Insurer's Entitled to Reimbursement Upon a Finding of Rescission Must Still Prove That its Provision of Possibility "Conflicted Defense" Through "Appointed Counsel" Created Value so as to Entitle it for Reimbursement for Such Counsel's Fee Expense

Century Surety Co. v. Robin Singh Educational Services, Inc., Case No. CV-06-8066-CAS (Ex) (Central Dist. (Cal. Western Div.) April 14, 2008)

Judge Snyder found rescission appropriate as against Testmasters for alleged failure to properly answer a policy application question requiring disclosure of claims within the proceeding five years. Nevertheless, even though conceding that such a policy was eviscerated ab initio. The court challenged whether the insurer, Century Surety, was capable of receiving reimbursement for monies expended through appointed counsel, where an issue was raised at to whether the insured was entitled to independent counsel as it had sought. If so there may not be any value created by appointed counsel’s legal services, even assuming the services were otherwise reasonable and the amounts charged appropriate.

Finding a fact issue posed, the court sent this issue to trial. The court observed that LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., 156 Cal. App. 4th 1259, 1266 (2007) provided that:

The consequence of rescission is not only the termination of further liability, but also the restoration of the parties to their former positions by requiring each to return whatever consideration has been received. . . The policy would be ‘extinguished’ ab initio, as though it had never existed.” Id. at 184. “A policy void ab initio . . . cannot be breached.” Continue Reading...

"Place of Performance" Triumphs under Mississippi Choice of Law Rules For the Selection and Payment of Independent Counsel

Hartford Underwriters Ins. Co. v. Foundation Health Services, Inc., ___ F.3d ___, 2008 WL 946080 (5th Cir. (Miss.) 2008)

Affirming the district court decision, the court determined that Mississippi law permits appointment of “independent counsel” which, under Mississippi law, includes the requirement that the insurer reimburse an insured for the cost of independently retained counsel. Where the underlying suit was pending in Mississippi, its law applied under Mississippi choice-of-law rules even though insurance policy negotiations and contracting likely occurred in Louisiana.

In its analysis of the restatement §8-188, the place of Hartford’s relevant performance, Mississippi, was significant. The court found the close relationship between Hartford’s performance and Mississippi’s substantial interest in avoiding conflict of interest in its state’s court was implicated by the appointment of independent counsel.

We emphasize that we are only determining the law applicable to this narrow issue, and other disputes arising out of these insurance policies may be governed by the law of another state. See Boardman, 470 So.2d at 1031 (“We apply the center of gravity test to each question presented, recognizing that the answer produced in some instances may be that the law of this state applies and on other questions in the same case the substantive law of another state may be enforceable.”).Id. *9.

The court was able to make short shrift of the argument that independent counsel was not appropriate under Mississippi law because Continue Reading...

False Advertising Claims Trigger Coverage or a Competitor Initiates Suit Under Advertising Injury Coverage

Two distinct decisions, one applying North Carolina the other Illinois law, both found false advertising claims fell within standard advertising injury coverage where initiated by competitors.

Granutec, Inc. v. St. Paul Fire & Marine Ins. Co., No. 5:96-CV-489-BO(2), 2008 WL 312146 (E.D.N.C. Jan. 16, 2008)

Granutec, Inc. (“Granutec”) is a North Carolina corporation that manufactures and sells generic, over-the-counter (“OTC”), pharmaceutical products. Following an initial agreement with Johnson & Johnson in 1989 to employ a color scheme for generic caplets different from that of the Tylenol Gelcaps, in February 1994 Granutec changed the color scheme to mimic the Tylenol Gelcaps. This conduct precipitated a suit against it for Lanham Act claims under 15 U.S.C. § 1125(a) and 43(a)(2) for false and deceptive advertising, as well as trademark trade/trade dress infringement.

Following issuance of a preliminary injunction against Granutec on December 21, 1995, Granutec agreed to market its OTC product in a color scheme that was conspicuously different from that used by McNeil, a Johnson & Johnson subsidiary, after incurring $500,000.00 in defense fees. Two policy forms were in effect from June 30, 1994 to July 31, 1994, a 1986 ISO form covering as “advertising injury” “misappropriation of advertising ideas or style of doing business”, and from August 1, 1994 to August 1, 1995, a St. Paul variant of an ISO 2001 policy form covering as “advertising injury” “unauthorized taking or use of any advertising material, slogan or title of others” the later policy included intellectual property exclusion.

Focusing on the express unfair competition claim pursuant to NCGS § 75-1.1 et seq., which prohibits “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce,” the court found a defense owed. It noted under the earlier 1986 ISO policy issued by Aetna:

Continue Reading...

Tortious Interference Claims Based on Contract Breaches Found Within Exclusions to Directors & Officers As Well As "Advertising Injury" Coverage

Although the general rule is that facts, not labels of causes of action, trigger a defense under offense-based policies, as well as those looking to wrongful acts such as Directors & Officers policies, mere reference to terms that might otherwise trigger a defense, such as disparagement or misrepresentation, were deemed insufficient in and of themselves to show that the conduct fell within potential coverage.

Greektown Casino, LLC v. Zurich Am. Ins. Co., No. 07-CV-13583, 2008 WL 597814 (E.D. Mich. Feb. 29, 2008)

At issue were claims for tortious interference with contract and business relations causing Greektown to breach its agreement with plaintiffs. The court observed:
Continue Reading...

Two Distinct Court Decisions Find Coverage for Trademark Infringement Lawsuits Bolstering a National Trend

Two cases looked at the 1986 ISO policy provision offering “advertising injury” coverage for misappropriation of “advertising ideas or style of doing business”, the later, the 1998 ISO CGL “advertising injury” provision for “use of another’s advertising idea in your advertisement.” Each found a defense in a series of distinct scenarios.

General Cas Co. of Wisconsin v. Wozniak Travel, Inc. No. 07-3515 RHK/AJB, 2008 WL 440747 (D. Minn. Feb. 14, 2008)

The court determined there was a split of authority between an unpublished court of appeal decision – Williamson v. N. Star Cos., No. C3-96-1139, 1997 WL 53029 (Minn. Ct. App. Feb. 11, 1997), review denied (Apr. 15, 1997), and the Eighth Circuit Court of Appeal applying Minnesota law in Callas Enters., Inc. v. Travelers Indem. Co. of Am., 193 F.3d 952 (8th Cir. (Minn.) 1999). The court certified to the Minnesota Supreme Court the issues of: Continue Reading...

Class Action Lawsuits Alleging Fact Based Disparagement Claims Arising Out of Actionable Conduct Do Not Trigger a Defense


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.

Continue Reading...