Claim of Damage to Reputation From Infringement of Trade Name Held to Potentially Allege "Bodily Injury"
The California Supreme Court established in Waller v. Truck Insurance Exchange, Inc., 11 Cal.4th 1 (1995), that emotional or physical distress resulting from economic loss does not constitute “bodily injury” under general liability policies, because economic loss is not a covered occurrence. In Waller, a minority shareholder sued the insureds under business tort theories for mismanaging corporate property resulting in economic loss that caused him to suffer emotional distress. The Court concluded the insurer had no duty to defend.
In its March 25, 2008 decision, Manzarek v. St. Paul Fire & Marine Insurance, 2008 WL 763385, the Ninth Circuit Court of Appeals held that an allegation that the reputation of a founding rock band member was damaged by the insured’s infringement of the band’s name and logo potentially alleged “bodily injury,” where the term was defined to include emotional distress.
The case arose out of a dispute involving The Doors, founded by Ray Manzarek, Jim Morrison, John Densmore, and Robbie Krieger. Manzarek formed another band with Krieger and others. Manzarek and Doors Touring, Inc. (“DTI”) were sued by Densmore and the parents of the late Morrison for infringing on The Doors name, trademark and logo in conjunction with their planned tours and in the marketing of products and merchandise. In addition, Densmore alleged that Manzarek and DTI’s conduct caused him economic damages and damage to his “reputation and stature by causing people to believe that he was not, and is not, an integral and respected part of The Doors band, or is one member who easily can be replaced by another drummer.”
At trial, the jury found Manzarek and other defendants liable on some claims but awarded no damages. Manzarek and DTI incurred defense costs of over $3 million in the suit.
Manzarek and DTI were insured under a commercial general liability policy issued by St. Paul Fire & Marine Insurance Company. St. Paul conceded that some of the alleged conduct fell within the “advertising injury” coverage of its policy but asserted that a special endorsement applied to preclude any duty to defend or indemnify. St. Paul further contended that the underlying suits did not raise a potential for “bodily injury” liability.
Manzarek and DTI sued St. Paul. The district court agreed with St. Paul and dismissed Manzarek and DTI’s suit. The Ninth Circuit reversed.
The St. Paul policy defined “bodily injury” to include not only sickness or disease but also mental anguish and emotional distress. The Ninth Circuit stated that Densmore’s allegation that Manzarek and DTI’s conduct caused damage to his “reputation and stature by causing people to believe that he was not, and is not, an integral and respected part of The Doors band, or is one member who easily can be replaced by another drummer” sufficiently raised the potential of an award of emotional distress damages.
Although the Ninth Circuit cited Waller later in the opinion, it did not discuss Waller on the issue of “bodily injury” resulting from economic loss. Nor did the Ninth Circuit discuss whether the St. Paul policy required, as general liability policies ordinarily require, that “bodily injury” be caused by an “occurrence” or whether any of the alleged conduct constituted an “occurrence.” In holding that the allegation of damage to reputation in and of itself raised a potential for coverage, the Ninth Circuit appears to have reached its conclusion without addressing key coverage issues or authority. If it had, the conclusion might have been different.