Courts Find Cracks in “Wage and Hour” Exclusions
What if a claim typically capable of being asserted in most cases where there has been a wrongful classification of an employee or other failure that technically violated wage and hour law could be covered under standard Employment Practices Liability Insurance (“EPLI”) policies? And, more critically, what if the insurance coverage would not be within the sublimit for a wage and hour claim, but subject to the full policy benefits. That would be a game changer. That is precisely what a recent decision from a California Court of Appeal concluded may be possible.
Defining the Scope of “Advertising” Required for “Advertising Injury”
As in our previous blog, I am once again addressing mistakes and oversights included in an article published in DRI For the Defense.
Disparagement Coverage: Exactly as Broad as the Policy Says
In this blog, I respond to many mistakes and omissions commonly weaponized by insurer counsel that were encapsulated in an article published in DRI For the Defense. Although the authors appear to have attempted a neutral evaluation of the “implicit disparagement” doctrine in various jurisdictions, the article neglects several aspects of coverage law that protect policyholders.
Inconsistent Applications of Coverage Law
This blog examines some recent coverage cases across the country to highlight the inconsistency with which courts apply principles of coverage law that may appear to be long since settled. Many ideologically conservative judges refuse to embrace modern trends that benefit policyholders. It is an unfortunate truth that the prevailing party in an insurance suit is often dictated as much by the judge assigned as by the actual facts of the case.
Implicit Disparagement Insurance Coverage Survey
A standard provision in Commercial General Liability (“CGL”) policies provides coverage for “[o]ral or written publication, in any manner, of material that . . . disparages a person’s or organization’s goods, products or services.” A growing number of states have embraced the doctrine of “implicit” (or “implied”) disparagement where inferences from statements about the quality of one’s own products imply negative comparative statements about a rival’s products. This blog examines the most prominent cases addressing the issue in the five most populous states.
Second Circuit Takes Limited View of Implicit Disparagement under New York Law
A Second Circuit panel including Judges Pierre Leval, Sarah Merriam, and Maria Kahn affirmed the district court’s denial of potential coverage in Tzumi Innovations, LLC v. Twin City Fire Ins. Co. Their Summary Order adopted District Judge Abrams’ conclusion that “‘there is no possible factual or legal basis on which’ Twin City would be obligated to defend Tzumi under the ‘personal and advertising injury’ provision of the policy.” Neither court analyzed whether claims under California Civil Code § 1770(a)(8) evidenced implicit disparagement by Tzumi of its competitors’ products so as to require a defense under offense “d” of the policy’s “personal and advertising injury” coverage.
Facts vs. Labels and Potential for Amendment Govern in New York
In Tzumi Elecs. LLC v. Burlington Ins. Co., the Southern District of New York court concluded that all potentially covered claims arose out of the explicitly pled patent infringement causes of action in the underlying complaint. Not so. That conclusion was unsupported by analysis explaining how the injury flowing from allegations of disparagement (the asserted basis for coverage) necessarily arose from the patent infringement. This decision inappropriately elevates the labels the plaintiff attached to the cause of action over the actual facts alleged. Further, it fails to account for the “potential for amendment” doctrine that has been accepted under New York law as well as inferences arising from the asserted fact allegations in light of the claimants’ potential intent to avoid triggering potential coverage.
California District Court Fails to Accept Deposition Testimony as Extrinsic Evidence
A recent Southern District of California decision ignored several critical pieces of California coverage law, including the impact of extrinsic evidence on an insurer’s duty to defend. In Aram Logistics v. United States Liability Insurance Co., the court refused to acknowledge allegations falling within potential coverage of an insurance policy because they were part of deposition testimony from the underlying action. Judge Huff’s assertions in her decision are like those advanced by adherents of the “Earth is flat” theory.
Claimant’s Pursuit of Amazon’s Insurance Coverage for Post-FTC Actions
The Federal Trade Commission (“FTC”) recently made headlines by filing an antitrust lawsuit against Amazon in the U.S. District Court for the Western District of Washington. The complaint describes a number of allegedly illegal practices, including Amazon’s practice of prioritizing “Sponsored Brand” and “Sponsored Product” search results. Injury to consumers and competitors is alleged to flow from Amazon’s selective alteration of search results to make room for these “Sponsored” spots at the top. These allegations in particular could easily spawn civil actions filed by consumers and competitors who claim injuries from these practices. These potential plaintiffs can expedite settlement by careful pleading that facilitates coverage under a Commercial General Liability (“CGL”) insurance policy that insures Amazon for its “use of another’s advertising idea in [its] ‘advertisement’.”
Corporate Transparency Act’s Intersection with Diversity Jurisdiction Challenges
This year, effected entities must make their first filings under the Corporate Transparency Act (“CTA”). Enacted in 2021, the CTA’s purpose is curtail illicit activity such as tax fraud, money laundering, and financing for terrorism by forcing disclosure of additional ownership information for certain U.S. businesses operating in or accessing the country's market. Under the new legislation, qualifying businesses must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network. The BOI reports must provide details identifying individuals who are associated with the reporting company. Several articles have already been written discussing compliance requirements. In this blog, we wanted to discuss a different angle—how will the CTA impact diversity jurisdiction?
