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June 28, 2023 Articles

Insurance Coverage for Antitrust: Turkeys Are Not Chickens

A recent case related to high-profile antitrust litigation provides lessons in securing antitrust insurance coverage.

By David A. Gauntlett

In Foster Farms, LLC v. Everest Nat'l Ins. Co., No. 3:21-cv-04356-WHO, 2023 U.S. Dist. LEXIS 71397 (N.D. Cal. Apr. 24, 2023), the court closely examined the meaning of “interrelated wrongful act” in the context of insurance coverage for antitrust litigation. The underlying facts featured several cases accusing Foster Farms of anticompetitive practices in the sale of its poultry products. The court grouped these cases into two categories—one for chicken (the “Chicken Suits”) and one for turkey (the “Turkey Suits”).

The Chicken Suits alleged that executives in the industry would regularly meet at trade association meetings and utilize data benchmarking reports prepared by Agri Stats, an analytics service, “to share confidential and proprietary information to reduce competition, constrain supply, and create pretext for industry-wide production cuts.” Id. at *6. The Turkey Suits’ allegations were similar, asserting that “turkey producers ‘exercise[d] a remarkable level of industry-wide restraint in keeping the growth of turkey supply in check’ and that the defendant-producers ‘acted in a concerted way to decrease turkey supply.’ . . . They also assert that the defendants engaged in coordinated production cuts in 2009, 2013, 2014, and 2015.” Id. at *12.

Antitrust suits may be covered where they allege claims that also support business tort liability, but directors and officers (D&O) policies (the type at issue here) usually contain an exclusion for antitrust claims unless an individual officer or director is named as a defendant. Foster Farms, however, specifically sought a D&O policy that would provide antitrust coverage because of litigation trends in the food industry. Since the Chicken Suits were already pending at the time Foster Farms sought antitrust coverage, the policy included a specific matter exclusion that precluded any potential coverage for the Chicken Suits. The Everest case turned on whether the Turkey Suits, which commenced after the policy inception, “alleg[ed], [were] based upon, ar[ose] out of, or [were] attributable to or in any way related directly or indirectly, in whole or in part, to an ‘Interrelated Wrongful Act.’” The policy defined “interrelated wrongful act” as “(i) any fact, circumstance, act or omission alleged in any ‘Event(s)’ and/or (ii) any ‘Wrongful Act’ which is the same as, is similar or related to, or a repetition of, any ‘Wrongful Act’ alleged in any ‘Event(s).’”

The court acknowledged that the Chicken and Turkey Suits contained certain similarities, such as the use of the Agri Stats reports in making anticompetitive decisions “with the goal of coordinating production suppression to decrease supply.” Id. at *27. Those similarities, however, paled in comparison to the differences. “[W]hile many of the allegations in the turkey and chicken suits seem similar at first blush, they involve different acts, actors, decisions, markets, timing, and consequences. . . . [T]hey also involve different courses of conduct, different goals, and different resulting injuries.” Id. at *29.

The Cases at Issue Are Not “Related” Under California Law

The court considered at length the application of the term “related” under the definition given by California law. See id. at *36 (“Under California law, the plain meaning of ‘related’ encompasses both causal and logical connections. See Bay Cities, 855 P.2d at 1271, 1274; see also Fin. Mgmt. Advisors, LLC v. Am. Int'l Specialty Lines Ins. Co., 506 F.3d 922, 926 (9th Cir. 2007) (noting with approval the logical and causal connection explained in Bay Cities).”). After noting there were “no allegations, claims, facts, or other circumstances that suggest anything in the Chicken Antitrust Suits caused the actions and facts alleged in the Turkey Antitrust Suits,” the court examined any potential logical connections between the underlying conduct at issue in the cases. It cited prior decisions which had determined that acts are “logically related” when they are “part of a single course of conduct or a single plan” or cause “the same injury.” Id. at *36 (citing Liberty Surplus Ins. Corp. v. Samuels, 562 F. Supp. 3d 431, 441 (N.D. Cal. 2021) and Fin. Mgmt. Advisors, LLC v. Am. Int'l Specialty Lines Ins. Co., 506 F.3d 922, 926 (9th Cir. (Cal.) 2007)).

The cases that comprised the Chicken and Turkey Suits each specifically alleged the inelasticity of both types of poultry products and that “purchasers of each product either do not or cannot switch to other products.” The court concluded this evidenced that the cases “did not cause a single injury and were not motivated by a single goal.” Id. at *39.

Decision Guided by Analogous Eureka Case

Finally, the court turned to Eureka Fed. Sav. & Loan Asso. v. Am. Cas. Co., 873 F.2d 229 (9th Cir. (Cal.) 1989), which it described as the “most factually similar to the present case.” Id. at *43. Eureka determined that acts were not related when “‘there were numerous intervening business decisions that took place after the loan policy was initiated that required the exercise of independent business judgment.’” Id. at *43–44 (quoting Eureka, 873 F.2d at 235).

The court analogized the holding to the present facts, observing that “even if the use of Agri Stats to increase profitability constitutes the same general course of conduct with the same goal (it does not), . . . there are allegations of separate and unique business decisions made after the Agri Stats data was used. . . . [I]t is not the receipt of [the analytic service] reports that caused the alleged injuries but rather the decreased production—resulting from different business decisions—that was what ultimately increased prices for purchaser-plaintiffs.” Id. at *44–45.

This case teaches two important lessons. First, securing the right policy for the needs of a client is essential. This case would not have succeeded if not for Foster Farms’s foresight to include antitrust coverage despite its absence in ordinary D&O policies. Second, an insurer’s coverage assessment is routinely narrower than the law requires. Here, coverage counsel was able to highlight the key distinctions overlooked by Everest, which focused only on the superficial similarities before incorrectly concluding denial was appropriate.

David A. Gauntlett is the principal at Gauntlett Law in Irvine, California.

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