Unpublished Disposition, 878 F.2d 386 (9th Cir. 1989)

MEMORANDUM^* 

Consolidated Capital, a mortgage investment firm, appeals from a summary judgment entered against it and in favor of Liberty Mutual and Commerce and Industry, its insurers [hereinafter "Liberty"]. The district court held that Liberty had no duty to defend an underlying suit brought against Consolidated by some of Consolidated's shareholders for fraud and related charges.

Consolidated's insurance policies from Liberty feature endorsements which include coverage for, inter alia, suits based on "advertising injury." The endorsements define "advertising injury" as including injury from "unfair competition." The term "unfair competition" is not defined in the insurance contract.

Consolidated claims that the endorsement including "unfair competition" is ambiguous, and so under our case law should be construed strictly against the drafter, the insurance company. However, courts will not adopt a strained or absurd interpretation in order to create an ambiguity where none exists. Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800, 807, 640 P.2d 764, 767, 180 Cal. Rptr. 628, 631 (1982). The only authority defining unfair competition in a manner broad enough to cover even the claims asserted in the underlying action is a California statute. Cal.Bus. & Prof.Code Secs. 17200 and 17500.

Insurance contracts must be interpreted under contract principles reflecting the intent of the parties. Words used in an insurance policy are to be interpreted according to the plain meaning that a layman would ordinarily attach to them. Reserve Ins. Co., 30 Cal. 3d at 807, 640 P.2d at 767, 180 Cal. Rptr. at 631. The insurance policy endorsement defining "advertising injury" contains a list of common law torts, including "unfair competition." Consolidated asks us to read into the policy a definition of unfair competition created by the California legislature to cover different circumstances.

While no list of activities which constitute unfair competition has ever been devised, under the common law "competitive injury originally composed an essential element of the tort of 'unfair competition.' " Barquis v. Merchants Collection Assn., 7 Cal. 3d 94, 109, 496 P.2d 817, 828, 101 Cal. Rptr. 745, 756 (1972).

The shareholders cannot state a claim for relief under the common law because they are not competitors of Consolidated and therefore did not sustain a competitive injury. See id. Without this essential element, the shareholders cannot make out a prima facie case for common law unfair competition. Id. The underlying litigation concerns false advertising in the sale of securities. It cannot be characterized as involving "unfair competition" within the meaning of the policy. The insurers have no duty to defend under a theory that the underlying action sets forth an unfair competition claim.

AFFIRMED.