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Schaefer/Karpf Productions v. CNA Insurance Companies6/18/1998
own defense.
Prior to trial, Schaefer and Matrix entered into an agreement which provided in pertinent part: (1) Matrix would not contest liability but the trier of fact would make its own determination as to liability and damages based upon the evidence introduced at trial; (2) Schaefer would not execute on the assets of Matrix to satisfy any judgment against it resulting from the trial; (3) Matrix assigned to Schaefer its rights, claims and entitlements to indemnity from CNA relating to Schaefer's claims and Matrix's claims for bad faith and all other tort and contract claims against CNA.
The underlying action was tried to the court which awarded Schaefer a judgment in the sum of $1 million against Matrix and TVC "as the measure of damages resulting from physical injury to or the loss of use of tangible property, the videotapes of "The Best Christmas Pageant Ever."
Thereafter, Schaefer commenced the present action against CNA to enforce its judgment against Matrix and TVC under Insurance Code section 11580 and to enforce Matrix's claims for fraud and breach of contract.
Schaefer and CNA filed cross-motions for summary judgment. The trial court granted CNA's motion on the grounds CNA was not a party to the underlying action therefore it was not bound by the trial court's finding in that action Schaefer suffered "property damage" and, further, any damage to the videotapes of "The Best Christmas Pageant Ever" resulting from the inclusion of the pornographic material was not "property damage" as the term is defined in the CNA policies. A judgment in favor of CNA was entered in due course and Schaefer filed a timely appeal.
The two principal issues on appeal are (1) whether the incorporation of a defective or harmful product into the product of another causes "physical injury " within the meaning of property damage coverage in the standard comprehensive general liability policy and (2) if so, whether Schaefer suffered physical injury to "tangible property" as the result of the linkage of a pornographic movie to its production "The Best Christmas Pageant Ever." We reach those issues after resolving some preliminary matters.
Discussion
I. IN THIS CASE, THE DUTY TO DEFEND AND THE DUTY TO INDEMNIFY ARE THE SAME.
The ultimate question in this case is whether Schaefer's injury was covered under the policies CNA issued to Matrix and TVC. If it was, then Schaefer can recover from CNA on its judgment against Matrix and TVC as well as on Matrix's assigned claim against CNA for breach of the duty to defend. If Schaefer's injury was not covered under the policies it can recover nothing from CNA. This is not a case in which Schaefer could lose on the issue of CNA's duty to indemnify Schaefer for its losses but win on the issue of CNA's broader duty to defend Matrix. Although as a general rule CNA owed a duty to defend Matrix against claims which contained even a potential for indemnity (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295), this duty does not apply to claims where the only potential for indemnity turns on a question of policy interpretation. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 25-26; A-Mark Financial Corp. v. CIGNA Property & Casualty Companies (1995) 34 Cal.App.4th 1179, 1191-1192.) In the present case there has never been any issue as to the basis for Schaefer's claim and CNA's letters denying coverage show it was fully aware of the material facts. CNA's position is and always has been Schaefer's loss did not constitute "property damage" within the terms of the polices and, even if it did, the loss was excluded under other policy provisions.
II. CNA WAS
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