Opinion
—In the underlying action for breach of insurance contract and bad faith, appellant Total Call International, Inc. (TCI), asserted that respondent Peerless Insurance Company (Peerless) had improperly declined to defend TCI in litigation arising out of its advertising activities. The trial court sustained Peerless’s demurrer to TCI’s complaint without leave to amend. We affirm.
RELEVANT FACTUAL AND PROCEDURAL BACKGROUND
TCI’s complaint against Peerless, filed August 12, 2008, alleges the following facts: TCI provides telecommunication services and products, *165 including prepaid domestic and international phone cards. The cards enable people, many of whom are immigrants, to make calls to their home countries. The prepaid phone card industry is competitive, and providers such as TCI operate on thin profit margins. Most providers rely on “point of sale” advertising, that is, billboards and posters at gas stations and other places where cards are sold that state the price of the provider’s card and amount of paid minutes. Because cost is the determinative factor for most consumers, they typically buy the least expensive card advertised on the billboards and posters.
TCI’s complaint further alleges that Peerless issued a commercial general liability policy to TCI, effective from July 13, 2006, to July 13, 2007. The policy’s coverage provisions stated: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.” The policy defined “[p]ersonal and advertising injury” to mean “injury . . . arising out of’ several enumerated “offenses,” including the “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” Under an exclusion entitled “Quality [o]r Performance of Goods— Failure to Conform [t]o Statements” (nonconformity exclusion), the policy precluded coverage for “ ‘[pjersonal and advertising injury’ arising out of the failure of goods, products or services to conform with any statement of quality or performance made in [the insured’s] ‘advertisement.’ ”
TCI’s complaint further alleges that in March 2007, two competitors of TCI—namely, IDT Telecom, Inc., and Union Telecard Alliance, LLC (collectively DDT)—sued TCI, alleging that they had suffered damages as the result of TCI’s advertising activities. Peerless declined to provide TCI a defense in the IDT action on the ground that DDT had alleged only that TCI’s advertising misrepresented TCI’s own phone cards. In view of these allegations, Peerless asserted that DDT’s claims fell outside the policy’s coverage for advertising injury and were otherwise barred from coverage by the nonconformity exclusion. In November 2007, TCI entered into a settlement with IDT.
TCI’s complaint asserts claims for breach of insurance contract, bad faith, unfair business practices (Bus. & Prof. Code, § 17200 et seq.), and declaratory relief against Peerless. Peerless demurred to TCI’s complaint, contending that Peerless had properly declined to defend TCI in the IDT action. On November 4, 2008, the trial court sustained the demurrer without leave to amend. In ruling, the trial court concluded that although IDT’s claims *166 potentially constituted advertising injury under the policy, they were barred from coverage by the nonconformity exclusion. An order of dismissal was entered in Peerless’s favor on November 17, 2008. This appeal followed.
DISCUSSION
TCI contends the trial court erred in sustaining the demurrer without leave to amend. As explained below, TCI is mistaken.
A. Standards of Review
“Because a demurrer both tests the legal sufficiency of the complaint and involves the trial court’s discretion, an appellate court employs two separate standards of review on appeal. [Citation.] . . . Appellate courts first review the complaint de novo to determine whether or not the . . . complaint alleges facts sufficient to state a cause of action under any legal theory, [citation], or in other words, to determine whether or not the trial court erroneously sustained the demurrer as a matter of law. [Citation.]”
(Cantu
v.
Resolution Trust Corp.
(1992)
Under the first standard of review, “we examine the complaint’s factual allegations to determine whether they state a cause of action on any available legal theory. [Citation.] We treat the demurrer as admitting all material facts which were properly pleaded. [Citation.] However, we will not assume the truth of contentions, deductions, or conclusions of fact or law [citation], and we may disregard any allegations that are contrary to the law or to a fact of which judicial notice may be taken. [Citation.]”
(Ellenberger v. Espinosa
(1994)
Under the second standard of review, the burden falls upon the plaintiff to show what facts he or she could plead to cure the existing defects in the complaint. (Cantu v. Resolution Trust Corp, supra, 4 Cal.App.4th at p. 890.) “To meet this burden, a plaintiff must submit a proposed amended complaint or, on appeal, enumerate the facts and demonstrate how those facts establish a cause of action.” (Ibid.)
*167 B. Duty to Defend
The key issues presented on appeal concern an insurer’s duty to defend.
1
“[I]t is firmly established [that] the duty to defend is broader than the obligation to indemnify. The former arises whenever an insurer ascertains facts that give rise to the possibility or the potential of liability to indemnify. Unlike the duty to indemnify which arises only when the insured’s underlying liability is established, the duty to defend must be assessed at the very outset of a case. ...['][] Equally established is that ‘when a suit against an insured alleges a claim that potentially or even possibly could subject the insured to liability for covered damages, an insurer must defend unless and until the insurer can demonstrate, by reference to undisputed facts, that the claim cannot be covered.’ ”
(Pardee Construction Co. v. Insurance Co. of the West
(2000)
To determine whether Peerless properly declined to provide a defense to TCI, we identify the facts available to it at the time of its denial. “The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy.”
