Tom Kelley Studios, Inc. v. State Farm General Insurance Company

This disposition is not appropriate for publication and is not precedent*
except as provided by Ninth Cir. R. 36-3.
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NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
TOM KELLEY STUDIOS, INC.,
Plaintiff - Appellant,
v.
STATE FARM GENERAL INSURANCE
COMPANY,
Defendant - Appellee.
No. 10-55931
D.C. No. 2:09-cv-04018-RSWL-
VBK
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Ronald S.W. Lew, Senior District Judge, Presiding
Argued and Submitted December 8, 2011
Pasadena, California
Before: NOONAN, GOULD, and IKUTA, Circuit Judges.
Because the Nova complaint alleged that conduct constituting “advertising
injury” was “committed in the course of advertising [Tom Kelley Studios’s] goods,
FILED
DEC 21 2011
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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products or services,” the complaint stated claims potentially covered by Tom
Kelley Studios’s (Kelley) policy. Consequently, State Farm had a duty to defend
Kelley against Nova’s suit. See Montrose Chem. Corp. v. Superior Court, 861
P.2d 1153, 1157 (Cal. 1993).
The Nova complaint alleged trademark and trade dress infringement, which
under California law constitute the advertising injury of “misappropriation of
advertising ideas or style of doing business” under Kelley’s policy. See Dogloo,
Inc. v. N. Ins. Co. of N.Y., 907 F. Supp. 1383, 1390 (C.D. Cal. 1995); Lebas
Fashion Imps. of USA, Inc. v. ITT Hartford Ins. Grp., 59 Cal. Rptr. 2d 36, 46 (Cal.
Ct. App. 1996). Further, the advertising injuries alleged in the Nova complaint
were “committed in the course of advertising [Kelley’s] goods, products or
services.” Adler Fels’s (Adler) advertisements, such as its website featuring the
allegedly infringing wine label, constituted a course of advertising for Kelley’s
goods, products or services because the advertisements highlighted the unique
collectible value of Kelley’s photos on Adler’s wine bottles. Nothing in the
relevant provision or Kelley’s policy as a whole required that the allegedly
injurious “course of advertising” be undertaken by Kelley itself. State Farm argues
that this requirement is inherent in the policy because Kelley does not have an
objectively reasonable expectation that the policy would cover a third party’s

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course of advertising Kelley’s products. We reject this argument because State
Farm has adduced no evidence to support it. At most, the policy language on this
point is ambiguous because it is “susceptible to two or more reasonable
constructions.” Palmer v. Truck Ins. Exch., 988 P.2d 568, 573 (Cal. 1999). While
State Farm’s argument that the provision covers only Kelley’s “course of
advertising” is a reasonable construction of the policy, courts must resolve this
contractual “uncertaint[y] in favor of the insured.” Gray v. Zurich Ins. Co., 419
P.2d 168, 174–75 (Cal. 1966).
Finally, Kelley has shown the requisite causal connection between the
“course of advertising” its products and the alleged advertising injury: Adler’s
wine advertisements highlighting Kelley’s photos caused Nova’s trademark and
trade dress injuries. See Hyundai Motor Am. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa., 600 F.3d 1092, 1103 (9th Cir. 2010).
We affirm the district court’s ruling that State Farm did not breach its
implied covenant of good faith and fair dealing. State Farm’s interpretation of the
policy was reasonable, see Karen Kane Inc. v. Reliance Ins. Co., 202 F.3d 1180,
1190 (9th Cir. 2000), and the evidence shows it “relied on the advice of competent
counsel” to arrive at its interpretation, State Farm Mut. Auto. Ins. Co. v. Superior
Court, 279 Cal. Rptr. 116, 117 (Cal. Ct. App. 1991).

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The parties shall bear their own costs on appeal.
REVERSED in part and AFFIRMED in part.

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