On June 7, 2021, in Duke University v. Endurance Risk Solutions Assurance Co., a federal judge allowed Duke University to proceed in seeking a declaratory judgment that its excess liability policy, which contained express antitrust coverage in its directors and officers (D&O) section, required a defense against an underlying class action antitrust lawsuit. The underlying action is for “antitrust conspiracy,” where Duke and the University of North Carolina at Chapel Hill are alleged to have conspired to suppress faculty pay by refraining from competition. The policy contains a coinsurance provision by which the insurer assumed 80 percent of losses arising out of an antitrust claim.
On June 8, poultry producer Foster Farms sued its insurer, alleging that Everest National Insurance Co. had likewise failed to defend against three purported class action antitrust suits. According to the complaint in Foster Farms, LLC v. Everest National Insurance Co., Everest sold Foster Farms a commercial general liability (CGL) policy with an antitrust coverage endorsement providing broad coverage for antitrust claims. The endorsement provides a $5 million limit for such claims and deletes the exclusion in the policy for claims “based upon, arising out of or attributable to an actual or alleged violation of” antitrust laws. The underlying class action alleged that Foster Farms had conspired with 10 other poultry companies to suppress the supply of turkey in the United States, in violation of such laws.
Everest based its denial of Foster Farms’ claim not on the antitrust nature of the underlying lawsuit but on a policy exclusion for actions related to three specific previous antitrust claims against Foster Farms. The case, therefore, hinges on the relatedness of the antitrust lawsuits against Foster Farms—not on whether the policy covered defense against antitrust lawsuits categorically.
CGL policies typically do not provide express coverage for antitrust litigation. Such claims are also expressly excluded from media liability policies.
D&O policies cover “wrongful acts.” Where an individual officer or director is named, an antitrust exclusion may apply. Endorsements may add specific coverage for antitrust claims.
CGL policies cover business torts often implicated in antitrust lawsuits:
Media liability policies offer “claims made and reported” coverage previously available in broad forms of CGL policies subject only to express exclusions for antitrust, patent, and trade secret claims, evidencing sub silentio that coverage was previously included in the CGL policy.
D&O policies, as well as errors and omissions policies, typically expressly exclude antitrust lawsuits, but they may not bar defense duties for all claims asserted in the complaints against policyholders. Moreover, the antitrust exclusions do not have an impact on coverage for suits against individual officers or directors.
While antitrust lawsuits may include fact allegations that do not evidence covered claims for disparagement, the facts underlying the parties’ dispute may necessarily permit the introduction of an amended complaint to assert such distinct grounds for liability contemporaneously with asserted antitrust violations. While the claimant’s focus may not have been on litigating this issue, nonetheless there is ample opportunity to clarify whether such claims are indeed part of the parties’ disagreement about the policyholder’s conduct. In one such case, the court permitted a late amendment to expressly assert claims for disparagement that were always evident as a basis for liability but that had not been clearly and distinctly articulated prior to that point.
Emblematic of this recognition of the breadth of the insurer’s duty to settle is American Institute of Intradermal Cosmetics v. Society of Permanent Cosmetic Professionals, in which the court allowed a late amendment of the pleadings to facilitate settlement, reasoning as follows:
[B]ecause the Lanham Act Plaintiff now seeks to add has a similar substantive and factual basis and is essentially seeking the same relief as Plaintiff’s existing Sherman Act claim, Defendants are not likely to suffer prejudice if amendment is allowed. Accordingly, . . . Plaintiff’s motion is GRANTED.
Winklevoss Consultants, Inc. v. Federal Insurance Co. explained that a defense arose not when a covered tort was expressly pursued or proven, but when factual allegations against the policyholder amounted to a layperson’s understanding of the conduct that the policy covers.
A decision authored by Judge Posner, Lockwood International B.V. v. Volm Bag Co. reversed a district court’s allowance of a partial settlement that vitiated the insurer’s duty to defend Volm Bag Co. North River’s conduct in funding the claimant to pursue its own insured, Volm, was bad faith under Wisconsin law. The court clarified:
The duty to defend turns on the facts alleged rather than on the theories pleaded; and even after its deal with North River, Lockwood was alleging facts that could well, depending on the course of trial, describe a covered claim. Thus North River did not leave behind only clearly uncovered claims when it tried to shuck off its contractual responsibility to pay for its insured’s defense.
