## Facts

- Mez Industries, Inc. manufactured and sold duct-connection components and marketed them through advertising and promotional materials.
- A competitor, Ductmate Industries, Inc., sued Mez in federal court, alleging Mez’s promotional materials and sales induced Mez’s customers to infringe Ductmate’s patents by assembling Mez’s components in a patented configuration.
- Mez tendered the defense to its commercial general liability insurer, Pacific National Insurance Company, under “advertising injury” coverage for enumerated offenses including “misappropriation of advertising ideas or style of doing business” and “infringement of copyright, title or slogan.”
- Pacific denied any duty to defend or indemnify.
- Mez sued Pacific in state court for declaratory relief and breach of contract based on the refusal to defend.
- The trial court sustained Pacific’s demurrer without leave to amend and entered judgment of dismissal.

## Issues

1. Whether claims alleging inducement of patent infringement through advertising potentially fall within “advertising injury” offenses covering “misappropriation of advertising ideas or style of doing business” or “infringement of copyright, title or slogan,” thereby creating a duty to defend.
2. Whether California Insurance Code § 533 independently bars coverage for inducement of patent infringement as a willful act, eliminating any potential for coverage and thus any duty to defend.

## Decision

- The Court of Appeal affirmed the judgment of dismissal.
- The policy’s “advertising injury” offenses did not potentially cover inducement of patent infringement alleged in the underlying action.
- Even assuming arguable fit within the “advertising injury” language, Insurance Code § 533 would preclude coverage because inducement of patent infringement is a willful act.
- Because there was no potential for coverage as a matter of law, Pacific had no duty to defend, and sustaining the demurrer without leave to amend was proper.

## Legal Principles

- An insurer’s duty to defend arises only when the underlying complaint (and any known extrinsic facts) shows a potential for coverage under the policy; if no potential exists as a matter of law, there is no duty to defend.
- “Advertising injury” coverage limited to enumerated offenses such as “misappropriation of advertising ideas or style of doing business” and “infringement of copyright, title or slogan” does not extend to patent infringement or inducement of patent infringement absent express policy language.
- “Misappropriation of advertising ideas or style of doing business” concerns taking another’s advertising concept or marketing style, not liability premised on infringement of patent rights through product promotion.
- California Insurance Code § 533 bars insurance coverage for losses caused by the insured’s willful acts; intentional inducement of infringement falls within this bar, defeating both defense and indemnity.

## Conclusion

The court held that allegations that an insured used advertising to induce others to infringe patents did not trigger “advertising injury” coverage, and, in any event, Insurance Code § 533 would bar coverage for such intentional conduct; therefore, the insurer owed no duty to defend and dismissal on demurrer was affirmed.


Mez Indus., Inc. v. Pac. Nat’l Ins. Co., 90 Cal. Rptr. 2d 721 (Cal. Ct. App. 1999)