New York District Court Disputes Whether Settlements Clarify Potential Coverage
A recent Southern District of New York decision deviates from New York coverage law principles. Therein, the court decided that recitals in a Settlement Agreement which the insurer evaluated and concluded did not trigger a defense before the settlement was consummated did not clarify whether the underlying action implicated potential coverage. This continues a problematic trend in New York federal court decisions that have interpreted an insurer’s duty to defend more narrowly than their state counterparts, which the federal courts are bound to follow.
Assuring Coverage Counsel’s Proactive Assistance Requires Early Intervention
Currently, eleven states (and the District of Columbia) still adhere to the draconian “eight corners” analysis for the duty to defend. Under this policy, a court can only consider the policy language and the pleadings of the underlying case to determine whether the insurer’s duty is triggered. The modern trend, embraced by the remaining jurisdictions, is to consider additional “extrinsic evidence” in making the determination. Those states are split, however, in whether the duty is determined by facts known to the insurer or facts available to the insurer. The distinction being that the former requires the policyholder to proactively notify the insurer of any facts that implicate the duty to defend before the insurer’s obligations are activated. The burden is on the policyholder to supply the insurer with the information, even if the relevant facts are publicly available.
N.Y. Magistrate Narrowly Construes “Conducted Against Liability” Doctrine
The New Year starts off with a long awaited decision by a New York Federal Magistrate Judge which implicitly concluded that New York’s construction of the “conducted against liability” doctrine was limited to the “mirror image” cross-complaints in the same pending action. In so concluding, the court necessarily rejected the strategically defensive legal action such as the pending ITC action while the Federal Court Action asserting trade dress claims was stayed. The court failed to conduct the requisite choice of law analysis which would have recognized that under New York choice of law rules, California coverage law applied and a defense of the ITC action was compelled.
Personal and Advertising Coverage – A Year in Review
For our final blog of 2023, we wanted to look back at some of the prominent coverage cases and discuss emerging trends in insurance litigation.
“Slander of Title” Coverage under E&O Policy Unearthed by Ninth Circuit
“Slander of Title” is a commonly added cause of action in lawsuits addressing disputes over real property. Historically, such claims have had a limited intersection with insurance coverage. The principle exception is where the targeted defendant procured a Title Insurance policy providing directly applicable coverage. A recent decision by the Ninth Circuit analyzing potential coverage under an Errors & Omissions (“E&O”) Management Liability policy, however, has finally acknowledged the potential for coverage under more general policies. The decision’s rationale allows policyholders to reap policy benefits from both a Commercial General Liability (CGL”) policy as well as a Title Insurance policy if both are implicated by the fact dispute.
Securing Insurer Funded Resolution of Securities Lawsuits
Whether government investigations by the Securities Exchange Commission (“SEC”), Department of Justice (“DOJ”), another federal or state entity, or unanticipated drops in Company stock value precipitate shareholder litigation, securing the best possible insurance coverage to address the asserted claims is critical. The entity then evaluates whether actionable conduct has arisen that allows a government agency to pursue a claim. Such investigations create significant potential exposure for policyholders in investigation costs. Additionally, in responding to government subpoenas or demands for information, even before the start of an investigation, policyholders often expend significant amounts of time and money securing the information required. Luckily, reimbursement may be attained through a policyholder’s “Directors and Officers (“D&O”), Errors & Omissions (“E&O”), or Commercial General Liability (“CGL”) policy.
Pursuit and Defense of Patent Infringement at Insurer’s Expense
Patent infringement litigation fees constantly escalate. According to a 2023 American Intellectual Property Law Association (“AIPLA”) survey, the median cost of litigating a patent lawsuit through trial ranges from $600k when the amount in controversy is less than $1M to $3.625M when the amount is over $25M. Patent holders have secured significant settlements and judgments premised on reasonable royalty awards. These recoveries have led patent litigation entities such as Burford to finance this litigation. Cross-licensing of patents also factors into resolutions of these lawsuits. Companies that do not have a significant patent portfolio cannot exchange licensing rights with competitors to resolve infringement disputes. Therefore, the inability to afford costly patent litigation may cause the abandonment of key market advantages that are central to the company’s strategy.
Why Words of Limitation Cannot Be Added Under the Guise of Policy Construction
A growing trend in insurance denials (and subsequent litigation) is arguing that policies should be interpreted in a manner belied by the actual language. This runs contrary to governing law, which actually allows policyholders to attack restrictive interpretations by demonstrating that alternative language would have readily achieved the insurer’s preferred reading. A policyholder’s burden is not to promote the most reasonable interpretation. A court must accept any reasonable construction promoted by the policyholder.
Mistaken Denial of Coverage for Trademark Dilution Claims
A typical trademark suit will assert various causes of action with names familiar to the average person, including the well-known trademark “infringement.” Unfortunately for policyholders, these claims are typically excluded by a policy’s IP exclusion. Though less known, trademark “dilution” is also common and can often be leveraged to attain coverage for the entire suit. This path to coverage is rarely recognized by insurance claims handlers, leading to a quick denial. Luckily, experienced coverage counsel can explain that mistake and secure coverage despite an initial denial.
Coverage Based on Potential for Amendment of Underlying Pleadings
Policyholders and even general counsel often overlook the potential for coverage by only considering the causes of action in a Complaint. In truth, it is the factual allegations that govern, not the labeled causes of action. And in many jurisdictions, the original form of a Complaint is only the starting point, as insurers must consider the potential for clarifying amendments that would nudge the allegations of a poorly drafted Complaint to within the scope of potential coverage.