No Duty to Defend No Possible Duty to Indemnify

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Legal Conclusions are Not Allegations of Fact

Post 4734

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Legal Conclusions are Not Allegations of Fact

Zox LLC (“Zox”) appealed the district court’s grant of summary judgment in favor of West American Insurance Company. Zox contended the district court erred because the Zox Brothers sought damages for three potentially covered claims: (1) malicious prosecution; (2) disparagement; and (3) use of an “advertising idea.”

In ZOX LLC, a California Limited Liability Company, v. West American Insurance Company; et al., No. 23-55125, USCA, 9th (February 9, 2024) the dispute was resolved.

ANALYSIS

Under California law, a liability insurer owes a broad duty to defend its insured against claims that potentially seek damages within the coverage of the policy. Coverage turns not on the technical legal cause of action pleaded by the third party but on the facts alleged.

While the duty to defend is broad, an insurer will not be compelled to defend its insured when the potential for liability is tenuous and farfetched.

The Zox Brothers did not plead facts, nor provide extrinsic evidence, to satisfy any of the requisite elements of a malicious prosecution claim. The Pleadings did not trigger coverage for malicious prosecution.

Disparagement

The Zox Brothers must plead facts to show a false or misleading statement that clearly derogates that product or business.

Appropriation of Advertising Ideas

Zox Brothers triggered coverage by claiming that Zox appropriated their “advertising ideas” by using the “Zox” name and “passing off” their products as Zox Brothers’ goods. The district court did not err in finding that the Pleadings did not trigger coverage for a “use of another’s advertisement” claim.

CONCLUSION

For the reasons stated by the Ninth Circuit, outlined above, it found that West American did not have a duty to defend or indemnify Zox in the Zox Litigation because, there was no duty to defend.

Where there is a duty to defend, there may be a duty to indemnify; but where there is no duty to defend, there cannot be a duty to indemnify.

ZALMA OPINION

The Ninth Circuit applied the clear and unambiguous language of the policy to the “facts” alleged; found that the allegations were mostly speculative or based on legal conclusions, failure to allege facts to support the three claims failed and, therefore, the Ninth Circuit had no choice but to affirm the summary judgment find no duty to defend nor a duty to indemnify.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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