Opinion
NOT TO BE PUBLISHED
Alameda County Super. Ct. No. RG06-292295
Margulies, J.
Tom Joseph Santos appeals from a summary judgment in favor of the Peerless Insurance Company (Peerless). The trial court determined as a matter of law based on undisputed facts that Peerless had no duty to defend or indemnify Santos in connection with a cross-complaint brought against him by Apple Computer, Inc. (Apple). We affirm the judgment in favor of Peerless.
I. BACKGROUND
A. The Underlying Claims
Santos is an officer and controlling owner of Macadam Computer, Inc. (Macadam), which was formerly an authorized reseller and service provider for products manufactured by Apple. In 2003, Santos sued Apple, alleging that Apple was breaching its contracts with Macadam by selling merchandise through its Apple stores at prices less than those it charged its distributors such as Macadam. In January 2006, Apple filed a cross-complaint against Santos alleging causes of action for unfair business practices in violation of Business and Professions Code section 17200 et seq., fraud, breach of contract, and violation of Penal Code section 502.
Penal Code section 502 makes it a public offense to, among other things, “[k]nowingly and without permission disrupt or cause the disruption of computer services or den[y] or cause the denial of computer services to an authorized user of a computer, computer system, or computer network.” (Pen. Code, § 502, subd. (c)(5).)
The Apple cross-complaint alleged, among other things, that Santos (1) “repeatedly and deliberately designed computer programs to breach the security features of Apple’s websites and access non-public information on the websites”; (2) “repeatedly and deliberately violated the Terms of Use of Apple’s websites and defrauded Apple by misrepresenting affiliations with educational institutions or other entities in order to obtain product at discounted prices for unauthorized resale to consumers”; and (3) “impersonated Apple customers and CompUSA employees in calls to Apple call center agents as part of an effort to obtain access to non-public information.”
In connection with Santos’s alleged violation of Penal Code section 502, Apple alleged, among other things, that “Santos’ actions resulted in a disruption of Apple’s computer system and/or a denial of Apple’s computer system to authorized users....” and that “as a result of Santos’ actions, some Apple customers were unable to utilize Apple’s system for a period of time.”
Apple sought compensatory and punitive damages, as well as injunctive relief.
B. The Insurance Policy
Santos was insured under a commercial general liability policy issued by Peerless, which was in effect from July 1, 2002 to July 1, 2003, and was renewed for the period July 1, 2003 to July 1, 2004 (“the policy”). The policy included the following relevant coverage provisions, exclusions, and definitions:
The insuring agreement for “COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY” (hereafter Coverage A) stated in relevant part: “a. We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply.... [¶]... [¶] b. This insurance applies to ‘bodily injury’ and ‘property damage’ only if: [¶] [t]he ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory’....”
The insuring agreement for “COVERAGE B PERSONAL AND ADVERTISING INJURY LIABILITY” (hereafter Coverage B) stated in relevant part: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘personal and advertising injury’ to which this insurance does not apply....” Coverage B contained an exclusion for “ ‘[p]ersonal and advertising injury’... [¶]... [¶] [a]rising out of a criminal act committed by or at the direction of any insured....”
Relevant definitions contained in the policy included the following: “13. ‘Occurrence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. [¶] 14. ‘Personal and advertising injury’ means injury, including consequential ‘bodily injury’ arising out of one or more of the following offenses: [¶]... [¶] e. Oral or written publication of material that violates a person’s right of privacy; [¶]... [¶] 17. ‘Property damage’ means: [¶] a. Physical injury to tangible property, including all resulting use of that property.... [¶] b. Loss of use of tangible property that is not physically injured....”
C. Peerless’s Denial of Coverage
Santos tendered the Apple cross-complaint to Peerless in January 2006. Peerless denied the tender, asserting there was no coverage because the Apple cross-complaint alleged no occurrence, property damage, or personal injury, as defined in the policy. Peerless maintained that there was (1) no occurrence because Apple made no claim of injury resulting from accidental conduct, (2) no property damage because the disruption of Apple’s online computer systems did not constitute the loss of use of tangible property, and (3) no personal injury because Apple did not allege any of the “personal and advertising injury” offenses enumerated in the policy.
