The court affirmed summary judgment for the insurer, finding the first publication exclusion barred a defense for otherwise potentially covered trademark and trade dress claims. Spectrum advertised and distributed for its client, Sunset Health Products, the “Hollywood 48-Hour Miracle Diet” drink. Spectrum terminated its marketing agreement with Sunset and reformulated it with Tremain and Schwartz, who formed Celebrity Products to promote “The Original Hollywood Celebrity Diet” drink.
Slight variations in the physical appearance of the advertisements by Spectrum for Celebrity Diet remained after initial complaints. Judge Manella granted a TRO based on the dramatic change between Spectrum’s 1998 and 2001 labels.
A preliminary injunction was denied since the 1998 label was changed by Spectrum in 1999 and that label was so similar to the 2001 label that Sunset was not in danger of experiencing immediate harm. Spectrum and Sunset subsequently settled for over $3 million dollars and the carrier United contributed $420,000 to same.
The court initially determined the triable issues of fact precluded a finding for United’s benefit on the first publication exclusion. Reconsideration was granted after the adjudication of facts in the underlying action, finding that the exclusion eliminated the insurer’s liability and permitting judgment against Spectrum in favor of the insurer for the amount of its payment contribution to settlement.
In analyzing the applicability of the first publication exclusion, the Ninth Circuit reasoned:
Spectrum's argument would require us to ignore sections (c) (misappropriation) and (d) (infringement) of the “advertising injury” definition in order to find an ambiguity. That argument contradicts California policy that instructs courts (1) to “give effect to every part, if reasonably practicable,” Cal. Civ.Code § 1641, and (2) not to “strain” to find ambiguities. See, e.g., Waller, 44 Cal.Rptr.2d 370, 900 P.2d at 627. In order to find Spectrum's interpretation reasonable, we would have to conclude that it is reasonable to ignore Monticello's efforts to carefully define the term “advertising injury” to mean injury arising out of defamation, invasion of privacy, misappropriation, and/or infringement and set the term off in quotation marks throughout the policy.
Id. at *4.
The first publication exclusion was therefore applicable to all provisions. The court also noted that a mere split in authority does not render an exclusion ambiguous. MacKinnon v. Truck Ins. Exchange, 73 P.3d 1205, 1212 (Cal. 2003). Id. at *4.
Judicial estoppel barred the insured from finding the exclusion inapplicable due to the findings by the trial court in the underlying action. Inconsistency would appertain should Spectrum now be able to change its contentions regarding the timing of events from what it argued before the trial court.
The court found,
Spectrum benefited from arguing in 2001 that Sunset's alleged infringement claim arose from materials first published in 1999. If we now allow Spectrum to argue that the claim did not arise until 2001, Spectrum's “gaming” of the courts will allow it the possibility of prevailing on the very position it successfully discredited while attempting to avoid preliminary injunction. The result would be unfair to Sunset, whose alleged harms increased as a result of Spectrum's 1999 arguments.
Id. at *6.
Tremain and Schwartz were held individually liable in the underlying suit.
They also were professionally liable for reimbursement to United.
Because “[a] district court does not abuse its discretion when it disregards legal arguments made for the first time” on a motion to alter or amend a judgment, Zimmerman, 255 F.3d at 740 (citing Rosenfeld v. U.S. Department of Justice, 57 F.3d 803, 811 (9th Cir. 1995)), we affirm the district court with respect to this issue.
Id. at *7.
The court’s determination that 4 minus 2 equals 4, not 2, suggests a need to revisit basic math. While all offenses are necessarily implicated by the definition of advertising injury, the operative first publication exclusion defines the term “advertising injury” as to include all four operative defenses (a) through (d). It then notes that “advertising injury” should only bar coverage “arising out of oral or written publication of material” whose first publication took place before the beginning of the policy. Thus the exclusion only impacts the operative offenses arising out of “oral or written publication of material.”
By the court’s definition, all sections – even those that only implicate infringement and/or misappropriation without any necessity of an oral or written publication of material – must flow within the exclusion. However, this is but one possible construction, albeit not the most reasonable, and thus should not prevail in light of the logic of MacKinnon it cites but does not consider for this point.
See Maddox v. St. Paul Fire & Marine Ins. Co., 179 F. Supp. 2d 527, 531 n2 (W.D. Pa. 2001) (“Courts are split on whether the prior publication exception language is ambiguous in its application to non-tortious violations, and no court has ever applied Pennsylvania law to this issue. Compare Adolfo House Distributing Corp. v. Travelers Prop. and Cas. Ins. Co., 165 F.Supp.2d 1332, 1341-42 (S.D.Fla.2001) (holding that prior publication exclusion does not apply to non-tortious injuries . . .); . . . David A. Gauntlett, Insurance Coverage of Intellectual Property Assets § 3.03 (Aspen Publishers, Inc.2000) (explaining that exception should only apply to torts and not other types of advertising injury) with . . . Applied Bolting Tech. Products, Inc. v. United States Fid. & Guar. Co., 942 F.Supp. 1029 (E.D.Pa.1996) (same, applying Vermont law).”)
