Pacific Group v. First State Insurance

ORDER

The memorandum decision filed on July 28, 1995, 62 F.3d 1425 , is redesignated as an authored opinion by Judge Kleinfeld with minor modifications.

OPINION

The question in this case is whether an insurer’s advertising injury coverage applied to a third party claim against its policyholder. As a matter of law, it did not.

Facts.

Pacific Group’s principals organized the firm to buy a hotel in Hawaii from Kona Hawaiian Associates for $15 million. Pacific Group contacted U.S. Hotel Properties to assist in arranging financing and possibly managing the hotel. The deal fell through. Pacific Group did not get the hotel. Eventually the hotel failed and was sold at a foreclosure auction to another firm.

Kona Hawaiian, the failed owner, sued Pacific Group and U.S. Hotel for breach of their contract to buy the hotel. Pacific Group cross-claimed against U.S. Hotel. Only Pacific Group’s cross-claim, not Kona Hawai *526 ian’s claim, is the basis for the insurance coverage dispute in the case at bar.

Pacific Group alleged that U.S. Hotel breached its contract to provide financing and proceed with the purchase. Pacific Group alleged bad faith breach of contract, breach of fiduciary…