Opinion
As Modified on Denial of Rehearing Dec. 16, 1991.
Review Granted Feb. 13, 1992.
Review Dismissed and Cause Remanded.
Previously published at 1 Cal.App.4th 923, 7 Cal.App.4th 1567
Engel & Engel, Donald S. Engel and Stephen F. Moeller, Los Angeles, for plaintiffs and appellants.
Rosenfeld, Meyer & Susman, Walter S. Weiss and John J. Stumreiter, Beverly Hills, for defendant and appellant.
Assigned by the Chairperson of the Judicial Council.
Plaintiffs William Boyd Enterprises, Grace Bradley Boyd, David R. Hastings II, as administrator of the estate of Clarence E. Mulford, and Peter G. Hastings and David R. Hastings II, as trustees of Mulford's Boyd/Hastings' primary contention is that in dismissing their suit, the court, in effect, granted a motion for nonsuit without applying pertinent standards.
Contingent upon our finding merit to Boyd/Hastings' contentions, Fireman's appeals, asserting that the trial court erred when it earlier denied its motion for summary judgment and when it granted Boyd/Hastings' motions in limine to preclude certain defenses.
For the reasons that follow, we reverse the judgment and further find that there is no merit to Fireman's contentions of error.
FACTS
The late Clarence E. Mulford was the author of a series of novels employing the fictional character, Hopalong Cassidy. Plaintiffs David and Peter Hastings own the renewal copyrights in the novels. The late William Boyd played the lead role in several motion pictures produced between 1935 and 1939, based upon the novels. His widow, plaintiff Grace Bradley Boyd, is principal of plaintiff Boyd Enterprises, Boyd's successor-in-interest.
Although the films originally were copyrighted by Paramount Pictures, the copyrights were not renewed, and as of 1967, the motion pictures were in the public domain.
As a result of subsequent litigation in federal court, it was held that because the films were derivative works and their exhibition could be an infringement of the copyrights in the underlying novels, the right to exhibit the films on television did not go into the public domain, Mulford having expressly reserved to himself "all conceivable television rights in the Hopalong Cassidy motion pictures." (Filmvideo Releasing Corp. v. Hastings (S.D.N.Y.1978) 446 F.Supp. 725, 729.) This litigation will be discussed more fully below.
During the period from the 1950s to the 1970s, pursuant to a license from Mulford's representatives, Boyd Enterprises distributed and licensed the motion pictures for television broadcasting.
In 1973, Filmvideo Releasing Corporation (Filmvideo) and its president and sole shareholder, Maurice H. Zouary (Zouary), decided to distribute 17 of the Hopalong Cassidy motion pictures on television in the United States. In his depositions, Zouary testified he did not intend to offer the films to television unless he had insurance, and had a preliminary copyright investigation performed by a law firm, Dern and Levine, whose report of July 13, 1973, concluded that none of the copyrights to the 17 motion pictures had been renewed, and the films were in the public domain. By letter dated August 24, 1973, this same firm informed Zouary that some of the motion pictures were based on specific Mulford novels whose copyrights were renewed.
On August 24, 1973, Zouary wrote to Ronald M. Cohen of the insurance brokerage firm of Jerome J. Cohen, Inc., regarding acquisition of an insurance policy covering producer's liability for these films. Zouary provided a summary of the acquisition and chain of ownership of the films, attached a copy of the copyright report prepared by Dern and Levine, and noted that the only restriction in terms of literary rights by Mulford in his agreement with the original producers of the movies was that none of the parties cause any remakes or different pictures other than the original titles produced, based on the works by Mulford.
In response, Cohen wrote to Zouary on September 10, 1973, and informed Zouary that all supporting documents Zouary had provided had been forwarded to Fireman's for approval by its legal counsel. Cohen also provided an application form, designed by Fireman's, and requested that Zouary complete it as soon as possible.
On September 17, 1973, Zouary submitted the completed application for coverage of producer's liability. Zouary's cover letter stated that Filmvideo wanted to proceed with marketing the films domestically and wanted to be covered by the policy. Cohen forwarded the completed application to Albert G. Ruben & Company, Fireman's' Ruben & Company, in turn, consulted Fireman's' outside counsel, Jeffrey L. Nagin of Rosenfeld, Mayer & Susman in Beverly Hills. Nagin stated that he had "no problem" with the fact that the 17 films were in the public domain, opining that as long as Zouary had good title to the films, the question of distribution rights might well be academic in view of the copyright status.
Following Nagin's review, Fireman's agreed to issue the $1 million liability policy to Filmvideo for a term of three years.
