CGL Coverage Excluded for Misappropriating Another’s Name, Likeness

In a decision filed August 5, 2016, the United Stated District Court for the Northern District of California, applying California law, held that a wine dealer’s commercial general liability insurance policy excludes coverage for the dealer’s misappropriation of a third party’s, name and likeness, often referred to as a right of publicity. The decision is reported as Mendocino Wine Group, LLC v. QBE Americas, Inc., published at 2016 U.S. Dist. LEXIS 103615

The facts were simple and mostly not in dispute. Paul Dolan, a fourth generation wine maker located in the Mendocino region of California, had a long and well-respected history in the wine industry. In 2004 he joined forces with the Thornhill family to form the Mendocino Wine Group (MWG), with Dolan serving as its president. As part of the transaction, Dolan permitted MWG to develop and sell wine using his name as a trademark, provided he controlled the nature and quality of the wine sold bearing his name. MWG began selling wine under the Paul Dolan trademark, but about eight years later, in January 2012, the parties had a falling out, and Dolan was “ousted” from MWG. In October 2012, Dolan revoked his consent for MWG to use his name and likeness in the sale of wine, but MWG continued to do so.

Dolan sued MWG on January 25, 2013, claiming MWG’s continued use of Dolan’s trademark violated his right of publicity and caused him damage, because MWG’s use directly conflicted with his own and falsely suggested that the wine sold by MWG continued to be connected with Dolan.

MWG timely tendered the case to MWG’s commercial general liability insurance policy issuer and administrator, Uniguard and QBE Americas, Inc., respectively, seeking a defense to Dolan’s lawsuit. When Uniguard and QBE refused MWG sued them for breach of contract and “bad faith.” Uniguard and QBE moved to dismiss the coverage lawsuit, and the effect of the decision summarized here was to grant that motion. MWG asserted that two of the claims in the Dolan lawsuit against MWG triggered Unigard’s duty to defend: (1) Dolan’s claim for MWG’s misappropriation of his name and likeness, and (2) Dolan’s claim for defamation. After closely analyzing Dolan’s factual allegations, the court held that neither claim required a defense under the Unigard policy.

In arguing for coverage, MWG pointed to following grant of insurance coverage in the CGL policy, found in Coverage B, entitled “Personal and Advertising Injury Liability,” reading:

“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. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘personal and advertising injury’ to which this insurance does not apply. . ..”

The CGL policy specifically defined “personal and advertising injury” as “[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’ and ‘[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.”

The other part of the policy that was pivotal was entitled Coverage B Exclusions, and provided that “the insurance does not apply to . . . Infringement of Copyright, Patent, Trademark or Trade secret defined as:

“‘Personal and advertising injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your ‘advertisement.’

“However, the exclusion does not apply to infringement, in your ‘advertisement,’ of copyright, trade dress, or slogan.”

The court first considered whether the claim by Dolan against MWG for its misappropriation of his name and likeness triggered Unigard’s obligation to defend MWG. MWG’s contention was that the misappropriation claim invoked the policy’s coverage for violation of Dolan’s right of privacy. California courts, like courts nationwide, have long recognized that one who appropriates to his own use or benefit the name or likeness of another is subject to liability to the other for invasion of his privacy. California differentiates two types of appropriation claims, distinguished by the nature of the plaintiff’s right and the nature of the resulting injury. The first type of appropriation, often associated with a right of publicity, is based upon the reaction of the public to the claimant’s name and likeness, which may be fortuitous or which may be managed or planned, and endows the name and likeness of the claimant with commercially exploitable opportunities.

The second type of appropriation brings injury to the feelings and concerns the claimant’s peace of mind. It is mental and subjective. Unlike the mental and subjective type of appropriation that brings injury to feelings, the right of publicity protects a form of intellectual property that society deems to have social utility. In short, the right of publicity is an intellectual property right.

In its analysis of the question of coverage, the court noted that MWG contended that Dolan’s misappropriation claim triggered the duty to defend because the policy covered “personal and advertising injury” which is defined in the policy to include the violation of a claimant’s right of privacy. However, the court noted, in the underlying action brought by Dolan, Dolan alleged that MWG’s continued use of the Dolan trademark violated the right of publicity and caused him damage because it directly diluted his rights by conflicting with his ability to use his own name in connection with the sale of wine and wine-related products and services, because it falsely suggested that the goods distributed in MWG were connected with Dolan even after he withdrew MWG’s right to utilize his name.

Completely absent from Dolan’s allegations was any suggestion that he sought damages for a misappropriation that injured his feelings. Instead, the focus of Dolan’s claim was that MWG’s use of his name and likeness diminished the marketability and publicity value of his name an likeness, thereby depriving him of his right of publicity. Since Dolan’s right of publicity is an intellectual property right, the plain language of the intellectual property exclusion outlawed coverage for his intellectual property claims against MWC. There was no coverage.

MWG attempted to overcome this analysis by emphasizing Dolan’s allegations that MWG harmed his reputation, business and good will, pointing out that allegations of reputational damage are sufficient to raise a potential of an award of mental anguish or emotional distress damages. However, the court rejected this contention based upon a case involving a famous band, The Doors, which began planning and advertising national and international tours without its former drummer or its former vocalist. The former drummer brought an action alleging that the band had damaged his reputation and stature by causing people to believe that he was not an integral and respected member of The Doors, or was one band member who could easily be replaced by another drummer. The federal appeals court in that case – which would hear any appeal by MWG from the subject decision – found the nature of the drummer’s alleged reputational injury was sufficient to raise the potential of mental anguish or emotional distress damages, and therefore found coverage.

Unlike that case, however, the court found that Dolan’s claims did not contain any allegations plausibly suggesting that MWG’s conduct caused him mental anguish by, for example, implying that Dolan was not a distinguished leader in the wine community.

While Dolan theoretically could have added allegations of such mental anguish, the court held that insurers need not infer the existence of additional allegations not actually included in the operative complaint merely because it is aware those additional claims might have been plausibly included.

MWG next argued that Dolan’s complaint triggered Unigard’s duty to defend by alleging every element legally required to plead a defamation claim Again, the court rejected MWG’s contention, noting that a claim of defamation requires a plaintiff to allege a defendant’s false or misleading statement that specifically refers to the plaintiff’s product or business and clearly denigrates (the court said “derogates”) that product or business. The damage by defamation typically takes the form of injury to the claimant’s reputation.

The allegations in the case brought by Dolan against MWG made out a claim, although excluded from coverage, for violation of Dolan’s right of publicity, but nothing about the advertisement by MWG could plausibly be interpreted as disparaging Dolan – which would trigger coverage. Indeed, the court noted, MWG’s alleged attempt to falsely sell its wine under Dolan’s name amounts to its flattery of Dolan, the opposite of the reputational injury required for defamation coverage. Accordingly, the court found that Dolan’s allegations in his suit against MWG failed to plausibly articulate a defamation claim and did not trigger any duty to defend on the part of Unigard.

In summary, because Dolan’s claims against MWG are either excluded under the intellectual property exclusion or insufficient to trigger the defendant’s duty to defend under the defamation coverage, the court granted the motions to dismiss the coverage case breach of contract claim.

With regard to the covenant of good faith and fair dealing, the court held that it is established that, without a breach of the insurance contract there can be no violation of the implied covenant of good faith and fair dealing. The court, therefore, granted the entire motion to dismiss. The only loose end left by the court was to permit MWG an opportunity to amend its complaint within 21 days of the date of the order – August 26, 2016.