Insurance Policyholder Advocate & Attorney David Gauntlett : Gauntlett Law Firm : Insurance Recovery, Policy Interpretation : Irvine, Orange County, California

BASF AG v. Great Am. Assur. Co., ___ F.3d___, 2008 WL 1701864 (7th Cir. (Ill.) 2008)

This case might better be described as a tale of two courts. Since the inconsistency between the analytic approach of the Seventh Circuit applying Illinois law to that of the Supreme Court of Illinois has been deepened by this new decision.

The court reversed the district court and questioned the Illinois District Court decision on which the district court had relied, Knoll Pharm. Co. v. Automobile Ins. Co., 210 F. Supp. 2d 1017, 1025-28 (N.D. Ill. 2002). That earlier case had resolved following appellate argument on appeal. The judge who was to have authored the opinion for that panel, Judge Kanne, authored the opinion on the BASF Seventh Circuit decision.

Applying Illinois law, the court found that the phrase “arising out of” did not expand the potential plaintiff to a class who could raise potential coverage claims under otherwise uncovered antitrust allegations so long as disparagement formed a basis for the potential coverage. The court rejected the argument that the consumer plaintiff class implicitly advanced a disparagement claim by pleading that Boots violated the Illinois Consumer Fraud and Deceptive Business Practices Act (CFA), 815 ILCS 505/1 et seq.

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Insurers achieved three favorable rulings in cases which to date remain unpublished.

Chimera Investment Co. v. State Farm Fire & Cas. Co., No. 06-4268, 2008 WL 681701 (10th Cir. (Utah) March 11, 2008)

The first addresses coverage for disparagement. It found that an insured could not obtain coverage under the “personal injury” offense of “oral or written publication of material that disparages a goods products or services of another for slandering it own services”. The insured, a real estate management company which allegedly slandered a home owners association services in speaking to a condominium unit owner. The court found that the injuries for which the claimant sought to recover in a state court lawsuit where no reported injuries to the homeowners association arose did not trigger a defense. The connection between the “offense” of slander of the association’s services to the injuries sustained by the claimant did not come within “advertising injury” coverage in the courts view where the suit was for unlawful entry, trespassing and wrongful eviction from a condominium unit. It found that the policy’s “arising out of” language did not make a difference.

The two remaining cases addressing “invasion of privacy” as forms of “personal injury” coverage

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On occasion people have asked me why I named our firm newsletter “The Policy Holder Advocate”. For a simple reason; there is a ‘missing’ in the equation of insurance product delivery that threatens the rights of policy holders, especially in the context of third party litigation against companies where a range of business tort claims are asserted. Distinctions between various forms of Commercial General Liability Media/Cybernet/Intellectual Property Defense policies are rarely understood by the broker community. There are few resources to distinguish which policies offer the best coverage for the majority of insureds or for the particular insured who is seeking insurance. Underwriters often write policies without appreciating how litigation activity will implicate coverage there under. When information is fed back to underwriters from the claims department, it is often so particularized that the overview to understand the broader complications of the policy language may not readily be appreciated.

Risk management focuses on a range of different topics and the particularized distinctions between various versions of Commercial General Liability Umbrella policy language and how it might intersect with a range of business torts, antitrust, and intellectual property claims and is not a specific focus of the review of policies. While more emphasis is placed on claims made Directors & Officers insurance, which is of keen interest to corporate officers and directors, less attention to the precise language of commercial liability policies tends to be paid. This is unfortunate because such policies often contain opportunities to cover a range of business torts because of the fact allegations in specific complaints, as clarified through discovery responses, may implicate potential coverage triggering at minimum, a duty to defend, or in certain policies, reimbursement of defense fees.

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(1) Parkham Industrial Distributors, Inc. v. Cincinnati Ins. Co.
No. 3:06CV-533-S, 2008 WL 451023 (W.D. Ky. Feb. 15, 2008)

? At issue were alleged buried fact allegations of disparagement triggering coverage under a 1998 ISO CGL policy provision covering personal and advertising injury arising out of “oral ord written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”

? The court found fact allegations, which have been deemed sufficient by a number of courts to evidence a disparagement claim, insufficient on the facts before it, applying Kentucky law. Judge Simpson stated:

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(1) West Bend Mut. Ins. Co. v. Rosemont Exposition Servs., Inc.
880 N.E.2d 640, 316 Ill. Dec. 904 (Ill. App. Ct. (1st Dist.) 2007)

? Former employees brought a suit for defamation and retaliatory discharge. The appellate court held that the defamation claim was excluded from coverage so the insured did not have a duty to defend, affirming the trial court opinion. The court reasoned:

The sole defamatory statement alleged in the Bagnalls’ complaint was that they were involved in a fraudulent workers’ compensation claim. That alleged defamation was perpetrated to provide the grounds for RES’s termination of the Bagnalls’ employment and can, therefore, only be construed as being employment-related. The complaint makes no additional allegations of defamation that could ultimately bring the case beyond the scope of the ERP exclusion.

Id. at 652.

? The ERP exclusion states:

“This insurance does not apply to:
‘Personal and advertising injury’ to
(1) A person arising out of any:
. . . .
(b) Termination of that person’s employment; or
(c) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, discipline, reassignment, defamation, harassment, humiliation or discrimination directed at that person; . . . .”

Id. at 643.

? The court cited and reviewed a number of cases, principally out of state, and most typically from California, in reaching its determination.

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