In an effort to change Peerless’s coverage decision, Santos’s counsel submitted additional letters to Peerless, enclosing copies of correspondence he had received in 2003 from Apple’s counsel alleging, among other things, that (1) Santos had used a computer program designed to access confidential information of Apple’s customers; (2) every time Santos’s computer program sent an inquiry to Apple’s systems, Apple’s servers were “impacted”; (3) as a result of Santos’s computer program inquiries, the order status function at Apple’s Online Store was “disabled” for more than five hours on June 11, 2003, negatively impacting Apple and its customers in their ability to use this function; and (4) Apple would be terminating its contractual relationship with Macadam due to Santos’s continued unauthorized access to and use of Apple’s customer service function to obtain confidential customer information.
According to Santos’s counsel, Apple’s letters showed that coverage was triggered under the Peerless policy because Apple’s damages included loss of use of its tangible computer and networking systems, and that Apple also alleged damage as a result of Santos’s publication to third parties of confidential information of Apple’s customers. Counsel further represented that Apple’s loss of use damages were the result of an accident or occurrence because Santos “did not intend, nor expect, nor could have expected, that his access of Apple’s computer systems would cause them to crash.” Notwithstanding this new correspondence, Peerless reiterated its denial of either defense or indemnity coverage to Santos for Apple’s cross-complaint.
D. The Present Lawsuit
On October 5, 2006, Santos sued Peerless, alleging causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief on the duty to defend.
Santos moved for summary adjudication on the issue of Peerless’s duty to defend. The trial court denied the motion, finding with respect to Coverage A of the policy that Santos had failed to meet his initial burden of showing that the Apple cross-complaint potentially alleges an “occurrence” under the policy. The court found that Santos “failed to proffer any facts to support his speculative assertion that ‘some additional, unexpected, independent, and unforeseen happening occur[ed] that produce[d] the damage’ to Apple.” Regarding Coverage B, the court held that the undisputed facts did not establish any potential coverage for “personal and advertising injury,” and rejected as speculative Santos’s assertion that coverage should be found based on an unpled claim for invasion of privacy that Apple could make in the future.
Peerless followed with its own motion for summary judgment. The trial court granted Peerless’s motion, finding that Santos’s acts were intentional and did not give rise to a duty to defend under the policy. The court further held that there was no potential for “personal and advertising injury” coverage because the complaint against him neither alleged a publication of a material fact that violates a person’s right of privacy nor could it be broadly interpreted to include such an averment.
This timely appeal from the ensuing judgment followed.
II. DISCUSSION
A. Applicable Legal Standards
“A motion for summary judgment must be granted if all of the papers submitted show ‘there is no triable issue as to any material fact and... the moving party is entitled to a judgment as a matter of law. In determining whether the papers show... there is no triable issue as to any material fact the court shall consider all of the evidence set forth in the papers,... and all inferences reasonably deducible from the evidence....’ ([Code Civ. Proc.,] § 437c, subd. (c).) A defendant has met its burden of showing a cause of action has no merit if it ‘has shown that one or more elements of the cause of action... cannot be established, or that there is a complete defense to that cause of action. Once the defendant... has met that burden, the burden shifts to the plaintiff... to show... a triable issue of one or more material facts exists as to that cause of action or a defense thereto. The plaintiff... may not rely upon the mere allegations or denials of its pleading to show... a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists....’ (Id., subd. (o)(2); Parsons v. Crown Disposal Co. (1997) 15 Cal.4th 456, 464 & fn. 4.)” (Scheiding v. Dinwiddie Construction Co. (1999) 69 Cal.App.4th 64, 69.)
Summary judgment rulings are reviewed de novo (Scheiding v. Dinwiddie Construction Co., supra, 69 Cal.App.4th at p. 69; Buss v. Superior Court (1997) 16 Cal.4th 35, 60), including those granting the motion (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 404). We independently interpret a written contract when no extrinsic evidence and related credibility questions were presented below. (Milazo v. Gulf Ins. Co. (1990) 224 Cal.App.3d 1528, 1534.) “The interpretation of a written instrument... is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect.” (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.)
Insurance policies are contracts subject to the ordinary rules of contract interpretation. (Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115.) Our goal is to give effect to the mutual intention of the parties when they entered into the contract. (Safeco Ins. Co. v. Robert S. (2001) 26 Cal.4th 758, 763.) If possible, we determine the parties’ intent solely from the terms of the policy. (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821–822.) We give those terms their ordinary and popular meanings, unless the parties use terms in a technical or special sense. (Ibid.) “[I]f the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning.” (Id. at p. 822.)
The duty to defend is broader than the duty to indemnify. The carrier must defend a suit that potentially seeks damages within the coverage of the policy. Therefore, an insurer may owe a duty to defend its insured in an action in which no covered damages are ultimately awarded. (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081 (Horace Mann).)