Decisions reaching contrary views have not thoughtfully addressed the issues that Lockwood described.
Distinct fact allegations from those supporting disparagement may evidence covered claims for defamation. The court in MedeAnalytics, Inv. v. Federal Insurance Co. court noted:
While the allegations in the underlying complaint did not provide factual support for each element of a libel or slander claim, because “the underlying complaint alleged publication to third persons, and the content of the statements were allegedly disparaging[,] [t]hese allegations sufficed to give rise to a potentially covered claim” for libel or slander.
So too the court in Aurafin-Oroamerica v. Federal Insurance Co. noted:
The viability of the underlying claim against the insured does not affect an insurance company’s duty to defend. Rather, even “when the underlying action is a sham,” the insurer may terminate its duty to defend only by “demur[ing] or obtain[ing] summary judgment on its insured’s behalf.” . . . Thus, the district court erred when it relieved Federal of its duty to defend based on the merits of D&W’s underlying defamation claim.
The Tenth Circuit in Novell, Inc. v. Vigilant Insurance Co. narrowly construed the defense duty where the insurer’s copyright infringement claims vested in a particular entity were attacked:
The SCO complaint does not allege that Novell called SCO a liar or dishonest; rather it alleges statements surrounding the ownership dispute over the Unix copyrights. The fact that the complaint alleges injury to SCO’s business reputation, in the absence of allegations that Novell made defamatory statements about SCO, does not change our ruling. As the district court noted, any injury alleged by SCO to its business reputation was caused by the disagreement over the ownership of the Unix copyrights and any cloud placed upon the title to those copyrights—which prevented SCO from being able to fully exploit the resources it claimed to own.
A subsequent decision, Hartford Casualty Insurance Co. v. Swift Distribution, Inc., clarified that a different result in a duty to defend arose where the intellectual property rights of the party sued were contested.
Relying on [E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F. Supp. 2d 1244 (N.D. Cal. 2008)], the court in [Burgett, Inc. v. Am. Zurich Ins. Co., 830 F. Supp. 2d 953, 958 (E.D. Cal. 2011)] similarly found that an insured was “potentially liable for disparagement by implication” when faced with a suit alleging it had made a false claim to be “the only owner” of a particular trademark.
“Misappropriation of advertising ideas” is not limited to “any wrongful taking”; it can include “misuse.” “Misappropriation,” not copying, is the operative term, and “misuse” is the preferred dictionary definition of “misappropriation” that a lay person would use, and certainly a valid definition for coverage purposes. Moreover, the phrase is ambiguous.
Judge Castillo, in Winklevoss, an early decision, assumed that “wrongful taking of a competitor’s idea about the solicitation of business” was the broadest potential definition of that ambiguous phrase. He was wrong. More recent decisions, such as Ohio Casualty Insurance Co. v. Cloud Nine, LLC, have confirmed that an “advertising idea” readily encompasses “an idea for calling public attention to a product or business, especially by proclaiming desirable qualities so as to increase sales or patronage.” Whether that is the most reasonable definition or best definition does not matter. So long as it is a reasonable, contextually viable definition, that suffices.
Adoption of the “wrongful taking” definition of “misappropriation” rewrites the policy for the insurer’s benefit. It is also inconsistent with the broad definition of advertising adopted by the Eighth Circuit and found appropriate by the Fourth Circuit, Third Circuit, and Seventh Circuit on two occasions, as well as the Eleventh Circuit (applying Florida law). If “wrongful taking” was an inherent limitation imposed by the use of the term “misappropriation,” there is no contextual reason why it must be limited to (as the court’s analysis assumes) a wrongful taking from a competitor as opposed to the public, which suffers when goods are misdescribed, as was alleged here. Earlier decisions, as well as later one dealing with noncompetitive fact scenarios, have readily found the offense implicated without a wrongful taking. This makes good, distinguishable sense as the phrase “advertising idea,” a noun-noun compound, can be conjoined by no fewer than 12 possible prepositions and articles as connective words “advertising” and “idea.”
Analyzing an alleged price-fixing conspiracy involving egg prices under Indiana law, the court in Rose Acre Farms, Inc. v. Columbia Casualty Co. held:
[N]owhere does Rose Acre’s website state that the cost of those eggs is increased by the measures taken to make the chickens that lay them healthy and happy— . . . [although] there’s a faint implication that all Rose Acre’s eggs are more expensive than they would be if the company did not give more weight to its chickens’ mobility and social opportunities than to the cost of their eggs.
