thus, the question is whether the facts of the underlying lawsuit amount to a claim for "unfair competition." That issue was not presented to the trial court, nor do we decide it here.
B. Competitive Injury
Indeed, courts of other jurisdictions have held there is no duty to defend an underlying lawsuit for unfair competition absent the element of competition or rivalry between the parties. (Ruder & Finn, Inc. v. Seaboard Sur. Co., supra, 422 N.E.2d 518; Seaboard Sur. Co. v. Ralph Williams' N.W. Chrys. P., Inc. (1973) 81 Wn.2d 740 [504 P.2d 1139]; Boggs v. Whitaker, Lipp & Helea, Inc. (1990) 56 Wn.App. 583 [784 P.2d 1273]; In re San Juan Dupont Plaza Hotel Fire Litigation (D.P.R. 1992) 802 F.Supp. 624, 640-642, affd. (1st Cir.1993) 989 F.2d 36; Tigera Group, Inc. v. Commerce and Industry Ins. (N.D.Cal. 1991) 753 F.Supp. 858, 860-861; Westfield Ins. Co. v. TWT, Inc. (N.D.Cal. 1989) 723 F.Supp. 492, 496; Globe Indem. Co. v. First American State Bank (W.D.Wash. 1989) 720 F.Supp. 853, 857, affd. without opn. (9th Cir.1990) 904 F.2d 710.)
In the present case the underlying lawsuit against American Cyanamid was brought by a competitor. CDC is not a member of the consuming public; CDC is a business rival of American Cyanamid. Thus, there is no dispute that the element of competitive injury exists. The trial court concluded, however, that there could be no coverage absent a competitive injury during the policy period. The court reasoned as follows: "In the case at bar, the Court is asked to determine whether the primary insurers have a duty to defend under the advertising liability provisions of each of the primary policies. Bank of the West controls and the Court finds that there must be a
C. Trigger of Coverage
In fact, as will be seen in the following discussion, the policies at issue here do not contain identical language, and they do not all require an injury during the policy period in order to trigger coverage. The differing wording pertaining to the trigger of coverage puts the eight policies into four groups.
(1) Injury During the Policy Period
Two of the policies (INA policy No. LAB 1263, July 31, 1971-Nov. 7, 1974, and CU policy No. CLCY 9883-002, Nov. 7, 1974-Jan. 1, 1976) cover personal injury, property damage, or advertising injury caused by an occurrence, and "occurrence" is defined as "an injurious exposure to conditions, which results during the policy period, in personal injury, advertising injury or property damage...." As to these two policies, the trial court correctly found the triggering event to be an injury during the policy period.
Thus, for example, in Schrillo Co. v. Hartford Accident & Indemnity Co., supra, 181 Cal.App.3d 766, the insured manufactured power steering units from 1972 until early 1975. In May 1975 one of its units was installed in the truck of Larry Senger, and in 1977 Mr. Senger was injured when his truck crashed after a lockup of the power steering unit. Mr. Senger sued Schrillo claiming negligence in the manufacture of the power steering unit and Schrillo tendered the defense to Hartford, whose policy covered the period from May 1973 to April 1975. The trial court granted Hartford's motion for summary judgment, finding no duty to defend or indemnify as the injury occurred two years after the policy had expired. The Court of Appeal affirmed: "In sum, the Hartford insurance policy evinces the mutual understanding and agreement of the parties that the risk taken by Hartford was limited to those instances in which the injuries claimed occurred during the policy period. In the case at bench, it is uncontradicted that the `accident' which was the basis for the Senger action `occurred' on May 15, 1977, over two years following the expiration of the Hartford policy coverage (April 17, 1975). Moreover, the power steering unit which allegedly caused the injuries was shipped on approximately May 21, 1975, over a month after the expiration of the Hartford policy coverage." (181 Cal. App.3d at p. 776.)
(2) Events During the Policy Period
The foregoing general rule concerning the trigger of coverage of an occurrence policy is not applicable when the policy language differs from the language construed in Remmer and its progeny. (Insurance Co. of North America v. Sam Harris Constr. Co. (1978) 22 Cal.3d 409, 411-412 [149 Cal.Rptr. 292, 583 P.2d 1335].) In Sam Harris, the policy applied to "occurrences or accidents which happen during the policy period." Neither "occurrences" nor "accidents" was defined. The Supreme Court found this language distinguishable from the language in policies defining "occurrence" to mean an event causing injury during the policy period.
In Sam Harris, the Supreme Court construed the term "occurrence" in accordance with its dictionary definition to mean simply something that happens during the policy period. In that case the insured had sold its airplane and cancelled its policy. Soon thereafter the plane crashed and the buyer sued the insured for negligent repairs. The Supreme Court held that the policy could refer to negligent repairs performed during the policy period even though the injury resulted later. Hence, the court concluded the insurer had a duty to defend the action.