(Horace Mann Ins. Co. v. Barbara B.
(1993)
C. Facts Known to Peerless
As TCI’s complaint against Peerless does not allege extrinsic facts pertinent to the duty to defend, our inquiry is confined to IDT’s complaint, which *168 is incorporated into TCI’s complaint. IDT filed its action in federal district court in New Jersey against TCI and several other phone card providers. IDT’s complaint asserts claims for deceptive business practices and false advertising under the Lanham Act (15 U.S.C. § 1051 et seq.) and the laws of several states, including California’s unfair competition law (Bus. & Prof. Code, § 17200 et seq.) and false advertising law (Bus. & Prof. Code, § 17500 et seq.).
IDT’s complaint alleged that the prepaid phone card industry generates over $2 billion in annual retail sales revenue. According to the complaint, IDT constituted the leading card provider, with annual sales exceeding $1 billion; TCI and the other defendants collectively made approximately $1 billion in sales. Although consumers of phone cards exhibit a high degree of “brand loyalty” and frequently buy the same brand of card, they are also sensitive to price rates. Consumers receive information about phone cards from advertising and “voice prompts,” that is, an automated computer voice that tells a card user the amount of calling time remaining on the card.
IDT’s complaint further alleged that because IDT had offered “high quality and low priced services” to consumers, it “ha[d] garnered substantial good will and a loyal customer base for [its] card brands.” In contrast, the phone cards sold by TCI and the other defendants “virtually never provide[d] the minutes advertised to consumers on their posters and voice prompts. . . . [IDT’s] internal testing demonstrate^] that [TCI and the other defendants were] systematically lying to consumers about the minutes promised on their posters and voice prompts. . . . [They] . . . provide[d] only approximately 60 [percent] of the minutes promised on their posters and voice prompts, thereby injuring consumers on virtually each and every calling card purchase.”
Regarding TCI, IDT’s complaint specifically alleged that TCI marketed its cards through “point of purchase posters, television advertisements, radio advertisements, packaging and voice prompts”; that TCI “communicate[d] to consumers that they will receive [a] certain number[] of minutes for a certain cost”; and that the minutes “actually delivered ... are significantly less than those marketed in [TCI’s advertising].” The complaint also alleged that this advertising was “false, misleading and deceptive.”
In describing IDT’s injuries, the complaint asserted: “Defendants’ conduct has damaged and is continuing to damage [IDT’s] reputation of being the best value provider of quality calling cards. Defendants’ consumer fraud also has taken away from [IDT] a significant share of . . . business. Additionally, [defendants’ unlawful conduct has damaged the reputation of the prepaid *169 calling industry.” Moreover, in a section entitled “Defendants’ Consumer Fraud Has Irreparably Harmed [IDT’s] Reputation, Caused Lost Sales, and Caused [IDT] to Incur Exorbitant Costs to Compete with Defendant’s Deceptive Rates,” the complaint contained the following allegations: “Defendants’ consumer fraud is also causing irreparable harm to [IDT’s] reputation. Based on brand loyalty created by their high quality and low rate calling cards, [IDT] built a significant market share .... Defendants’ widespread consumer fraud, however, has destroyed much of this market share, as consumers have been misled to ignore [IDT’s] cards and instead purchase [defendants’ calling card by promises of long distance minutes that were never delivered by [defendants. It is unclear whether [IDT] will ever be able to regain this lost market share.”
D. No Advertising Injury
We begin by examining whether IDT’s complaint potentially alleges an advertising injury under the policy. Notwithstanding the trial court’s determination on this matter, we will affirm the demurrer on any properly supported ground, regardless of the trial court’s basis for its ruling.
(Cantu v. Resolution Trust Corp., supra,
The provision at issue provides coverage for “product disparagement and trade libel as well as defamation.”
(Atlantic Mutual Ins. Co.
v.
J. Lamb, Inc.
(2002)
*170
As our Supreme Court explained in
Blatty v. New York Times Co.
(1986)
After the trial court sustained a demurrer to the amended complaint without leave to amend, the Supreme Court concluded that the ruling was correct. (Blatty; supra, 42 Cal.3d at pp. 1048-1049.) Noting that the author’s claims in his original and amended complaint had “as their gravamen the alleged injurious falsehood of a statement,” the court explained that “all injurious falsehood claims” sounding in defamation, however framed, are subject to requirements rooted in the First Amendment to the United States Constitution. (42 Cal.3d at pp. 1043-1045, italics added.) These requirements cannot be avoided by “creative pleading” that “affix[es] labels other than defamation to injurious falsehood claims.” (Id. at p. 1045.) Among these requirements is the demand that the injurious falsehood “specifically refer[]” to the derogated person or product. (Id. at p. 1046.) To meet this demand at the pleading stage, a plaintiff must allege that “the statement at issue either expressly mentions him or refers to him by reasonable implication.” (Ibid.)
Turning to the author’s allegations, the court concluded that the purported injurious falsehood—namely, that the list was an accurate compilation of book sales—did not satisfy the specific reference requirement.