The insurance policy, executed on October 25, 1973, was for a period from January 1, 1974, to January 1, 1977. In pertinent part, the policy provided: "B. The Company's liability hereunder is limited to claims specified in Paragraph 1-A arising out of acts or failures to act occurring during the term of this Policy and as to which a claim is first made and a suit action or proceeding based on such a claim is commenced during the term of this Policy or within a period of three years thereafter." Pursuant to paragraph 1-A, Fireman's agreed to indemnify Filmvideo against any liability resulting from, among other things, infringement of copyright, whether under statutory or common law, and unfair competition. The policy does not define "claims," "acts," or "failures to act."
On October 25, 1973, Zouary requested and received an official Fireman's' printed form of Certificate of Insurance which verified that Filmvideo had errors and omissions coverage for the 17 films. Apparently, Fireman's occasionally provides such certificates to its insureds, with the understanding that an insured will show the certificate to third parties in order to provide assurances that his or her product is insured.
In his deposition, Zouary testified that he discussed the commencement of the period of coverage with Cohen and decided upon January 1, 1974, because he felt Filmvideo would not be distributing and licensing the films until some time in 1974.
In late October 1973, after acquiring the certificate of insurance, Filmvideo distributed a flier, advertising the 17 films to a number of persons in the New York area. The flier listed the names of the films but, other than the name Filmvideo Releasing Corporation, did not contain information regarding how or when the films would be offered for sale or licensing.
One of the fliers and certificates of insurance came to the attention of Richard Feiner, an agent of plaintiff William Boyd Enterprises. Feiner phoned Zouary to object and sent a letter dated November 12, 1973, to Filmvideo asserting that the television rights in the films were controlled by Boyd Enterprises and demanding that Filmvideo "immediately cease and desist from competing unfairly with the rights" of Boyd Enterprises and that Zouary "immediately register [Boyd's] claim with [Filmvideo's] insurance company."
On November 19, 1973, plaintiff Grace Bradley Boyd wrote a similar letter to Filmvideo, reiterating Feiner's earlier demand.
These letters were forwarded to Howard Gotbetter, attorney for Filmvideo. Through a series of letters, Gotbetter replied, characterizing Boyd Enterprises' assertions as "garbage" and demanding proof of its assertion that it held exclusive rights to the films.
On January 9, 1974, after the effective date of the insurance policy, Fulton Brylawski, attorney for Boyd Enterprises, wrote to Gotbetter. He explained in detail that the basis of the rights in films was the existence of renewal copyrights in the underlying Hopalong Cassidy novels and renewed Boyd Enterprises' demand that Filmvideo and Zouary immediately cease and desist from offering the films.
On February 15, 1974, Gotbetter forwarded Brylawski's January 9th letter to Fireman's, opining that "the alleged claim made by Mr. Brylawski ... is spurious and completely without merit." The matter was referred by Fireman's to Nagin, its outside counsel who earlier had approved Filmvideo's insurance application. On March 7, 1974, Nagin replied to Gotbetter and opined that it appeared from the content of Brylawski's letter that the "claim" against Filmvideo had first been made in 1973, before the commencement of coverage under the insurance policy; consequently, the "claim" did not appear to be covered by Fireman's policy.
Subsequently, on April 4, 1974, Zouary wrote to Cohen, Fireman's subagent, asserting Filmvideo's desire that Fireman's defend the public domain status of the films and noting that Filmvideo easily could have commenced the policy on October 25, 1973, but it had delayed the policy's effective date upon assurance from Cohen that "it would not matter."
Cohen, in turn, wrote to Nagin on July 12, 1974. In pertinent part, Cohen explained that Zouary had requested an effective date of January 1, 1974, because the films would not be exhibited prior to that date as Filmvideo was in the process of negotiating syndicated sales and did not project any exhibition until after the first of the year. He also stated that as of the date of the letter, a formal claim had still not been made against Filmvideo.
On September 23, 1974, Nagin responded to Cohen and reiterated Fireman's position that the "claim" by Boyd Enterprises had been made prior to January 1, 1974, and, therefore, there was no coverage.
Fireman's continued to collect premiums and kept the policy in force for the three-year term. In 1976, Fireman's agreed to amend the policy to include six additional Hopalong Cassidy films. In addition, in 1976, Fireman's confirmed that the existing policy, issued in 1973, continued to cover the television exhibition of the first 17 films.
Commencing in 1975, Filmvideo and Zouary began to promote and sell the Hopalong Cassidy films for television use.
