Challenges in Securing Coverage for Antitrust Litigation

Challenges in Securing Coverage for Antitrust Litigation

By David A. Gauntlett*

Introduction

Aside from insurance policies secured by a larger corporation that directly address antitrust litigation exposure,[1] there is no express coverage for “antitrust litigation” in Commercial General Liability (“CGL”), Umbrella, Excess, Errors and Omissions (“E&O”), or Directors and Officers (“D&O”) policies.[2] Rather, coverage extends to “categories of wrongdoing,” which includes a list of offenses under “personal and advertising injury” coverage. This offense-based coverage is often implicated by the allegations accompanying business tort claims. It is of no moment that the conduct alleged is intentional as the offenses covered in such CGL policies expressly include intentional conduct such as malicious prosecution, disparagement, and defamation.

The difficulty with these cases is not that there is no commercial liability/umbrella coverage for such claims but rather that the potentially operative “advertising injury” or “personal injury” coverages therein are not implicated by the theory of recovery pursued in such cases but by the factual assertions of wrongful acts there.

Facts, Not Labels, Determine Coverage

Careful focus on the facts alleged as well as those which are capable of being alleged is necessary to assess coverage.[3] In antitrust litigation, the conduct creating liability is discussed in sections of the pleadings that address why competitors are injured and that that injury in turn evidences injury to competition. There need not be a direct link between the fact allegations triggering a defense and proof of a theory of recovery for violation of antitrust laws as alleged.[4]

Much of what is stated in the responses to discovery and subsequent pleadings will illustrate aspects of why the coverage comes into play but was only sketchily suggested in the initial complaint. That is why it is often critical to determine what state’s law could arguably apply, as some will permit only reference to the complaint. Most permit reference to facts developed through discovery that clarify the allegations in the complaint if, at minimum, they are known to the insurer or, in some jurisdictions, available.[5]

Thus, for example, “false advertising” conduct often asserts as part of the “fraudulent concealment” allegation in a commodities price-fixing which can potentially fall within “advertising injury” coverage for certain competitive “misappropriation of advertising ideas” and/or “use of another’s advertising idea in your ‘advertisement.’” 

Brokers and Risk Managers Often Fail to Understand Notice Obligations

Notice provisions in policy forms can vary. It is often difficult to ascertain which state’s law may apply. If a foreign company has no suits within the United States, a policy issued abroad may respond to claims asserted in whichever state a suit is filed. Some international insurance policies issued in the U.S. do not include a “territory” limitation that precludes coverage for any U.S. litigation. The insurer may be U.S.-based and be incorporated and have its principal place of business in various or the same states.

 All these facts have a role in choosing what applicable law applies, as it is rare that the policy form will have a choice-of-law clause compelling the adoption of certain law. Nevertheless, some claims-made-based coverages will specify law, such as that of England, and require venue of any coverage disputes there. If so, this must be factored into the coverage analysis.

Coverage Counsel Is Best Situated to Aid in Making Decisions

In reviewing coverage programs for U.S. risks that appertain to these kinds of exposures, we often find that there may be better forms of insurance available that are worth consideration and may not be known to the company. This follows because, while insurance brokers understand the market, they are not intimately involved in ascertaining the meaning of policy language at issue as we have as policyholder attorneys litigating these issues throughout the United States.

G&A counsels a number of companies, assisting them in procuring the most efficacious policy form to respond to intellectual property and business tort risks. Often the choice of different policy language can make a large difference in the scope of coverage. This is more true now than ever as commercial general liability (“CGL”) policy forms increasingly offer very distinct opportunities for coverage.

