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March 2015

Intellectual Property Exclusion Bars Coverage for Right of Publicity Claims

In Alterra Excess and Surplus Insurance Company v. Jaime Snyder (2015) 234 Cal.App.4th 1390, Gordon & Rees partner Arthur Schwartz and senior counsel Randall Berdan obtained affirmance of a trial court judgment in the California Court of Appeal, First Appellate District. The court held an exclusion for “Infringement of Copyright, Patent, Trademark or Trade Secret” applied to preclude coverage for claims based on the right of publicity.

In 2009, Maxfield & Oberton Holdings, LLC began manufacturing and distributing a desk toy, “Buckyballs”, and similar products. They all incorporated the name “Bucky” which was based on the architectural engineer and inventor, R. Buckminster Fuller. Fuller died in 1983 and, in 1985, Fuller’s Estate registered its claim as Fuller’s successor in interest with the California Secretary of State. The Estate licensed the right to use Fuller’s name and likeness on numerous occasions, including to Apple Computer which used Fuller’s image, and others, in its “Think Different” advertising campaign. In 2004, the U.S. Postal Service licensed the rights to Fuller’s image for a postage stamp.

The Estate sued Maxfield in the United States District Court, Northern District of California alleging Maxfield had been using the Bucky name without its consent or paying royalties. The Estate alleged causes of action for (1) Unfair Competition, (2) Invasion of Privacy (Misappropriation of Name and Likeness), (3) Unauthorized Use of Name and Likeness in Violation of § 3344.1, and (4) Violation of Business and Professions Codes § 17200, et seq.

Alterra’s predecessor issued a CGL insurance policy to Maxfield in 2010. Alterra, since acquired by Markel, defended the underlying federal action under a reservation of rights and filed a declaratory relief action in San Francisco Superior Court. Alterra named the Estate but later stipulated to dismiss it in return for the Estate’s agreement to be bound by the outcome.

While the underlying federal action was pending, Maxfield dissolved precipitated by the United States Consumer Product Safety Commission’s filing of an administrative complaint due to safety concerns over Buckyballs. A Trustee was appointed to administer pending and future claims against Maxfield. The Estate then sought relief from its own stipulation and re-entered the declaratory relief action to litigate the coverage issues. It also settled its claim against Maxfield with the Trustee but contended it had a right to pursue coverage against Alterra.

Alterra moved for judgment on the pleadings on three grounds: the policy’s Intellectual Property and First Publication Exclusions, and the Estate’s settlement with the Trustee, made without Alterra’s consent, violated the policy’s “no action clause.” The trial court granted Alterra’s motion based on the Intellectual Property Exclusion. The Court of Appeal affirmed.

On appeal, the Estate contended the exclusion could not reasonably be understood to apply to “intellectual property rights” because it is not conspicuous, plain and clear. Coverage exclusions and limitations must meet two separate tests, (1) “the limitation must be ‘conspicuous’ with regard to placement and visibility,” and (2) the language must be “plain and clear.” The court explained the Intellectual Property Exclusion is on an Insurance Services Office (ISO) industry form, appears under a bold-faced heading “Exclusions,” with each exclusion’s title also bold-faced. The court found these factors satisfy the first test.

The court also concluded the Intellectual Property Exclusion plainly and clearly applies to bar coverage. The Estate argued the exclusion entitled “Infringement of Copyright, Patent, Trademark or Trade Secret” shouldn’t even be called the Intellectual Property Exclusion. But the court noted that, not only have prior courts uniformly referred to this exclusion as the “Intellectual Property Exclusion,” the Estate repeatedly referred to it in just this manner in trial court filings.

Alterra’s exclusion encompasses not only copyright, patent, trademark and trade secrets but also “other intellectual property rights,” sufficient to extend to invasion of privacy and right of publicity claims. A similar exclusion was addressed by a 2011 California appellate ruling, Aroa Marketing, Inc. v. Hartford Ins. Co. of the Midwest (2011) 198 Cal.App.4th 781. In Aroa, the court held the exclusion there barred claims based on the unauthorized use of a model’s image and likeness.

The Alterra court found the “other intellectual property rights” language in Alterra’s policy is effectively identical to the Hartford policy’s “any intellectual property rights” in Aroa. These nonexclusive listings are broad enough to encompass invasion of privacy or right of publicity claims. Even if Aroa were not on the books, the Alterra court added, it would apply the exclusion to the Estate’s claims.

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority in California state courts.