In 1975, Filmvideo filed suit in federal court in New York for declaratory relief that Filmvideo could license the Hopalong Cassidy films. The trustees of the Mulford Trust filed a counterclaim for copyright infringement. By stipulation, it was agreed that the trustees' action would govern both cases.
On May 13, 1977, the Mulford Trustees and Boyd Enterprises filed suit against, among others, Filmvideo and Zouary in federal district court in Los Angeles, alleging copyright infringement.
On June 16, 1977, Gotbetter submitted the California action to Fireman's for defense, asserting that the televising of the films had taken place in 1976, during the policy period. Fireman's referred Gotbetter's letter to one of its outside counsel, Kenneth Kulzick of Lillick, McHose & Charles.
On July 11, 1977, Kulzick wrote to Gotbetter, stating that the California action, like the earlier New York action, was based on claims made prior to the policy's inception date and therefore was not covered. He further informed Gotbetter that "as an accommodation," he had arranged for the filing of a stipulation extending Filmvideo's time to answer and urged that Gotbetter promptly appoint California counsel to defend the California action. In early 1978, Filmvideo obtained its own counsel.
In sum, this federal litigation resulted in findings and holdings that the films were protected as derivative works of the copyrighted Mulford novels upon which they were based and that Filmvideo's use of the films would infringe the book copyrights. (Filmvideo Releasing Corp. v. Hastings (S.D.N.Y.1981) 509 F.Supp. 60, 66.) In the California suit, Boyd/Hastings were awarded a judgment in the amount of By 1983, including accrued interest, the judgment against Filmvideo and Zouary amounted to more than $1.3 million. Filmvideo and Zouary were insolvent and unable to pay the judgment. As part of his bankruptcy proceeding, Zouary caused Filmvideo to assign to Boyd/Hastings any claim or cause of action which the insured had against Fireman's.
Apparently, prior to this litigation, copyright law was unsettled regarding whether the rights of the holder of a copyright in a novel extended to derivative works, such as an opera ("Madame Butterfly") or a movie ("Son of Sheik"). (See G. Ricordi & Co. v. Paramount Pictures (2d Cir.1951) 189 F.2d 469; Grove Press, Inc. v. Greenleaf Publishing Company (E.D.N.Y.1965) 247 F.Supp. 518; Rohauer v. Killiam Shows, Inc. (S.D.N.Y.1974) 379 F.Supp. 723; Russell v. Price (9th Cir.1979) 612 F.2d 1123.)
Boyd/Hastings made a demand upon Fireman's to pay the judgment up to the policy limits, but Fireman's refused to do so.
PROCEDURAL SUMMARY
After filing several earlier complaints, Boyd/Hastings filed their third amended complaint against Fireman's on July 16, 1986. They sued in two capacities: as judgment creditors pursuant to Insurance Code section 11580; and as assignees of Filmvideo's claims against Fireman's. Alleging, inter alia, breach of contract and failure to defend, the complaint contained causes of action for refusal to pay judgment, breach of implied covenant of good faith and fair dealing, failure to offer settlement, issuing inconsistent insurance, and violation of unfair practices act.
Fireman's answer included 21 affirmative defenses.
The affirmative defenses alleged were: failure to state facts a constituting a cause of action; fraud (twice); failure to disclose (twice); concealment; negligent misrepresentation; policy period; breach of policy; breach of warranty; intentional conduct; abandonment; laches; waiver; real party in interest; defect of parties; standing; statute of limitations; non-recoverability of punitive damages; failure to file fictitious business name statement; and comparative bad faith.
In February 1986, Fireman's moved for summary judgment on the ground that Boyd/Hastings' judgment for copyright infringement was an "outgrowth" of the claims which were asserted in the 1973 correspondence. The court (J. Rothman) denied the motion, finding that triable issues of material fact existed as to whether the 1973 "claim" was the same as the judgment for copyright infringement.
On March 17, 1989, the court (J. Waddington) considered and ruled on a number of pretrial motions made by both appellants and Fireman's. In pertinent part, these motions included: (a) Fireman's motion for judgment on the pleadings, which was denied; and (b) Boyd/Hastings' motion to preclude Fireman's from presenting certain affirmative defenses, which was granted.
In the course of ruling on the various motions, the court and counsel discussed whether before proceeding to trial the court would be required to make legal findings, such as what was a "claim" under the insurance policy and whether the act of sending out the fliers was the same act of copyright infringement upon which Boyd/Hastings had prevailed in federal court. Boyd/Hastings noted that these issues might be a mixed questions of law and fact.
