American Legacy Found. v. National Union Fire Ins. Co. of Pittsburgh, PA, ___ F. Supp. 2d ___, 2009 WL 2001324 (D. Del. 2009)
The court observed:
Plaintiff's primary advertising campaign is entitled “the truth®.” Plaintiff claims that a “key component” of its mission is to “build a world where young people reject tobacco and anyone can quit.” . . . Plaintiff describes “the truth®” campaign's broadcast spots as “blunt, hard-edged, fast-paced, and sometimes humorous, designed to capture and hold the attention of the target teen audience.” (Id.)
Id. at *2.
At issue is the “Dog Walker” ad launched by plaintiff in a radio ad where an actor
hired by the producers of the ad and claiming to be a dog walker, calls two Lorriland employees were unaware they were speaking with an actor who “tries to sell dog urine he has collected to ‘you tobacco people’ because ‘dog pee is full of urea and that’s one of the chemicals in cigarettes.’ ” Id. at *2.
Lorillard asserted that the ad contained “false and misleading” information and ran afoul of Massachusetts law, which prohibits the taping of a telephone conversation without consent. American Legacy Foundation v. Lorillard Tobacco Co., Civ. No. 19406, 2002 WL 927383 at *1 (Del.Ch. Apr. 29, 2002). Id. at *1.
On January 18, 2002 Lorillard sent a letter entitled “Notice of Intent to Initiate Enforcement Proceeding Under the MSA. Therein it stated:
“[I]t has become abundantly clear that [plaintiff's] ‘truth campaign’ is not about conveying the truth about tobacco products to the American public, so much as vilifying and personally attacking tobacco companies and their employees.”
Id. at *3.
Following a preemptive declaratory judgment action against Lorillard under the MSA, Lorillard filed suit in Chancery Court in Delaware. Lorillard filed its answer in the Delaware action along with the seven counterclaims containing similar allegations to those made in the North Carolina action. The Delaware action proceeded on Lorillard’s counterclaims. Lorillard claims to have spent $17 million in its defense. The instant coverage complaint was filed on May 4, 2007.
Travelers never responded to three separate written tenders because its specialist was assigned to the matter was either promoted or reassigned. AIG and I&O under distinct policies declined a defense. Counsel for plaintiff in the underlying action, Wilmer, Cutler & Pickering, submitted the draft complaint threatening suit for libel and slander to its carriers. I&O claimed no knowledge of the underlying carrier. Scottsdale, the underlying carrier, eventually surfaced by claimed late notice.
The Lorillard counterclaim, in contrast to the initial demand letter, did not assert any express cause of action for libel or slander. It alleged essentially in its counterclaims that plaintiffs public statement that Lorillard was “trying to stop the truth® campaign” with its litigation were “false statements … consistent with ALF’s pattern of attacks upon, and vilification of, Lorrilard.” Id. at *9.
The Chancery Court concluded:
While Lorillard initially expressed an intent to file claims of libel and slander, Lorillard ultimately changed its strategy and opted to pursue strictly contractual claims. Lorillard III, 886 A.2d at *9. Within the Delaware Action, in a “procedural maneuver,” Lorillard specifically decided not to contest the truthfulness of plaintiff's ads. Id. at *28. Lorillard and plaintiff agreed, therefore, “that the matter presented [was] a straightforward contractual issue that turns on the legal interpretation of the words of the settlement agreement,” specifically, section VI(h) of the MSA. Id. at *8. Although an inquiry into plaintiff's underlying conduct was a necessary prerequisite to determining breach of that section-a lengthy exercise undertaken by the Chancery Court in Lorillard III-that (tortious) conduct was never the subject of a direct counterclaim by Lorillard. On appeal, the Delaware Supreme Court addressed the dispute between the parties as a contractual matter. Lorillard IV, 903 A.2d at 731 (“The primary question on appeal is whether any of ALF's advertisements in their ‘truth ®’ campaign violated the contractual language of the MSA prohibiting ‘vilification’ or ‘personal attacks.’ ”).
Id. at 10.
The court found that plaintiff is not a signatory to the MSA, which predated its creation, it is ultimately bound by it because of its bylaw provisions and public statements of ALF officers. Such bylaws and certificate of incorporation are contracts under settled law. Benihana of Tokyo, Inc. v. Behihana, Inc., 906 A.2d 114, 120 (Del. 2006). Id. at *11.
Exclusion (k) bars an express contract or agreement which breach is a basis for liability. The other policies were not implicated because there was no slander or libel claim which was preserved as factually asserted in connection with the pleading and the breach of contract exclusion otherwise applied.
The umbrella policy from National Union barred coverage because the plaintiffs’ truth® campaign is not an advertisement or if an advertisement, there were no claims asserted in tort within the advertising injury coverage.
