Anthem Electronics, Inc. v. Pacific Employers Insurance Company, a California Corporation Federal Insurance Company, an Indiana Corporation

We are asked to decide whether, under California law, the plaintiffs general liability insurance policies required the defendants, two insurance companies, to defend their insured against a negligence and breach of contract suit brought by a third party. The district court granted summary judgment to the insurers. Because the complaint at issue clearly raised the possibility that the claims against the insured would be covered under the insurance policies, we reverse, grant partial summary judgnent to the plaintiff, and remand.

I. Background

In April 1991, plaintiff and appellant Anthem Electronics agreed to supply circuit boards to KLA Instruments Corp., a manufacturer, to be incorporated into scanners that KLA then sold. KLA took delivery of Anthem circuit boards from about August 1991 through November 1992.

Both the circuit boards supplied by Anthem and KLA’s final scanner products were quality tested before they were shipped to customers. Despite this, the circuit boards had latent defects that caused some of the scanners to fail once in use. The circuit boards supplied by Anthem, it turns out, were physically defective such that heat, physical vibration or…