After ruling on all the motions, the court inquired whether counsel were "ready to try to decide what constitutes a claim?" Fireman's believed the court could determine, as a matter of law, whether the November 1973, correspondence from Boyd Enterprises constituted a "claim" under the insurance policy. Boyd/Hastings objected and indicated that the ultimate issue would have to be decided by a jury, applying the definition of "claim" provided by the court.
On March 27, 1989, after considering the trial briefs prepared by the parties, documentary evidence and deposition testimony submitted by the parties, and extensive oral argument, the court ruled as follows: a claim "constitutes an assertion of legal standing to invoke a legal remedy cognizable in either damages or equitable relief"; the Boyd letters sent in November 1973, constituted a claim within the meaning of the policy; there was no "distinction between an intent" to show the films in 1973, as manifested in the fliers, and the showing of the films in 1975; therefore, as a matter of law, the Boyd/Hastings claim arising Boyd/Hastings objected to the court's procedures and action and stated that they had not waived their right to a jury trial or to present evidence.
On April 13, 1989, the court reviewed the written Offer of Proof subsequently filed by Boyd/Hastings counsel and indicated that none of the facts proffered would alter its ruling. Concerned about the running of the five-year statute, the court ordered the suit dismissed as of that date.
On May 3, 1989, judgment was entered, finding that "as a matter of law, the insurance policy issued by Fireman's Fund does not provide coverage requisite to liability," and ordering that the Boyd/Hastings complaint be dismissed. This timely appeal followed.
DISCUSSION
Both parties agree that as there was no formal motion before the court, the court's action was tantamount to the granting of a motion for nonsuit after opening arguments. Boyd/Hastings asserts that the court below erred because it failed to accept as true all their proffers of potential evidence, disregard conflicting evidence and draw all inferences and interpret the insurance policy insofar as possible to meet the reasonable expectations of the insured, as required in a "nonsuit" situation. As a result, they assert, the court's conclusion that the "intent" of the insured or a "threatened" act of unfair competition in 1973 by the insured is sufficient to deny coverage for actual copyright infringements commencing in 1975 is wrong as a matter of fact and law and should be reversed.
In its contingent appeal, Fireman's asserts that the court erred when it denied its motion for summary judgment and when it granted Boyd/Hastings' motion to preclude evidence to support most of its affirmative defenses.
The Boyd/Hastings Appeal:
We agree with the parties that the court's action most closely resembles the granting of a motion for nonsuit after opening argument. (Code Civ.Proc., § 581c.) Applying the requisite standards, we conclude, therefore, that the court erred and the judgment must be reversed.
"A defendant is entitled to a nonsuit if the trial court determines that, as a matter of law, the evidence presented by plaintiff is insufficient to permit a jury to find in his [or her] favor. [Citation.] In determining whether plaintiff's evidence is sufficient, the court may not weigh the evidence or consider the credibility of witnesses. Instead, the evidence most favorable to plaintiff must be accepted as true and conflicting evidence must be disregarded. The court must give to the plaintiff['s] evidence all the value to which it is legally entitled, ... indulging every legitimate inference which may be drawn from the evidence in plaintiff['s] favor. [Citation.] A mere scintilla of evidence does not create a conflict for the jury's resolution; there must be substantial evidence to create the necessary conflict. [Citation.] [p] In reviewing a grant of nonsuit, we are guided by the same rule requiring evaluation of the evidence in the light most favorable to the plaintiff. [Citation.] We will not sustain the judgment unless interpreting the evidence most favorably to plaintiff's case and most strongly against the defendant and resolving all presumptions, inferences and doubts in favor of the plaintiff a judgment for the defendant is required as a matter of law. [Citations.]" (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291, 253 Cal.Rptr. 97, 763 P.2d 948, internal quotation marks omitted, emphasis in original.)
As noted, the court may not weigh the evidence when ruling on a motion for nonsuit; yet, the record before us indicates that the court did so. The court admittedly decided the following factual questions: (1) Was the Boyd 1973 correspondence a claim or threatened claim (a term used in another section of the insurance policy)? (2) Was In addition, the court erred when it interpreted the insurance contract in the light most favorable to Fireman's and did not resolve all ambiguities against Fireman's. (See Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 807-808, 180 Cal.Rptr. 628, 640 P.2d 764; Equitable Life Assurance Society v. Berry (1989) 212 Cal.App.3d 832, 837, 260 Cal.Rptr. 819.) The insurance contract does not define "claim," or "act." Yet, the court defined each term broadly instead of narrowly, thereby precluding a finding of coverage.