Whether the insurer owes a duty to defend is determined in the first instance by comparing the allegations of the complaint with the terms of the policy. (Horace Mann, supra, 4 Cal.4th at p. 1081.) The duty to defend is excused only where “the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.” (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 276, fn. 15.) “[T]he insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.” (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300.)
Facts extrinsic to the complaint may also give rise to a duty to defend when they reveal a possibility that the claim is covered by the policy. (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 300.) Because pleading rules liberally allow amendment, the third party plaintiff cannot be the arbiter of coverage. (Id. at p. 296.) However, an insured cannot manufacture coverage for itself by sheer speculation as to unpled third party claims. (Low v. Golden Eagle Ins. Co. (2002) 99 Cal.App.4th 109, 113.) Moreover, the duty to defend is not determined by the truth or falsity of the allegations made in the third party complaint, but only by the potential for coverage if the complainant should prevail on one or more claims. “[T]he duty to defend a suit which raises a possibility of liability, but is eventually shown to be groundless, does not equate with a duty to defend a suit which raises no potential liability.” (Nichols v. Great American Ins. Companies (1985) 169 Cal.App.3d 766, 776–777.)
B. Coverage A
Peerless’s motion for summary judgment rested in part on the claim that there was no covered “occurrence” under the policy because Apple was making no allegation that it sustained injury as a result of accidental conduct by Santos. There is no dispute that Coverage A of the policy only provides for suits brought against the insured because of bodily injury or property damage caused by an “occurrence,” which is defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
To sustain its burden of showing that there was a triable issue of material fact with respect to whether Apple was alleging a covered occurrence, Santos came forward with evidence of the following asserted facts regarding the underlying claims: Apple maintains a computer system that includes an Internet store. The Internet store includes Web pages that permit customers to check on the status of orders. Apple alleged that Santos submitted tens of thousands of requests per day to the Apple computer system, which placed a strain on the system and caused repeated problems, including hanging and freezing, which prevented some Apple customers from accessing information about their orders. Apple alleged that Santos’s efforts were designed to obtain information for use in his previously filed lawsuit against Apple and that his actions caused customers to complain to Apple and interfered with Apple’s relationships with its customers. Santos admits that during the time period in question, June 2003, his company “accessed the [Apple] website by using no more than four or five computers emulating being hand keypunched....” He disputes Apple’s contention that a significantly larger number of requests to the order status tool were coming from his company than he admitted, and claims that traffic to the Apple order status page significantly increased at the time in question independently of any access attributable to him. Santos avers that if Apple did experience the computer problems it claims, it was “only because of a great volume of traffic that unexpectedly and coincidentally occurred” in June 2003 due to “new product announcements from [Apple] and interest from its customer base.”
Santos relies principally on cases recognizing that an accident or occurrence can arise in certain circumstances from an insured’s intentional conduct. In Merced Mutual Ins. Co. v. Mendez (1989) 213 Cal.App.3d 41 (Mendez), the Court of Appeal defined these circumstances as follows: “An accident... is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage. [Citation.] Clearly, where the insured acted deliberately with the intent to cause injury, the conduct would not be deemed an accident. Moreover, where the insured intended all of the acts that resulted in the victim’s injury, the event may not be deemed an ‘accident’ merely because the insured did not intend to cause injury. Conversely, an ‘accident’ exists when any aspect in the causal series of events leading to the injury or damage was unintended by the insured and a matter of fortuity.” (Id. at p. 50, italics added.)
Mendez held, however, that an insured’s intentional sexual acts with a coworker, which the coworker alleged were against her will, were not accidental, even though the insured claimed that he mistakenly believed the acts were consensual. (Mendez, supra, 213 Cal.App.3d at p. 50 .) The court stated: “All of the acts, the manner in which they were done, and the objective accomplished occurred exactly as appellant intended. No additional, unexpected, independent or unforeseen act occurred. ‘Whatever the motivation,’ because [appellant’s] conduct was ‘calculated and deliberate’ [citation], it was not an ‘accident’ and thus not an ‘occurrence’ within the meaning of the policy provision.” (Id. at p. 51.)
