Sony Computer Entertainment America, Inc. v. American Home Assurance Co.

BYBEE, Circuit Judge,

concurring in part and dissenting in part:

I agree with the majority that American Home Assurance Company had no duty to indemnify or defend Sony Computer Entertainment America, Inc. (“Sony”). I thus concur in Section II.D of the majority opinion. I also agree that American International Specialty Lines Insurance Company (“AISLIC”) had no duty to indemnify Sony. For the reasons I explain below, however, I disagree with the majority’s conclusion that AISLIC had no duty to defend Sony. I respectfully dissent from that portion of Section II.C of the majority opinion.

I

Like the majority, I begin my analysis by examining the policy’s coverage clauses; if a claim does not fall within those clauses, no coverage exists. Palmer v. Truck Ins. Exch., 21 Cal.4th 1109, 1115-16, 90 Cal.Rptr.2d 647, 988 P.2d 568 (1999). The insurance policy between Sony and AISLIC provided that AISLIC would indemnify Sony for damages resulting from any claim for “a wrongful act” in Sony’s business. The policy defined the term “wrongful act” by listing a number of actions including “negligent publication.” Therefore, I agree with the majority that “the question of whether AISLIC’s policy covers Sony turns on whether the Kim/Kaen lawsuits assert claims within the meaning of [negligent publication].” Maj. Op. 1013.

A

In interpreting the phrase1 “negligent publication,” under California law courts must give effect to the mutual intention of the parties. See MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635, 647, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (2003). The parties’ intent, in turn, is inferred solely from the written provisions of the contract. Id. The words in an insurance contract are to be “interpreted in their ordinary and popular *1022sense, unless used by the parties in a technical sense or a special meaning is given to them by usage.” Id. at 648, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (internal quotation marks omitted). Furthermore, “insurance coverage is interpreted broadly so as to afford the greatest possible protection to the insured.” Id. (internal quotation marks omitted). The majority and I are in agreement on these principles of California insurance contract interpretation. It is in their application that our disagreement arises.

AISLIC does not contend that the parties gave the phrase “negligent publication” a technical or special meaning. Accordingly, the words “negligent publication” are to be “interpreted in their ordinary and popular sense.” Id. at 648, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (internal quotation marks omitted).

Sony contends that the ordinary and popular meaning of the phrase “negligent publication” can be determined by combining the dictionary definitions of the individual words in the two-word phrase. I agree. When a layperson encounters an unknown phrase, absent a technical or special meaning, that layperson interprets the phrase by combining the meanings of the individual words comprising that phrase. In this ease, a layperson would understand that “negligent publication” would simply refer to a publication distributed negligently. “In seeking to ascertain the ordinary sense of words [in an insurance policy], courts in insurance cases regularly turn to general dictionaries.” Scott v. Cont’l Ins. Co., 44 Cal.App.4th 24, 51 Cal.Rptr.2d 566, 569 (1996). Turning to the dictionary, the word “negligent” means “lacking or exhibiting a lack of due care or concern.” WEBSTER’S II NEW COLLEGE DICTIONARY 732 (1999). The word “publication” means “communication of information to the public.” Id. at 895. Given the ordinary meaning of those words, a layperson might properly understand that the phrase “negligent publication” means something like “communication of information to the public lacking or exhibiting a lack of due care or concern.”

B

Applying this definition of “negligent publication,” the Kim/Kaen lawsuits assert claims — namely, false advertising and negligent publication — within the meaning of “negligent publication.” The majority concedes as much. Maj. Op. 1013. The Kim complaint claims that Sony’s “press releases and advertisements have not and do not disclose the defect or the viewing or software compatibility problems described in this Complaint.” The Kim complaint clearly complains about Sony’s press releases and advertising, that is, its communication of information to the public. Furthermore, by alleging that those communications fail to disclose certain defects, the Kim complaint can be understood to contend that Sony’s communications were “negligent” or “exhibit[ed] a lack of due care or concern.” Similarly, the Kaen complaint claims that Sony issued advertisements that were “untrue, misleading, and likely to deceive the public.” Unless there was an applicable exclusion, the affirmative provisions of the insurance contract provided coverage for the Kim/Kaen claims, and AISLIC had a duty to indemnify Sony.

II

The majority comes to a contrary conclusion. It does not contend that “negligent publication” has a technical or special meaning. On the contrary, the majority acknowledges that “[b]ecause there is no evidence that the parties intended the term to carry a technical meaning, the ordinary and popular meaning of the term governs.” Maj. Op. 1013. The majority, *1023however, rejects the dictionary-derived meaning of “negligent publication,” because it believes that this meaning would be inconsistent with the context of the insurance policy as a whole, and because it finds no judicial case using the phrase in precisely this way.

A

The majority argues that we should not apply the dictionary definition of the phrase “negligent publication” because it is inconsistent with the context of the AISLIC policy as a whole. Maj. Op. 1013. I agree with the majority that the “meanings of a word as found in a dictionary cannot be inserted into the text of an insurance policy without regard to the document construed as a whole.” Scott, 51 Cal.Rptr.2d at 569 n. 4. The majority argues that the placement of the phrase negligent publication in the list “defective advice, incitement, and negligent publication” tends to supports the majority’s interpretation that the term refers to a narrow tort somehow relating to “defective advice and incitement.” Maj. Op. 1013. Similarly, the majority suggests that the fact that this is a media policy cuts against the plain and ordinary meaning of the phrase. Maj. Op. 1014.

