New York Federal Court Rules that Advertising Injury Clauses in CGL Policies Do Not Provide Coverage for Antitrust ViolationsInsurance Coverage Case Advisory, Issue 16
September 20, 2012
In Suwannee Am. Cement LLC v. Zurich Ins. Co., Ltd., 11 Civ. 3899, 2012 U.S. Dist. LEXIS 109316 (S.D.N.Y., Aug. 3, 2012), the Court denied policyholder efforts to obtain advertising injury coverage under general liability policies for antitrust claims and, instead, granted summary judgment in favor of the insurers. Steptoe & Johnson LLP represented Zurich Insurance Company and Zurich American Insurance Company, two of the three carriers in the case.
The policyholders – Florida sellers of cement and concrete – were accused in underlying lawsuits of having engaged in a conspiracy to fix prices in the markets for cement and concrete in the state of Florida, in violation, inter alia, of the Sherman Act, the Clayton Act and analogous state statutes. The policyholders sought insurance coverage under the advertising injury provisions of certain general liability policies issued by the two Zurich entities as well as Amerisure Insurance Company. The initial versions of the underlying complaints alleged that the policyholders had falsely blamed increases in cement and concrete prices on market forces in order to hide their purported conspiracy. The policyholders claimed that those purported false statements comprised “advertisements” under the carriers’ policies and triggered advertising injury coverage.
The Court disagreed, finding that two “clear principles” precluded coverage. First, the Court found that, under certain of the policies, the underlying actions must plead injury arising out of the insured’s “use of another’s ‘advertising idea’ in their advertisement.” The Court held that the underlying antitrust complaints did not allege that the insured even used the idea of another, much less misappropriated it. Indeed, the Court noted that even if the false public statements came from a co-conspirator (which was not alleged in the complaints), they were used with the co-conspirator’s permission and were not misappropriated as required by the policies.
Second, the Court found that the policies’ criminal acts exclusions barred coverage for the antitrust complaints. Those exclusions precluded coverage for “Advertising Injury arising out of the willful violation of criminal or penal statute . . . committed by or with the knowledge or consent of the insured.” Because the underlying complaints alleged participation in a conspiracy to violate federal antitrust laws under the Sherman Act – “statutorily deemed felonies” under federal law - the Court found that the policies excluded coverage for those complaints. Importantly, the Court noted that, in determining the insurers’ coverage obligations, it “makes no difference that the acts for which the [insureds] may be liable have both civil and criminal consequences and were …pursued only in civil actions.” Inasmuch as the alleged acts, if proved, were felonious under the Sherman Act, the criminal acts exclusion applied.
Finally, the Court identified a number of other reasons to support the denial of coverage. The Court noted that the injuries alleged in the underlying complaints were caused by antitrust injury and not advertising injury, as required by the policies. The policyholders’ purported misrepresentations regarding increased prices at best concealed the conspiracy but did not cause the injury; rather the injury was caused by higher prices arising from price fixing. The Court also noted that “[s]ound underwriting principles disfavor indemnification” for an insured’s intentional wrongdoing. As the Court concluded, “[i]t is hardly likely that parties to an insurance contract would seek to cover such a serious risk [as antitrust litigation] indirectly through an ‘advertising injury’ provision aimed at misappropriation and other intellectual-property torts.”
In recent years, there has been a proliferation of insurance disputes over the scope of advertising injury coverage. The Suwannee decision reaffirms the basic principle that general liability policies simply do not provide insurance coverage for antitrust claims, whether the policies contain an express antitrust exclusion or not. This decision follows a line of cases in other jurisdictions, including rulings by both the Eleventh and Seventh Circuits, that have refused to find advertising injury coverage in similar contexts. See Rose Acre Farms v. Columbia Cas. Co., 662 F.3d 765 (7th Cir. 2011); Trailer Bridge, Inc. v. Illinois Nat. Ins. Co., 657 F.3d 1135 (11th Cir. 2011).