(Blatty, supra,
*171 In view of Blatty, IDT’s complaint alleges no claim for an injurious false statement potentially within the scope of the policy’s coverage for advertising injury. Although IDT’s complaint asserts that TCI’s falsehoods injured IDT’s reputation by reducing IDT’s market share and damaging the industry’s collective reputation, the complaint contains no allegation suggesting that the falsehoods met the specific reference requirement. On the contrary, IDT’s complaint discloses that the requirement was not satisfied.
According to IDT’s complaint, TCI’s offending advertisements and voice prompts falsely “communicate[d] to consumers that they [would] receive [a] certain numberf] of minutes for a certain cost.” This sort of communication, by itself, carries
no
implication that IDT’s comparable cards cost more or less than TCI’s cards; to ascertain such information, a consumer would have to consult IDT’s own advertising. As TCI’s complaint against Peerless otherwise alleges no extrinsic facts suggesting that its advertisements met the specific reference requirement for defamation-related claims, TCI failed to establish the potential for a covered claim. (See
R. C. Bigelow, Inc. v. Liberty Mutual Ins. Co.
(2d Cir. 2002)
TCI suggests that the references in IDT’s complaint to its damaged reputation were sufficient to raise the possibility that IDT’s claims were covered under the policy. We disagree. The fact that the third party complaint mentions an element of a covered claim does not trigger the duty to defend when the facts known to the insurer, viewed as a whole, establish that no such claim is potentially asserted.
(Quan
v.
Truck Ins. Exchange
(1998)
*172 E. No Coverage Due to Exclusion
We also conclude that there was no potential for policy coverage in view of the nonconformity exclusion, which bars coverage for advertising injury “arising out of the failure of goods, products or services to conform with any statement of quality or performance made in [the insured’s] ‘advertisement.’ ” Several courts have held that this exclusion precludes coverage for third party claims predicated on allegations that the insured’s advertising misrepresented the quality or price of the insured’s own product.
In
Skylink Technologies, Inc. v. Assurance Co.
(7th Cir. 2005)
In
New Hampshire Ins. Co. v. Power-O-Peat, Inc.
(8th Cir. 1990)
Finally, in
Superformance Intern, v. Hartford Cas. Ins.
(E.D.Va. 2002)
TCI contends that the nonconformity exclusion is ambiguous, and can be reasonably understood as operating to bar coverage for claims by consumers, but not claims by competitors. Pointing to
Aragon-Haas v. Family Security Ins. Services, Inc.
(1991)
When, as here, an insurance policy is attacked as ambiguous solely on the basis of the policy’s language, the challenge presents a question of law properly resolved on demurrer.
(ACS Systems, Inc. v. St. Paul Fire & Marine Ins. Co.
(2007)
TCI’s reliance on Aragon-Haas is misplaced. There, the plaintiff sued her employer for wrongful discharge, and the trial court sustained the employer’s demurrer without leave to amend, concluding that the plaintiff was an “at-will” employee. (Aragon-Haas, supra, 231 Cal.App.3d at pp. 235-238.) The appellate court reversed, reasoning that the plaintiffs contract of employment—which had been incorporated into the complaint—was ambiguous on its face regarding the plaintiff’s employment status. (Id. at pp. 236, 239-240.) As explained above, the policy contains no such ambiguity.
F. Leave to Amend
We turn to whether the trial court properly sustained the demurrer without leave to amend. Because TCI has offered no amendments before the trial court or on appeal, we discern no abuse of discretion. As explained in
Rakestraw v. California Physicians’ Service, supra,
*174 DISPOSITION
The judgment is affirmed. Respondent is awarded its costs on appeal.
Willhite, Acting P. J., and Suzukawa, J., concurred.
Notes
Because the allegation that Peerless breached its duty to defend is the basis for every claim in TCI’s complaint, we need not address each claim separately.
(Rakestraw v. California Physicians’ Service
(2000)
We recognize that TCI’s complaint against Peerless also mentions a second provision that provides coverage for injury arising out of “[t]he use of another’s advertising idea in [the insured’s] ‘advertisement.’ ” However, TCI’s briefs neither mention this provision nor argue that IDT’s claims potentially fell within its scope.
We also note that TCI’s briefs suggest that Peerless did not demur on the ground that IDT’s claims fell outside the policy coverage for advertising injury. The record conclusively demonstrates otherwise.
On this matter, the court in
Blatty
explained: “When, as in this case, the statement that is alleged to be injuriously false concerns a group—here, books currently in print and their authors—the plaintiff faces a ‘difficult and sometimes insurmountable task. If the group is small and its members easily ascertainable, [the] plaintiff[] may succeed. But where the group is large—in general, any group numbering over twenty-five members—the courts in California and other states have consistently held that plaintiffs cannot show that the statements were “of and concerning them,” [citations].’ [Citation.] [j[] The group in question here obviously numbers substantially more than 25 members: a visit to even the smallest bookstore establishes this fact.”
(Blatty, supra,
TCI also purports to find support for its contention in
Standard Fire Ins. Co.
v.
Peoples Church of Fresno
(9th Cir. 1993)