Following Rose Acre, the court in Trailer Bridge, Inc. v. Illinois National Insurance Co. added words of limitation to its policy under the guise of interpretation. It rejected Trailer Bridge’s argument that a co-conspirator could not qualify as “another” when it was accused of misusing an “advertising idea” to explain rising prices in the shipment of products to Puerto Rico by falsely advertising that prices were “market driven.” But this allegedly misleading idea was not originated by Trailer Bridge, as others were found culpable, because the suit against it was dismissed with prejudice. For the panel’s analysis to be correct, Illinois National’s policy would have to read “misappropriation of the claimant’s advertising idea in your ‘advertisement,’” but it did not. Nor did it state that the “misuse of an advertising idea” was “of a competitor,” “of another,” or of a “co-defendant.” Such construction was inferred by the court’s analysis of the phrase “of another,” which was impermissibly narrow.
The court reasoned that St. Paul Mercury Insurance Co. v. Tessera, Inc., on remand from the Ninth Circuit, which reversed the district court’s ruling against Tessera, clarified the broad construction, because malicious prosecution can be triggered by claims of “patent misuse,” which were not within the scope of St. Paul’s intellectual property exclusion. Such claims were not a claim for infringement or violation of property rights, as the policy language required.
Thus, the court stated:
To the extent St. Paul argues that PTI’s patent misuse claim constitutes an independent claim of injury resulting from violation of an intellectual property right, the intellectual property exclusion clause is not triggered because, as the Ninth Circuit explained in an unpublished opinion, there is no intellectual property right to be free from patent misuse. Patent misuse is an equitable defense to patent infringement that is intended to restrain practices that did not in themselves violate any law, but that drew anticompetitive strength from the patent right, and thus were deemed to be contrary to public policy.
A different result arose in Travelers Property Casualty Co. v. KFx Medical Corp., in which the court narrowly construed the scope of fact allegations sufficient to trigger potential coverage for disparagement or malicious prosecution, both potentially implicated offenses. Therein, the Ninth Circuit concluded:
We find the possibility that the [counterclaims] might be amended to state claims for abuse of process or product disparagement (thus giving rise to potential liability) too speculative to trigger a duty to defend or indemnify.
Other decisions, such as Electronics for Imaging Inc. v. Atlantic Mutual Insurance Co. and Ethicon, Inc. v. Aetna Casualty & Surety Co., have expanded the scope of “malicious prosecution” coverage to encompass claimants for abuse of process. As Tessera observed, the breadth of coverage for “malicious prosecution” in jurisdictions like California, New York, and Delaware may encompass “abuse of process” claims. So understood, its scope may be broader than anticipated. And such claims may be integrated into antitrust litigation disputes. They may lead these lawsuits to be covered.
While “slander of title” claims may not always evidence wrongful acts, companion suits may have that effect, including nested allegations of trade secret misappropriations. These, not labels of causes of action, are defamation for coverage purposes.
The court in Lime Tree Village Community Club Ass’n explained:
. . . Lime Tree could be held liable . . . for unintended slander of title and unintended restraint of trade. . . . [T]he Lime Tree officers and directors could have been found . . . to have committed an error or a breach of a duty in passing and recording the amendment to the Covenants and Restrictions.
By 1985, the first media liability policies were issued. From their inception, these policies included express exclusions for antitrust patent and trade secret claims. The same is true of Coverage C under D&O policies providing entity coverage. Yet, no equivalents were issued limiting coverage under CGL policies with respect to these known excluded torts. Historically issued policies eliminated coverage in antitrust lawsuits but do not limit CGL coverage. Indeed, a small group of insurers expressly provided antitrust coverage through endorsement to particular policyholders, providing antitrust coverage typically over a self-insured retention and including a supplement.
Case law deftly side-stepping the favorable coverage resolutions for policyholders predates the adoption of the Restatement the Law of Liability Insurance. The Restatement offers a more balanced consideration of the proper application of the principles it culled from a national review of insurance coverage law. Revisitation of decisions denying coverage for antitrust lawsuits in the manifold disguises is warranted by the logic behind the proper construction of insurance coverage law.