In the present case, one policy contains language similar to the language in Sam Harris, limiting coverage to "occurrences which happen during the policy period" but giving no definition of "occurrence." (INA policy No. LAB 1263, June 30, 1966-July 31, 1971.) As to that policy we must conclude the policy could refer to American Cyanamid's anticompetitive conduct during the policy period even though the injury to CDC resulted later. Summary adjudication should not have been granted as to this policy.
(3) Occurrence From an Offense
Another policy is more problematic. It provides coverage for advertising injury "to which policy applies arising from an occurrence within the policy territory." (INA policy Nos. ISL 1334, ISA 1225, June 30, 1982-June 30, 1983.) As in Sam Harris, supra, "occurrence" is not defined, nor is there any
Yet, unlike the policy construed above, the policy at issue here goes on to define "advertising injury" as "injury or damage arising out of one or more of the following offenses: ... unfair competition...." Reading the policy as a whole in its ordinary and popular sense, we uphold the trial court's interpretation of this language to mean that the triggering event is the injury, not the act. Accordingly, as no injury to CDC occurred during the policy period, the trial court correctly found no duty to defend.
(4) Offense Committed During Policy Period
Four of the policies do not use the term "occurrence" in defining the temporal extent of their coverage; instead, these policies cover "offenses committed ... during the policy period." (AHA policy No. GLA 343-11-71, Jan. 1, 1976-June 30, 1976; AHA policy No. GLA 342-93-13, June 30, 1976-June 30, 1980; INA policy Nos. ISL 1334, ISA 1225, June 30, 1980-June 30, 1982; INA policy No. ISL 1334, June 30, 1983-June 30, 1986.)
Similar terminology was construed in Harbor Ins. Co. v. Central National Ins. Co., supra, 165 Cal.App.3d 1029, where the court, as in Sam Harris, held the general rule regarding the trigger of coverage of an occurrence policy was not applicable to policies that did not even use the term occurrence. In Harbor Ins. Co. the insured had been sued for malicious prosecution. Two of its policies provided coverage for damages arising from the offenses of false arrest or malicious prosecution "`if such offense is committed during the policy period.'" (165 Cal. App.3d at p. 1035, italics omitted.) The Court of Appeal held that the offense of malicious prosecution is committed when the malicious action is instituted (not, as the trial court had found, when the action is favorably terminated.) (Id., at pp. 1036-1037.) Hence, the court concluded there was no coverage under the policies which went into effect after the malicious action was filed and activated.
In holding that the offense was committed when the malicious action was filed, the court recognized that the cause of action does not accrue until
Here, under the policies in question, the offense is unfair competition. The question is when the offense was committed. The insurers rely primarily on Bank of the West v. Superior Court, supra, 2 Cal.4th 1254, in which the court noted that the common law tort of unfair competition, unlike a claim under a state statute prohibiting unfair business practices, requires a competitive injury. (Id., at p. 1264.) The insurers extrapolate from this language that the tort of unfair competition is not complete until a competitor exists and has been injured; hence the "offense" could not have been committed here before 1986, before CDC came into existence.
This reasoning is flawed for several reasons. First, Bank of the West did not involve the issue of trigger; the question there was whether coverage for "unfair competition" extended to claims of unfair business practices which had harmed consumers, not competitors. In the present case there is no question that it was a competitor who was allegedly harmed. Second, as to the four policies under discussion here, coverage is provided for "offenses committed" during the policy period. This language indicates that the triggering event is the act, not the injury. It is the offense that must be committed during the policy period in order to trigger coverage. There is nothing in the policies to require that the resulting injury must also occur or manifest itself during the policy period.
Third, it does not logically follow from the requirement of a competitive injury that a competitor must be in existence at the same time that the anticompetitive conduct is committed. Preventing a competitor from entering the market is just as harmful as injuring the business of an established competitor.
We conclude that American Cyanamid is potentially liable to CDC for offensive practices occurring even before 1986. Accordingly, we conclude the insurers on the four "offenses committed" policies may have a duty to defend. Summary adjudication was erroneous.
In conclusion, we affirm the trial court's ruling as to those three policies providing coverage for injury during the policy period (INA policy No. LAB 1263, July 31, 1971-Nov. 7, 1974; CU policy No. CLCY 9883-002, Nov. 7, 1974-Jan. 1, 1976; INA policy Nos. ISL 1334, ISA 1225, June 30, 1982-June 30, 1983). As to the remaining five policies, however (INA policy No. LAB 1263, June 30, 1966-July 31, 1971; AHA policy No. GLA 343-11-71, Jan. 1, 1976-June 30, 1976; AHA policy No. GLA 342-93-13, June 30, 1976-June 30, 1980; INA policy Nos. ISL 1334, ISA 1225, June 30, 1980-June 30, 1982; INA policy No. ISL 1334, June 30, 1983-June 30, 1986), summary adjudication was erroneous, and the judgment is reversed. The matter is remanded for further proceedings to determine the existence or nonexistence of a duty to defend under those five policies. Each side shall bear its own costs.
Newsom, Acting P.J., and Stein, J., concurred.
A petition for a rehearing was denied January 9, 1995, and the opinion was modified to read as printed above. Respondents' petition for review by the Supreme Court was denied March 2, 1995.