Santos also cites State Farm Fire & Casualty Co. v. Superior Court (2008) 164 Cal.App.4th 317 (State Farm). The insured in State Farm got into an argument with another attendee at a party. (Id. at p. 321.) After an exchange of words, the insured picked the other man up intending to throw him into the shallow end of a swimming pool. (Ibid.) Instead, the man landed on the pool’s concrete step, sustaining a fractured right clavicle. (Ibid.) The insured apologized to the injured party and explained that he had not meant to hurt him, and was only trying get him wet. (Id. at pp. 321–322.) The injured party characterized the incident as “ ‘horsing-playing around.’ ” (Id. at p. 321.) The injured party eventually filed a suit for damages, alleging negligence among other claims. (Id. at p. 322.) State Farm refused coverage on the grounds in part that the claim did not arise from an accident or occurrence. (Ibid.)
The Court of Appeal held in favor of the insured. The court began its analysis by observing that the meaning of the term “accident” in insurance law is unsettled and not subject to any all-inclusive definition. (State Farm, supra, 164 Cal.App.4th at p. 325.) The court acknowledged cases holding that where the insured’s conduct is deliberate or volitional, the incident cannot be an accident for insurance law purposes. (Id. at pp. 325, 329–330.) These cases tend to involve intentional acts that by their nature have a detrimental effect on another person. Typical examples are sexual assault cases such as Mendez, and wrongful termination suits. (See, e.g., Quan v. Truck Ins. Exchange (1998) 67 Cal.App.4th 583, 595–599 [sexual battery]; Loyola Marymount University v. Hartford Accident & Indemnity Co. (1990) 219 Cal.App.3d 1217, 1224–1225 [wrongful termination]; Dyer v. Northbrook Property & Casualty Ins. Co. (1989) 210 Cal.App.3d 1540, 1546–1549 [same].) Thus, in J. C. Penney Casualty Ins. Co. v. M. K. (1991) 52 Cal.3d 1009, 1026, our Supreme Court observed that “[s]ome acts [such as sexual molestation] are so inherently harmful that the intent to commit the act and the intent to harm are one and the same. The act is the harm.” In such cases, there is no “accident” or “occurrence” for insurance law purposes even if the harm turns out to be different from that expected.
But the appellate court in State Farm also discussed real and hypothetical cases in which the term “accident” may properly refer to intentional acts having unintended or unexpected consequences. (State Farm, supra, 164 Cal.App.4th at pp. 325–328.) The court’s examples included the intentional drilling of a well causing vibration damage to a neighboring property, a teenager flipping an egg at a pedestrian from a rapidly moving car causing the pedestrian to lose sight in one eye, a baseball batter hitting a foul ball that breaks a window, and an intentionally speeding driver who negligently hits another car. (State Farm, at pp. 327–328.) These cases involve accidents for insurance purposes, according to the State Farm court, because the events directly responsible for the injury—the reach of the drill’s vibration, the egg’s trajectory toward the pedestrian’s eye, the batter’s ineffective swing, or the speeding driver’s failure to avoid another car—were not intended but came about fortuitously as the result of some negligence on the part of the insured. (Id. at p. 328.)
See Meyer v. Pacific Employers Ins. Co. (1965) 233 Cal.App.2d 321.
See National American Ins. Co. v. Insurance Co. of North America (1977) 74 Cal.App.3d 565.
On the facts before it, State Farm held that the insured’s pool-tossing conduct was accidental: “It is undisputed that Lint did not intend to hurt Wright; he merely intended that Wright land farther out into the water and ‘get... wet.’ No doubt Lint acted recklessly. But, just as the teenagers irresponsibly flipping eggs did not intend to cause the victim to lose an eye, or the intentional speeder did not plan to hit another car, Lint rashly threw Wright at the pool without expecting that Wright would land on the cement step. Stated otherwise, the act directly responsible for Wright's injury, throwing too softly so as to miss the water, was an unforeseen or undesigned happening or consequence and was thus fortuitous.” (State Farm, supra, 164 Cal.App.4th at pp. 328–329, italics omitted.)
