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Fri Holdings Inc. v. Hartford Casualty Insurance Co.3/18/1999
Appeal from a judgment of the Superior Court of Orange County, C. Robert Jameson, Judge. Affirmed in part and reversed with directions in part.
When Continental and Northwest Airlines each filed suit to shut down frequent flyer mile broker FRI Holdings, FRI sought a defense from its liability insurer, Hartford Insurance, on the theory that the suits implicated the potential advertising injury coverage under Hartford's policy. Hartford declined the request, in part because it contended that the airlines' suits fell within an exclusion for advertised material whose first publication took place before the beginning of Hartford's policy. FRI sued Hartford for breach of contract and bad faith, but Hartford convinced the trial Judge that the exclusion applied and obtained summary judgment. This court then reversed the judgment, holding that the exclusion might not apply because some of the "material" which formed the basis of the airlines' suits might have been published during Hartford's policy period. The trial court then granted summary judgment in favor of FRI on the question of Hartford's duty to defend, and FRI's bad faith case went to the jury -- except that the Judge excluded evidence of lost profits and granted a non-suit on FRI's claim for punitive damages.
FRI didn't do well in its bad faith case: It obtained but a measly $23,500 as attorney fees incurred in the litigation against the insurer (Hartford had by then paid all of FRI's attorney fees in the lawsuits brought against it by the airlines not otherwise paid by another insurer), and was awarded nothing by way of its request for emotional distress. FRI now appeals, arguing that an alleged failure on Hartford's part to investigate the claim before declining coverage entitled it to lost profits because Hartford's delay forced FRI to settle with the airlines by agreeing to go out of business. Hartford has filed its own cross appeal, contending that there never was any potential advertising injury coverage to begin with, notwithstanding the possible inapplicability of the prior material exclusion. Hartford also claims that there was insufficient evidence of bad faith in its denial of FRI's claim.
Hartford's argument is well taken on the last point, which also disposes of FRI's arguments on the preclusion of evidence concerning lost profits. To say that Hartford unreasonably denied FRI's claim is rather like a two-Justice majority in a Court of Appeal decision saying that an appeal is frivolous and awarding sanctions against the appellant's attorney, when their Dissenting colleague agrees with the merits of the appellant's argument. With all due respect to ourselves and our prior decision, just because this court in its wisdom determined that the prior material exclusion might not have applied based on the papers supporting the summary judgment motion submitted to the trial court does not mean the trial Judge was unreasonable in concluding what he did.
Our decision turned on the fine nuances inherent in the English words "first material," and on the impossibility of saying that the "material" which Hartford relied on to say the exclusion applied was really published prior to the beginning of the policy. But to say that Hartford was unreasonable in denying FRI's claim is to say that the trial Judge was unreasonable in granting its summary judgment motion. We have more respect for the learned trial Judge than to assume he was taken in by some facile argument of an insurance carrier. The Judge was acting as a neutral decision maker trying to do impartial Justice: That he could conclude that the exclusion applied must certainly establish a very strong presumption that Hartford itself was reasonable in denyin
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