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Phoenix Control Systems Inc. v. Insurance Co.3/9/1989
This case raises the issue of an insurer's "duty to defend." Phoenix Control Systems, Inc. (Phoenix Control) appeals from summary judgment granted in favor of appellee, Insurance Company of North America (INA). The trial court found INA had no duty to defend a civil action instituted by Johnson Controls, Inc. (Johnson Controls) against Phoenix Control in the United States District Court in Arizona. Phoenix Control raises two issues on appeal: (1) whether the trial court erred in finding as a matter of law that under the policy's "intentional acts" exclusion, INA had no duty to defend; and (2) whether the trial court erred in holding that copyright infringement coverage provided by the policy was not operative.
I. FACTS AND PROCEDURAL HISTORY
Because the trial court granted summary judgment in INA's favor, we view the facts in the light most favorable to Phoenix Control. See United Services Auto. Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987).
Both Phoenix Control and Johnson Controls are companies that design and sell industrial automated control systems, including computer software and devices for controlling the operation of water treatment and waste water plants. John Schratz and Rodney Larsen were Johnson Controls employees from 1974 to 1982 and from 1976 to 1984 respectively. After Johnson Controls terminated Schratz's employment, he founded Phoenix Control. Larsen later joined the company. In October 1984, INA issued an "Office Building Package Policy" to Phoenix Control, that provided property damage and liability insurance for the period from July 19, 1984, to July 19, 1985.
In the federal court action against Phoenix Control, Johnson Controls generally alleged that Schratz, with Larsen's assistance, prepared a bid on Phoenix Control's behalf for a waste water treatment plant for the Union Hills project in Phoenix. The suit alleged that Phoenix Control was aware that Johnson Controls was preparing or considering a bid on the same project and that Phoenix Control used Johnson Controls' property in preparing the bid. Johnson Controls further alleged that Phoenix Control represented to the City of Fort Lauderdale, Florida, that it was able to expand the existing computer software at its water treatment plant. Because Johnson Controls installed that water treatment program, it alleged that Phoenix Control had obtained access to the water treatment program Johnson Controls developed and owned.
The specific torts alleged by Johnson Controls were that Schratz, Larsen, and Phoenix Control had willfully committed acts of copyright infringement in violation of federal law; had wrongfully misappropriated confidential information and trade secrets; had intentionally misappropriated Johnson Controls' water treatment computer program; had interfered with prospective contractual relations; and had intentionally or recklessly made injurious falsehoods intending to cause Johnson Controls pecuniary loss. Johnson Controls sought damages as well as interlocutory and permanent injunctive relief enjoining Phoenix Control from further engaging in the alleged activities.
Phoenix Control claimed that the INA policy covered some or all of the claims asserted in the federal case and requested that INA defend it. The policy provided that: "we'll defend you [Phoenix Control] in any lawsuits brought against you as the result of any activity covered by YOUR LIABILITY COVERAGE." Liability claims covered were for " bodily injury , personal injury , or property damage, resulting from an occurrence. . . ." Personal injuries included " amage to someone's
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