Lessons to Learn from Recent Lloyd’s Coverage Settlement
Lessons to Learn from Recent Lloyd’s Coverage Settlement
By David A. Gauntlett*
Introduction
Since 2018, Monster Energy Company (“Monster”) has been embroiled in litigation with Vital Pharmaceuticals, Inc. (“Vital”). The dispute has generated over two dozen judicial decisions with more still to come. The related coverage action between Vital and Certain Underwriters at Lloyd’s London (“Lloyd’s”) was recently resolved via settlement. Although the settlement avoids creation of new coverage case law, helpful inferences can be made based upon Lloyd’s decision to settle. This saga also highlights an important lesson for policyholders about the importance of notifying all insurers of litigation as soon as possible.
Underlying Allegations Evidence Potential Coverage
Monster asserted a wide variety of claims against Vital, but most important for coverage under the Lloyd’s policy were those alleging disparagement. In its coverage complaint against Lloyd’s, Vital highlighted the most pertinent allegations:
¶ 45. Owoc tells consumers that Super Creatine is what sets BANG apart from its competitors . . . [Owoc] is asked: “What is the benefit of drinking [B]ang over Monster zero or other sugar free energy drinks?” His first answer: “Super Creatine which is patented creatine-amino acid peptide that stable [in] water.”
¶ 69. In December 2018, for example, Owoc posted on social media that his “[competitors] wouldn’t have a clue as to what small changes to make in order to create an epic and brilliant tasting beverage innovation . . . .”
¶ 85. VPX and OWOC falsely disparage their competitors . . . .
¶ 89. VPX and Owoc’s attacks on Monster have gotten more explicit with time. In a recent VPX press release entitled “BANG’s JACK OWOC BLASTS MONSTER ENERGY INTO SUBMISSION.”
¶ 90. Most recently, Owoc posted an animated video on his Instagram account (“bangenergy.ceo”) showing a can of Bang knocking over a can of Monster and declaring in baritone: “CHECKMATE BITCH!”
¶ 91. Again, none of Owoc’s disparaging remarks about Monster are supported by science.
¶ 96. Given VPX and Owoc’s emphasis on Super Creatine, other consumers are naturally drawn to the product thinking it contains significant amounts of real creatine . . . . “Is there really any benefits to Bang over Monster? . . . For example, consumers have said the following about Bang . . . Bang has Super Creatine.”
¶ 97. . . . One online retailer recently announced that it would not carry Monster’s performance energy drink because it did not contain “Super Creatine.”
¶ 98. It is therefore clear VPX’s false claims are doing damage in the marketplace. Or you can just take Owoc’s word for it. He wrote that “Monster has no answer to contend with Jack Owoc’s Patented Super Creatine. . . .”[1]
In addition to these fact allegations, the complaint included a labeled cause of action for Trade Libel. Upon tender, Lloyd’s accepted its duty to defend, but its Reservation of Rights (“ROR”) letter specifically stated potential coverage was limited to the “cause of action, described as ‘Trade Libel.’”
Lloyd’s Disclaims Coverage after Trade Libel Is Dismissed
On May 20, 2019, the court in the underlying action dismissed the cause of action for Trade Libel with leave to amend. Monster declined to actually amend the complaint, thereby leaving the fact allegations in place, and continued to pursue relief based on allegations of disparagement. For example, Monster stated in a January 24, 2022 filing that Vital “made one or more false or misleading statements of fact about . . . Monster’s products, or the ingredients in Monster’s products.”
Despite the remaining fact allegations of the complaint and the renewed allegations in Monster’s briefing seeking relief for disparagement, Lloyd’s disclaimed any duty to continue defending its insured after the Trade Libel cause of action was dismissed. This position is in clear contradiction of nationwide coverage law, including Florida (the relevant jurisdiction for the coverage action).[2]
Vital attempted to explain this to Lloyd’s through correspondence, but it received no reply for eight months. Lloyd’s eventually affirmed its disclaimer and claimed that the delayed response was caused by its coverage counsel failing to alert it of Vital’s repeated requests for reconsideration.
Lloyd’s Agrees to $3M Settlement
After nearly three years of coverage litigation, the two parties reached a settlement in Vital’s parallel bankruptcy proceeding.[3] Lloyd’s agreed to pay $3M (out of an alleged $7M incurred in defense fees for the underlying action) to extinguish all coverage claims against it. Lloyd’s likely realized it had left itself exposed by improperly disclaiming coverage based on the mere removal of a cause of action rather than any modification to the factual allegations against the insured. Despite solid legal footing, Vital may have accepted the reduced payment due to a need for immediate funding as its litigation with Monster remains ongoing.
