Legal Conclusions are Not Allegations of Fact
Post 4734

Zox LLC ("Zox") appealed the district court's grant of summary judgment
in favor of West American Insurance Company. The district court held
that West American had no duty to defend or indemnify Zox in an
underlying trademark dispute between Zox and a group of entrepreneurs
known as the "Zox Brothers" ("the Zox Litigation"). Zox contends the
district court erred because the Zox Brothers sought damages for three
potentially covered claims: (1) malicious prosecution; (2)
disparagement; and (3) use of an "advertising idea."

In ZOX LLC, a California Limited Liability Company, v.  West American
Insurance Company; et al., No. 23-55125, United States Court of Appeals,
Ninth Circuit (February 9, 2024) the Ninth Circuit resolved the
dispute.

ANALYSIS

Under California law, a liability insurer owes a broad duty to defend
its insured against claims that potentially seek damages within the
coverage of the policy. Coverage turns not on the technical legal cause
of action pleaded by the third party but on the facts alleged.

While the duty to defend is broad, an insurer will not be compelled to
defend its insured when the potential for liability is tenuous and
farfetched. To determine whether the duty to defend was triggered, the
Ninth Circuit was compelled to compare the allegations in the Zox
Brothers' pleadings ("the Pleadings") with the terms of West American's
Insurance Policy ("the Policy").

Malicious Prosecution

To plead a malicious prosecution claim, the Zox Brothers must plead
facts to prove that an underlying action was initiated or maintained (i)
by, or at the direction of, [Zox] and pursued to a legal termination in
favor of the Zox Brothers; (ii) without probable cause; and (iii) with
malice. The Zox Brothers did not plead facts, nor provide extrinsic
evidence, to satisfy any of the requisite elements of a malicious
prosecution claim. The Pleadings did not trigger coverage for malicious
prosecution.

Disparagement

To plead a disparagement claim, the Zox Brothers must plead facts to
show a false or misleading statement that (1) specifically refers to the
Zox Brothers' product or business and (2) clearly derogates that
product or business. The Ninth Circuit was required to look past labels
and at the facts alleged. Zox was unable to cite a single factual
pleading in support of a disparagement claim.

Appropriation of Advertising Ideas


Where there is a duty to defend, there may be a duty to indemnify; but
where there is no duty to defend, there cannot be a duty to indemnify.

ZALMA OPINION

The Ninth Circuit applied the clear and unambiguous language of the
policy to the "facts" alleged; found that the allegations were mostly
speculative or based on legal conclusions, failure to allege facts to
support the three claims failed and, therefore, the Ninth Circuit had no
choice but to affirm the summary judgment find no duty to defend nor a
duty to indemnify.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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