Unpublished Disposition, 928 F.2d 408 (9th Cir. 1989)

MEMORANDUM^* 

Northwestern Pacific Indemnity Company ("Northwestern") and

Federal Insurance Company ("Federal") appeal the grant of

summary judgment in favor of National Union Fire Insurance

Company ("National"). Northwestern and Federal sought to

recover all or part of the costs expended in defense of a

trademark and unfair competition suit brought against

Northwestern's insured, Cal Circuit Abco, Inc. ("Cal Abco").

On appeal, Northwestern and Federal argue that the district

court abused its discretion in determining that

Northwestern's policy exclusion for prior acts did not

exclude coverage for Cal Abco's infringement. They

alternatively argue that the district court erred in

refusing to apportion the payment of attorneys fees and

defense costs on the basis of the ratio between Northwestern

and National's policy limits.

National Union provided primary comprehensive general liability insurance to Cal Abco for the period from January 1, 1984, to January 1, 1985. Northwestern provided primary comprehensive general liability insurance to Cal Abco for the period from January 1, 1985, to January 1, 1986. Federal was the excess insurer for Cal Abco from January 9, 1984, to January 1, 1986.

On or about February 27, 1985, NEC Electronics, Inc. ("NEC") filed a trademark infringement action against Cal Abco.¹  The litigation was tendered to National and Federal. National accepted the defense, with a reservation of rights, on or about September 6, 1985. Northwestern also accepted the tender with a reservation of rights on or about July 8, 1986.

The underlying action settled for no payment by Cal Abco. Cal Abco expended $2,324,419.65 for defense costs. Of that sum, Northwestern paid $820,000, and National paid $820,488.77. The remainder of the costs were covered by Cal Abco.

Federal commenced this action on March 8, 1988.²  The parties filed cross-motions for summary judgment which were heard on October 16, 1989. The district court denied Northwestern's motion and granted National's motion. Judgment was entered October 18, 1989, and Northwestern and Federal timely appealed.

Northwestern claims that it had no duty to defend Cal Abco because the claim for advertising injury was excluded as a prior act. Among other exclusions, the Northwestern policy provided as follows:

WILLFUL VIOLATIONS--INTENTIONAL FALSEHOODS--PRIOR ACTS

personal injury or advertising injury arising out of:

.............................................................

...................

* * *

3. the publication or utterance of material whose first publication took place prior to the effective date of this insurance.

The complaint and the first amended complaint filed by NEC claimed that Cal Abco's trademark infringement occurred "subsequent to January, 1983," and "as early as 1979." The complaint also alleged that "Defendants have and continue to pass off their goods and business as and for the goods and business of the Plaintiff." Because the underlying action settled, there was no finding as to the date on which any of the acts of infringement occurred.

Northwestern argues that it had no duty to defend Cal Abco because the pleadings in the infringement claim alleged that Cal Abco's first use of NEC's trademark occurred prior to the inception of the Northwestern policy. Northwestern mistakenly asserts that the allegation that the date of the first use was "subsequent to January, 1983," "suggest [s] that trademark infringement and unfair competition began at least in 1983...."

This language, however, indicates that, to the contrary, the first use could have occurred anytime after January 1983 and before the complaint was filed in February 1985. Thus, the first use could feasibly have occurred after January 1, 1985, when Northwestern's policy would have been in effect. Therefore, the language of the complaint does not help Northwestern.

Further, the duty to defend an insured in California is extremely broad.

The duty to defend is much broader than the duty to indemnify. An insurer's duty to defend must be analyzed and determined on the basis of any potential liability arising from the facts available to the insurer from the complaint or other sources available to it at the time of the tender of defense.

CNA Casualty of California v. Seaboard Surety Co., 176 Cal. App. 3d 598, 605, 222 Cal. Rptr. 276, 278-79 (1986) (emphasis in original); see also Gray v. Zurich Insurance Co., 65 Cal. 2d 263, 54 Cal. Rptr. 104 (1966).

In a case where a prior acts exclusion might apply, the duty to defend continues. CNA, 176 Cal. App. 3d at 613. The case before this panel is not one in which it is clear to a reasonable certainty that the exclusion would apply. Therefore, the possible existence of an exclusion did not eliminate Northwestern's duty to defend Cal Abco.

At the time the complaint was filed, it was impossible to know when the first act of trademark infringement occurred, as no specific date of infringement was alleged. Therefore, Northwestern had a duty to defend Cal Abco. The possible prior acts exclusion did not abrogate the duty. We affirm the district court's grant of summary judgment in favor of National on the issue of Northwestern's duty to defend Cal Abco.

Northwestern and Federal also argue that the defense costs should have been apportioned according to the policy limits of Northwestern and National. Northwestern's policy limit was $500,000, while National's limit was $1,000,000. Therefore, Northwestern claims that it should only be responsible for one-third of the defense costs. Because National and Northwestern expended a total of $1,640,488.77, Northwestern argues that it was required only to pay one-third of that amount, or $546,829.59, and requests the difference between that sum and the amount it actually expended.

Under California law, the costs of defense must be apportioned equitably between those insurers who are jointly responsible for defending a lawsuit. CNA, 176 Cal. App. 3d at 619, 222 Cal. Rptr. at 288. Though the "courts have expressly declined to formulate any definitive rules for allocating defense costs among carriers," id. at 619, 222 Cal. Rptr. at 289, a plan that apportions costs in direct relation to the policy limits of the insurance carriers is acceptable. Id.

The district court based its decision that the allocation was equitable on the fact that Northwestern, National, and Cal Abco each paid approximately one-third of the total defense costs.³  This allocation was not an abuse of the district court's discretion. Signal Cos. v. Harbor Ins. Co., 27 Cal. 3d 359, 369, 165 Cal. Rptr. 799, 805, 612 P.2d 889, 895 (1980) (equitable allocation depends upon "the particular policies of insurance, the nature of the claim made, and the relation of the insured to the insurers").

AFFIRMED.