Burlington Insurance Co. v. Minadora Holdings, LLC
690 F. App'x 918
9th Cir.2017Background
- Durment, as assignee of three insureds (Orange Precision, Minadora, West Coast), sued insurers Burlington and Endurance after a settlement arising from allegations that the insureds used Durment’s advertising ideas in online advertising.
- Burlington insured Orange Precision and Minadora; Endurance insured West Coast. The underlying First Amended Cross-Complaint (FAXC) alleged use of Durment’s advertising ideas beginning January 1, 2009.
- Two consolidated appeals: Burlington sought declaratory relief (duty to defend and indemnify); Durment sued for settlement reimbursement, bad-faith, declaratory relief, and fraud (various claims against Burlington and Endurance).
- The primary legal question was whether the insurers had a duty to defend/indemnify under policy grants and whether various policy exclusions (prior publication, cross-liability, intellectual-property, intentional acts, breach-of-contract) or policy provisions (separate-insured clause, endorsement, consent/no‑voluntary‑payments) bar coverage.
- The Ninth Circuit reviewed summary judgment de novo, finding duty-to-defend issues generally favored defenses by Durment/insureds except for Orange Precision under Burlington’s cross-liability exclusion; factual disputes remained on insurer liability for the settlement and Endurance’s consent/no‑voluntary‑payments defense.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend for advertising-idea claim | Durment: FAXC alleges use of his advertising ideas → potential advertising-injury → duty to defend | Insurers: allegations don’t trigger coverage or exclusions apply | Court: FAXC alleged potential advertising-injury; duty to defend exists unless a valid exclusion applies (duty exists for Minadora and West Coast; not for Orange Precision under Burlington policy) |
| Prior-publication exclusion (Endurance) | Insurer: prior publication before policy period bars coverage | Durment: FAXC did not allege all publications predate policy | Court: Exclusion does not apply as alleged ads were not shown to be all published before policy effective date; duty to defend West Coast remains |
| Cross-liability / employee exclusion (Burlington) | Durment: Coverage should apply to all insureds | Burlington: exclusion bars claims by an employee of “any insured,” so former-employee claim by Durment against Orange Precision excluded | Court: Exclusion bars Orange Precision (Durment was former employee) but separate-insured clause permits Minadora’s coverage to be analyzed independently → duty to defend Minadora stands |
| Intellectual-property exclusion (policy & endorsement) | Insurers: exclusion bars claims based on other IP rights, including advertising ideas | Durment: grant for "use of another’s advertising idea" would be vitiated if IP exclusion read to cover advertising ideas | Court: IP exclusion reasonably read not to cover advertising ideas; endorsement must be reconciled with policy to give effect to coverage → exclusion does not preclude coverage for advertising-idea claims |
| Breach-of-contract / implied contract exclusion | Insurers: breach-of-contract exclusion bars contract-based claims | Durment: allegations could be tort or implied-contract; policy excepts implied contract about use of advertising ideas | Court: FAXC permitted possibility of implied-contract or tort claim falling within exception → possible coverage |
| Intentional-acts exclusion | Insurers: acts committed with knowledge of violating rights preclude coverage | Durment: alleged use could have been without such knowledge | Court: FAXC did not rule out lack of knowledge; exclusion did not preclude duty to defend |
| Insurer liability for insured settlement (no-voluntary-payments / consent) | Durment: insurers failed to defend/abandoned defense → settlement reasonable and should be recoverable | Insurers: insureds settled without insurer consent; policy bars voluntary payments | Court: Genuine issues of material fact exist whether Burlington had abandoned defense (so settlement might bind Burlington) and whether Endurance had reasonable notice/participation (no‑voluntary‑payments defense not a basis for summary judgment) |
| Bad-faith claim (breach of implied covenant) against Burlington | Durment: insurer’s alleged deficient defense caused economic harm to insureds | Burlington: settlement terms preclude economic harm so no bad-faith liability | Court: Affirmed summary judgment for Burlington on bad-faith because insureds suffered no economic harm under settlement terms; the rule that insurer's deficient defense removes injury requirement does not apply to bad-faith claim here |
Key Cases Cited
- Guatay Christian Fellowship v. Cnty. of San Diego, 670 F.3d 957 (9th Cir. 2011) (standard of de novo review for summary judgment)
- Horace Mann Ins. Co. v. Barbara B., 846 P.2d 792 (Cal. 1993) (duty to defend exists even if underlying claims may ultimately fail)
- Montrose Chem. Corp. v. Superior Court, 861 P.2d 1153 (Cal. 1993) (duty to defend when complaint creates potential for indemnity)
- Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460 (Cal. 2005) (complaint creates potential for indemnity standard)
- Delgado v. Interinsurance Exch. of Auto. Club of So. Cal., 211 P.3d 1083 (Cal. 2009) (burden on insurer to prove exclusions defeat duty to defend)
- Street Surfing, LLC v. Great Am. E & S Ins. Co., 776 F.3d 603 (9th Cir. 2014) (prior-publication exclusion and continuing‑wrong analysis)
- Minkler v. Safeco Ins. Co. of Am., 232 P.3d 612 (Cal. 2010) (separate‑insurance clause and collective application of exclusions)
- Haynes v. Farmers Ins. Exch., 89 P.3d 381 (Cal. 2004) (insureds’ reasonable expectations and construction against exclusions)
- E.M.M.I. Inc. v. Zurich Am. Ins. Co., 84 P.3d 385 (Cal. 2004) (policy exclusions strictly construed)
- Fuller-Austin Insulation Co. v. Highlands Ins. Co., 38 Cal. Rptr. 3d 716 (Cal. Ct. App. 2006) (insurer cannot decline settlement participation then rely on consent clause to avoid responsibility)
- Samson v. Transamerica Ins. Co., 636 P.2d 32 (Cal. 1981) (abandoned insured may enter reasonable settlement binding insurer for amounts attributable to covered claims)