In our view, the factual scenario here lies much closer to the intentional misconduct cases than it does to the “undesigned happening” examples discussed in State Farm. There is no dispute that Santos programmed at least four or five of his company’s computers to repeatedly access the order status tool on Apple’s Web site. His purpose in doing so was not to check on the status of his own legitimate orders, but to improperly access nonpublic information about orders placed by others, information that he intended to use against Apple in his previously filed lawsuit. Apple alleges that these actions interfered with their customers’ use of the order status function and had other adverse consequences. Santos denies that he intended or could have expected such a result (if it did in fact occur). The question we must decide is whether Santos’s deliberate conduct—which by his own admission was intended to adversely affect Apple by obtaining nonpublic information to use against it in a lawsuit—can be considered an “accident” for insurance coverage purposes merely because Apple was also harmed in some other fashion that Santos did not anticipate. This is not a situation, in our view, in which Santos was conducting some wholly innocent activity such as playing baseball or drilling a well, or was engaging in “horse-play” or a childish prank, that negligently went awry, causing real harm. By his own admissions, he was deliberately misusing Apple’s Web site to obtain information he was not supposed to have to use as ammunition against Apple in a lawsuit. This cannot be deemed an “accident” or “occurrence” under the policy even if Santos had no reason to expect that his conduct would impair the Web site’s functionality.
Santos’s claim that his assertedly limited access may have combined with a larger increase in unrelated traffic to produce the malfunction also fails to create a material factual issue for trial. If that claim is borne out, there will be no damages because Apple would be unable to prove that Santos’s intentional conduct caused its injury, as alleged in the cross-complaint. On the other hand, if Apple is right that it was Santos’s conduct that caused the malfunction, there will be no occurrence. Under either scenario, there is no potential recovery of damages covered by the policies. If there is no potential for the third party to recover on a covered claim, there is no duty to defend. (Dykstra v. Foremost Ins. Co. (1993) 14 Cal.App.4th 361, 368.)
Put another way, none of the “undesigned happening” cases discussed in State Farm involved a failure by the tortfeasor to anticipate the actions of a large number of third party actors acting independently. It is difficult to imagine any circumstance in which a user of Apple’s Web site could be held legally liable for negligently failing to foresee an unusual increase in traffic to the site by others that Apple itself did not foresee. Santos can be liable to Apple, if at all, only for intentional conduct that does not constitute an “occurrence” under the policy.
Because we find there was no occurrence under the policy, we do not reach Peerless’s further claim under Coverage A that there was also no covered property damage.
C. Coverage B
Santos contends that Apple has a potential but unpleaded claim for covered “personal and advertising injury” under Coverage B of the policy based on his alleged “publication of material that violates a person’s right of privacy.” According to Santos, the facts that support his claim for coverage on this theory are (1) the Apple cross-complaint alleges that he accessed “non-public information” on Apple’s Web site concerning thousands of orders placed by Apple customers, and that he “used and copied this data”; (2) the Apple cross-complaint further alleged that Santos impersonated at least one Apple customer to obtain information about that customer’s orders, and that the customer complained to Apple about Santos’s conduct; and (3) in a June 2003 letter to Santos’s counsel, Apple’s counsel characterized the ordering, billing, and shipping information Santos had obtained as “the confidential information of Apple’s customers.”
Peerless points out that Apple’s cross-complaint contains no allegation and seeks no damages based on the theory that Apple’s privacy rights were violated. Peerless argues that Apple could not amend its cross-complaint to allege any such claim because (1) a corporation cannot sue for violation of its own property rights, citing Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 878; and (2) Apple would lack standing to assert the privacy rights of its customers, citing Fleck and Associates v. Phoenix, City (9th Cir. 2006) 471 F.3d 1100, 1105–1106. Moreover, Peerless asserts that the cross-complaint nowhere alleges “publication” of the private information since the only type of use alleged—use of the information in a lawsuit—cannot be equated with “publication.” Peerless maintains that even if Santos “published” private customer information in his lawsuit, such use would be protected by the absolute litigation privilege.
We reject Santos’s argument that it is legally irrelevant whether Apple could in fact recover any damages arising from his alleged (but unpleaded) invasion of the privacy rights of Apple’s customers. While it is the nature of the offense alleged, not the particular type of damages sought, that are determinative of coverage under personal injury liability policies (see Fibreboard Corp. v. Hartford Accident & Indemnity Co. (1993) 16 Cal.App.4th 492, 511), there can be no duty to defend or indemnify unless the insured faces some actual or potential claim for damages. If no such damages claim has been or could be asserted, as Santos implicitly concedes by failing to argue otherwise, then there can be no coverage. We also agree with Peerless that Santos has failed to demonstrate that the use of information in a lawsuit can be equated with “publication.”
Because as a matter of law Peerless had no duty under either Coverage A or Coverage B of the policy to defend or indemnify Santos in connection with Apple’s cross-complaint, the trial court correctly granted summary judgment to Peerless.
III. DISPOSITION
The judgment is affirmed.
We concur: Marchiano, P.J., Graham, J.
Retired judge of the Superior Court of Marin County assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.