Other indications in the policy, however, support Sony’s interpretation of “negligent publication,” in particular, Exclusion P. Exclusion P disallows indemnity coverage for claims “arising out of false advertising or misrepresentation in advertising” but goes on to carve back a duty to defend in those cases. Although I agree that an exclusion cannot expand coverage that does not exist under the affirmative coverage provisions, see Stanford Ranch, Inc. v. Md. Cas. Co. 89 F.3d 618, 627 (9th Cir.1996), it “can help to resolve an ambiguity in an insuring clause in favor of coverage.” Am. Alternative Ins. Corp. v. Super. Ct., 135 Cal.App.4th 1239, 37 Cal.Rptr.3d 918, 924 n. 2 (2006). “Unquestionably, it may be considered part of the general circumstances impacting an insured’s objectively reasonable expectations as to the scope and extent of coverage under a policy.” Id. Exclusion P provides contextual evidence for the phrase “negligent publication” within the affirmative coverage section of the AISLIC policy. If there was no affirmative coverage for false advertising or misrepresentation in advertising then the policy would have no need for an exclusion specifying that those claims were not covered. Why recite that certain acts are expressly excluded from the policy if they were never covered in the first place? The majority’s interpretation leaves Exclusion P meaningless. At best, the context of the policy sends mixed signals. In light of this ambiguity, I would apply the plain meaning of the words and construe the insurance policy in favor of the insured. See Bank of the W. v. Super. Ct., 2 Cal.4th 1254, 1265, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992) (insurance policies are construed against the insurer if the meaning of a term is ambiguous in light of the policy as a whole).

B

The majority also finds the dictionary definition of “negligent publication” unpersuasive because it is not supported by the case law. Maj. Op. 1014. I fear that in the course of implementing the common law system, we have become so adept at looking to judicial cases to obtain the solutions to the challenges we encounter, that we have come to believe that even when determining the ordinary and popular meaning of words, the solution is to be found in case law. The California Supreme Court has admonished that absent evidence that the parties intended the provision to have a specialized meaning that a term must be construed as would a layperson, and not as it might be analyzed by an attorney or an insurance expert, or, I *1024might add, a judge. See E.M.M.I. Inc., v. Zurich Am. Ins. Co., 32 Cal.4th 465, 9 Cal.Rptr.3d 701, 84 P.3d 385, 390 (2004). I am quite certain that a layperson looks to a dictionary to determine the meaning of a phrase, not to case law.

The consequences of the majority’s methodology would surely befuddle a layman. On the one hand, the majority finds that the term “negligent publication” cannot encompass the definition that Sony proposes because none of the cases “use the term as broadly as Sony does.” Maj. Op. 1014. On the other hand, the majority acknowledges that “the cases do not yield one clear definition of ‘negligent publication.’ ” Maj. Op. 1014. The very fact, however, that courts across the country have applied the phrase “negligent publication” liberally and loosely to a broad variety of claims and theories of recovery is evidence that each of those courts is individually applying the plain meaning of the phrase. If the phrase does not have a consistent meaning, cited by the majority, then why prefer the cases over the dictionary?

The only commonality in the “variety of cases” cited by the majority involving the phrase “negligent publication” is that all of them use a definition that is consistent with the ordinary or popular meaning of the words. That is, they all involve the publication of something in a negligent matter. Although it is true that none of the cases encompass Sony’s proffered definition, I am puzzled as to why cases that “do not yield one clear definition of ‘negligent publication’ ” should be seen as a “limited set.” Maj. Op. 1014. If the first court to use the phrase had been deemed to have created a closed set, then none of the subsequent cases could have created separate definitions. I am unaware that Sony missed any secret deadline after which a term may no longer be used in new judicial contexts, and the possible usages for the term is closed to the conjunction of the ways in which it had thus far been used. Absent such a deadline, I would do what every court to have used the phrase “negligent publication” has done, and I would look to the plain meaning of the words to determine their meaning. That plain meaning is better determined by looking in a dictionary than in court cases.

Ill

Having concluded that the policy’s affirmative insuring agreements create coverage for Sony’s disputed claim, I next turn to the exclusions, to determine whether coverage has been otherwise excluded. See Stanford Ranch, 89 F.3d at 627. Exclusion P of the policy disallows coverage for claims “arising out of false advertising or misrepresentation in advertising.” This language removes Sony’s claim from the coverage granted it by the “negligent publication” provision. Exclusion P, however, then states: “[hjowever, we will defend suits alleging any of the foregoing conduct until there is a judgment, final adjudication, adverse admission or finding of fact against [Sony].” Although Exclusion P excludes indemnity coverage of Sony’s claim, it affirms a duty to defend. Consequently, I would conclude that AISLIC had a duty to defend Sony’s claims and would reverse that portion of the district court’s judgment.

. The majority refers to “negligent publication” as a “term.” I believe that “phrase” is more appropriate and therefore refer to it as such. Although this may seem like mere semantics, my disagreement with the majority turns on the fact that the majority believes that "negligent publication” must be a single term with a single definition, whereas I believe that "negligent publication” is not a single term at all, but a phrase made up of two individual words that have meaning both individually and in combination.