A California Federal District Court recently dismissed an insurer’s motion to dismiss a manufacturer’s warranty claim on the grounds that an “unfair competition” exclusion barred coverage for an action alleging breaches of the law. Colorado Consumer Protection Act. The court allowed the lawsuit because the exclusion did not clearly, explicitly and unambiguously apply to the alleged product liability action against the manufacturer. The decision in Arovast Corporation v. Great American E&S Insurance Co., No. SACV 21-596-CJC (CD Cal. 2 Aug 2021) highlights the wide range of activities that can be found in “unfair competition”, “antitrust” and similar exclusions and how they can be cited as grounds for denying coverage in a variety of contexts beyond the anti-competitive claims that these labels may suggest to most policyholders.
Product liability lawsuit
A Colorado miner sued a pressure cooker manufacturer for injuries sustained due to an alleged failure of a safety mechanism. The plaintiff made claims for strict liability, negligence, breach of express warranty, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability and violations of the Consumer Protection Act. of Colorado, which imposes liability for deceptive marketing practices when a business “represents only goods.” . . are of a particular standard, quality or grade. . . if [it] knows or should know that they belong to another.
The manufacturer made the claim to its liability insurer, Great American, under a policy that provided coverage for bodily injury and property damage (Cover A) and liability for personal injury and publicity (Cover B). Great American denied coverage on the basis of a “claim or suit alleging violation of unfair competition laws or similar laws”.
The exclusion, which was added to the policy by endorsement, eliminated coverage under Coverage B for any lawsuit alleging “personal injury and publicity” arising out of any alleged violation of “any statute, common law or other statute. or regulations relating to unfair competition, antitrust, restriction of trade, piracy, unfair trade practices or any similar law or regulation ”, as well as any“ personal or publicity harm ”alleged in a lawsuit which also alleges any actual, suspected or threatened violation of those same laws or regulations. This “unfair competition” exclusion, the insurer argued, precluded coverage of any product liability lawsuit alleging bodily injury and property damage where the lawsuit also alleged a deceptive marketing practices claim.
Great American motion to dismiss cover lawsuit
The manufacturer sued Great American in federal court in California, alleging that the insurer had an obligation to defend and indemnify it in the underlying lawsuit and that the denial of the claim violated the policy and commitment of good faith and fair use. Great American decided to dismiss the breach of contract and punitive damages claims, which the court dismissed because the exclusion did not clearly and unambiguously demonstrate that any product liability alleging an injury lawsuit bodily injury is automatically excluded if it also alleges a claim of deceptive marketing practices.
In rejecting Great American’s position, the court said:
The exclusion that Great American relied on is found in an endorsement on page 69 of the policy.
The title of the endorsement refers to “Unfair Competition or Similar Laws”, not “Deceptive Marketing Practices”.
The manufacturer “reasonably expected” that a product liability lawsuit alleging bodily injury and property damage would be covered under coverage A of the policy, even though the lawsuit also alleged a deceptive marketing practices claim , recognizing the position of the manufacturer that “[a]Almost any product liability claim could involve a claim for deceptive marketing of the product that caused harm.
The introductory provision in bold type of the endorsement “describing the part of the policy to which the exclusion applies does not refer to coverage A, only an exclusion from coverage B”.
Great American’s parent company “advised the California Department of Insurance in endorsement filings that the endorsement was not intended to restrict the extent of coverage provided by the [Commercial General Liability] form.”
Although the court noted that evidence adduced in summary judgment may show that an “unfair competition” exclusion precludes the underlying product liability action, the exclusion was not sufficiently clear. , explicit and unambiguous to allow the insurer to prevail during the request to reject the stage.
Take away food
Exclusion terms such as the “unfair competition” endorsement are interpreted narrowly against the insurer who wrote the policy and in favor of the coverage. By applying this standard correctly, the Arovast the court came to the correct conclusion: the clear language of the exclusion in question did not refer to “deceptive marketing practices” (or defined “similar laws”); the endorsement expressly stated that it was modifying a different type of coverage (Cover B – Personal injury and advertising damage) than what was at issue in the underlying product liability lawsuit (Cover A – Personal injury and property damage ); and the insurer’s parent company had told state regulators that the rider did not reduce the scope of coverage provided. The dismissal of Great American’s motion was particularly appropriate in light of the heavy burden it had to shoulder in order to succeed on a motion to dismiss.
The tribunal’s analysis was also consistent with other decisions rejecting similar attempts by insurers to ban coverage of consumer protection claims under “antitrust”, “unfair competition” or similar exclusions. See, for example, James River Ins. Co. v Rawlings Sporting Goods Co., Inc., n ° CV 19-6658-GW-MAAX, 2021 WL 346418, at * 8 (CD Cal. January 25, 2021) (finding that an “antitrust exclusion” in the D&O policy referring to “unfair commercial practices” n does not apply to consumer protection claims). Thus, even if Great American seeks summary judgment on the basis of a more elaborate case, it may not be able to meet its heavy burden of showing that the exclusion clearly applies, explicitly and unambiguously on demand, as required by California law.
The ruling also highlights a broader issue for policyholders who might be surprised to receive a denial letter citing “unfair competition” or a similar anti-competitive exclusion to bar coverage for lawsuits alleging consumer protection claims, even when the lawsuits contain many other causes for measures that clearly fall within the scope of the policy coverage subsidies. Antitrust exclusions can be invoked by insurers in a series of other claims. For example, an insurer may argue that antitrust exclusions prohibit computer coverage when a hacker was motivated by industrial espionage and data was stolen for anti-competitive purposes. The antitrust exclusion from a private company D&O policy can also be worded broadly enough to encompass employment-related antitrust liability or even tort interference claims. Policyholders should not assume that provisions characterized as anti-competitive exclusions do not refer to other types of conduct.
In Arovast, the problematic exclusion in question has been added to the policy by endorsement, but in many cases unfair competition exclusions are included in standard liability cover forms. Policyholders should carefully consider all exclusions, including those added or modified by endorsements, which can be interpreted broadly to apply well beyond federal or state laws regulating unfair competition. While it may not be possible to eliminate the exclusion entirely, policyholders should attempt to carve out full or limited coverage for consumer protections and similar claims.
Copyright © 2021, Hunton Andrews Kurth LLP. All rights reserved.Revue nationale de droit, volume XI, number 221Source link