More importantly, once the court and the parties recognized that certain terms needed to be defined, it was acknowledged that the insurance contract was ambiguous. The interpretation of contract is a question of law for the court only when the contract terms are unambiguous. (Schmidt v. Macco Construction Co. (1953) 119 Cal.App.2d 717, 734, 260 P.2d 230.) When the taking of extrinsic evidence is required to determine the intent of the parties, the interpretation of the contract becomes a question of fact for the trier of fact. (Ibid.) Here, Boyd/Hastings repeatedly asserted their right to a jury trial on these issues; the court erred when it denied their request.
Fireman's Appeal:
A. Summary Judgment. "An order denying summary judgment is reviewable on appeal from the final judgment. [Citations.]" (DeRosa v. Transamerica Title Ins. Co. (1989) 213 Cal.App.3d 1390, 1397, fn. 2, 262 Cal.Rptr. 370.) The trial court denied Fireman's motion for summary judgment, finding that triable issues of material fact existed as to whether the distribution of the mailer was the same conduct as the subsequent licensing and distribution of the films, upon which the copyright infringement judgment was based. Our above discussion and related conclusions support a finding that the court properly denied this motion. (Mann v. Cracchiolo (1985) 38 Cal.3d 18, 35-36, 210 Cal.Rptr. 762, 694 P.2d 1134.)
B. The Affirmative Defenses. Fireman's objects to the court's granting Boyd/Hastings motion to preclude Fireman's from presenting evidence on its affirmative defenses, except the one alleging that the claim was made before the effective date of the policy. (See fn. 3, supra.)
Citing McLaughlin v. Connecticut General Life Ins. Co. (N.D.Cal., 1983) 565 F.Supp. 434, 451, Boyd/Hastings argued below that Fireman's was precluded from asserting these defenses because from the beginning, Fireman's sole basis for denial of coverage had been that the claim was made before the effective date of the policy; and that Fireman's failure properly to investigate the claim and promptly to advise its insured in 1977 of potential grounds for denial of coverage constituted a waiver of any right which Fireman's might have to assert these defenses. Boyd/Hastings further argued that even if Zouary/Filmvideo had failed to make full disclosure when the The court granted the motion, finding that the remaining affirmative defenses related to the actions or non-actions of Zouary, not Boyd/Hastings, whom the court characterized as "an innocent bystander." The court determined that once Fireman's had been informed about the possibility of coverage, it was incumbent upon it to determine whether or not there would be coverage and whether or not to elect certain defenses and that if anyone should bear the risk of Fireman's decisions, it should be Fireman's.
We are in accord. An insurer may be in breach of the covenant of good faith and fair dealing if it fails to properly investigate its insured's claims. (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 817, 169 Cal.Rptr. 691, 620 P.2d 141.) This duty includes an obligation on the part of the insurer to properly investigate the foundation for its denial of an insured's claim. (Id., at p. 819, 169 Cal.Rptr. 691, 620 P.2d 141.) Given this duty and the fiduciary relationship which exists between an insurer and its insured, it follows that "an insurance company which relies on specified grounds for denying a claim thereby waives the right to rely in subsequent litigation on any other grounds which a reasonable investigation would have uncovered." (McLaughlin v. Connecticut General Life Ins. Co., supra, 565 F.Supp. at p. 451, interpreting California law and discussing Egan, supra ). The question is: Could Fireman's have discovered the other bases for coverage denial, which are the foundation of the affirmative defenses, if it had engaged in reasonable investigation?
The court below believed so, and the evidence in the record supports this conclusion. Here, from the time it first received notice of the alleged "claim" in 1974, Fireman's asserted that coverage was denied because the "claim" was made before the effective date of the policy. Not until the filing of its answer to Boyd/Hastings' complaint almost 12 and one half years later, did Fireman's assert these other grounds for denial of coverage. We note, as the court did below, that at no time prior to the filing of its answer did Fireman's act to protect its interest in the federal actions, where it could have sought declaratory relief regarding whether it had a duty to defend, thereby presenting the defenses that it now asserts for the first time.
Given the circumstances of this case, we conclude that the court did not err when it determined that considerations of fair play required that Fireman's be barred from asserting these defenses and that Fireman's assume the risk of its earlier decisions, formulated and supported by its counsel.
DISPOSITION
As to the Boyd/Hastings appeal, the judgment dismissing the complaint is reversed. As to the Fireman's appeal, every contention of error is rejected. The matter is remanded to the trial court for trial. Boyd/Hastings to recover their costs on appeal.
ARLEIGH M. WOODS, P.J., and EPSTEIN, J., concur.