Vital May Have Avoided Issues by Tendering to Its D&O Insurer
The Lloyd’s coverage stemmed from a Commercial General Liability (“CGL”) policy, but Vital likely had other insurance policies in place. Critically, a Directors & Officers (“D&O”) policy could have provided additional relief if the claim was tendered immediately. Unlike CGL policies, which (like Vital’s Lloyd’s policy) are typically occurrence-based policies,[4] D&O policies are typically claims-made.[5]
As seen in the allegations quoted above, several of the allegedly injurious statements were made by Jack Owoc, Vital’s CEO, who was also named by Monster as a defendant in the underlying litigation. Unfortunately, many policyholders underestimate the scope of coverage provided by D&O policies and fail to report claims to their insurers.[6] Those policies provide coverage for “Wrongful Acts,” which is defined broadly enough to encompass many intellectual property claims (such as those for Lanham Act violations and statutory trade secret claims explicitly asserted by Monster in the underlying action).[7] By the time Vital retained coverage counsel who had an opportunity to evaluate the claims and offer advice, the window for tender may have already passed for a “claims-made” D&O policy.
An Insurance Brokers’ Annual Review Could Have Flagged the D&O Notice Opportunity
The original complaint against Vital was filed on September 4, 2018. The Lloyd’s CGL policy ran from December 4, 2017 through December 4, 2018. Assuming Vital D&O policy period was in sync, an annual review of Vital’s active policies by its broker in the month preceding policy expirations expiration dates could have led to notification of the D&O insurer. It was readily apparent that the CEO was a named defendant. It appears, however, that no one who knew to look for coverage opportunities created by that fact was alerted until it was too late.
Conclusion
For policyholders, there are three main lessons to learn from Vital’s long coverage dispute. First, insurers make mistakes and refuse to admit to them. Often, it is only when the writing is on the wall that a judgment may be coming down against them that insurers will finally give ground and offer a reasonable settlement. Though far from a surefire solution, the best way to try to avoid this is to have coverage counsel who can explain the nature of coverage in such a way that any attempt to deny would only set up the insurer for a bad faith claim.
Second, it is critical that policyholders provide notice to every insurer as soon as possible, even if that notice is merely perfunctory. Coverage counsel can always provide a more detailed coverage analysis letter in a follow-up communication afterward, but nothing can be done if delayed reactions have allowed key windows to elapse.
Third, businesses with a variety of policies should arrange for an annual review conducted by their insurance brokers. This should prevent any coverage opportunities from slipping through the cracks. It also provides an alternative path to recovery (i.e., suing for broker negligence, two-year statute of limitations in most forums) if coverage is lost due to failure to provide notice.
*David A. Gauntlett is a principal of Gauntlett Law and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 553-1010 by voicemail or dag@gauntlettlaw.com. For more information, visit Gauntlett Law at www.gauntlettlaw.com.
[1] Vital Pharmaceuticals Inc. v. Certain Underwriters at Lloyd's London Subscribing To Policy Number SB-NRT-31094-17, Case Number CACE22005500, Complaint (filed Apr. 18, 2022).
[2] Travelers Indem. Co. of Connecticut v. Richard McKenzie & Sons, Inc., 326 F. Supp. 3d 1332, 1346 (M.D. Fla. 2018), aff'd, 10 F.4th 1255 (11th Cir. 2021) (“The duty to defend depends on the facts alleged in the complaint, not the labels or conclusions in the complaint.”)
[3] In re: Vital Pharmaceuticals Inc. et al., Case Number 0:22-bk-17842, U.S. Bankruptcy Court for the Southern District of Florida.
[4] “Occurrence” policies provide coverage for any claim arising out of an “occurrence” during the policy period, regardless of when those claims come to light.
[5] “Claims-made” policies only provide coverage for claims first made during the policy period.
[6] See David A. Gauntlett, New Case Continues Trend Determining D&O Policies Offer Broad Coverage, https://www.gauntlettlaw.com/news/new-case-continues-trend-determining-dampo-policies-offer-broad-coverage (Dec. 12, 2024).
[7] See David A. Gauntlett, Insurance Coverage for Intellectual Property Risks, https://www.gauntlettlaw.com/news/insurance-coverage-for-intellectual-property-risks-1 (July 15, 2021).