For example, CGL policies issued by Travelers, Hartford, Great American, and Evanston include onerous intellectual property exclusions.[6] Slight differences in wording of exclusionary language can have a profound impact on the scope of coverage. Forms issued by insurers that use Insurance Service Office (“ISO”) policy language may be the broadest coverage available. But a list of those that do so changes frequently, and many have tiers that only offer that ISO policy version to select policyholders. The ISO language often compels a different outcome on identical underlying facts, as the Ninth Circuit concluded in a case G&A litigated.[7]

How to Proceed If You Wish to Work with Us

Typically, we do not charge for our preliminary analysis. If the company maintains “occurrence” based coverage – that is, coverage that is dependent upon when the wrongful conduct occurred – as opposed to “claims-made” coverage, we would need to review:

(1) The complaint in the underlying action and any amendments thereto;

(2) The Commercial General Liability/Umbrella policies applicable to the company’s U.S.-based risks for all pertinent years when wrongful acts allegedly arose; and

(3) Any D&O policy where officers or directors are expressly named as Defendants

 In intellectual property lawsuits, the first date of alleged wrongful conduct can usually either be alleged on “information and belief” or not alleged at all. Thus, some analysis by the company may be necessary to ascertain when the conduct described may have first commenced that is allegedly wrongful.

If only “claims-made” coverage is in place, then we would need to review the policy in force at the time the lawsuit was filed and served.

Entities seeking antitrust coverage should consider CGL policies with Umbrella and Excess coverage issued on an “occurrence” basis, Multimedia/Cyber coverage issued on a “claims-made” basis, as well as D&O and E&O policies. This coverage addresses various forms of intellectual property liability and may readily respond to claims above the self-insured retention threshold.

Conclusion

Selecting coverage counsel is always a nerve-wracking decision.[8] Companies seeking to analyze whether any U.S.-based litigation for any form of business tort might fall within the scope of its liability insurance coverage should consult knowledgeable coverage counsel at the inception of a lawsuit whether they are plaintiffs or defendants.

*David A. Gauntlett is a principal of Gauntlett & Associates (“G&A”) and represents policyholders in insurance coverage disputes. He also serves as Chair of the Insurance Coverage  Sub-Committee of the Antirust Committee of the Litigation Section of the American Bar Association. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.

[1] See David A. Gauntlett, Insurance Coverage for Antitrust Disputes, https://www.gauntlettlaw.com/news/insurance-coverage-for-antitrust-disputes (March 17, 2022).

[2] This in contrast to Media policies, which expressly exclude antitrust along with patent and trade secret claims, but other claims that are covered (such as those for defamation or disparagement) may still trigger a defense.

[3] Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1034 (2002) (“The scope of the duty does not depend on the labels given to the causes of action in the third party complaint; instead it rests on whether the alleged facts or known extrinsic facts reveal a possibility that the claim may be covered by the policy.”)

[4] Id. at 1032 (“Coverage for personal injury is not determined by the nature of the damages sought in the action against the insured, but by the nature of the claims made against the insured in that action. Under the personal injury policy provision, ‘[c]overage . . . is triggered by the offense, not the injury or damage which a plaintiff suffers.’”).

[5] See David A. Gauntlett, Insurance Coverage of Intellectual Property Assets, 2d ed., Appendix P (2023) for a full list of states’ approaches to this issue.

[6] See, e.g. My Choice Software, Ltd. Liab. Co. v. Travelers Cas. Ins. Co. of Am., 823 F. App'x 510, 511 (9th Cir. (Cal.) 2020) (“The relevant provision of the IP exclusion stated that coverage under the policy does not apply to ‘“Personal injury” or “advertising injury” arising out of any actual or alleged infringement or violation of any of the following rights or laws, or any other “personal injury” or “advertising injury” alleged in any claim or “suit” that also alleges any such infringement or violation.’”)

[7] Compare id. with Aurafin-Oroamerica, Ltd. Liab. Co. v. Fed. Ins. Co., 188 F. App'x 565 (9th Cir. (Cal.) 2006) (“[U]nder California law, exclusions to insurance policies must be ‘conspicuous, plain, and clear.’ MacKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635, 3 Cal. Rptr. 3d 228, 73 P.3d 1205, 1207 (Cal. 2003). The intellectual property exclusion at issue in this case did not meet the MacKinnon standard because it is unclear what the exclusion meant when it excluded statements made in ‘defense’ of intellectual property rights.”)

[8] See David A. Gauntlett, Why Policyholders Should Retain Insurance Coverage Savvy Counsel, https://www.gauntlettlaw.com/news/why-policyholders-should-retain-insurance-coverage-savvy-counsel (Jan. 5, 2023).