California Court Finds Nonconformance and Unfair Trade Practices Exclusions in Media Liability Policy Ambiguous

The United States District Court for the Central District of California, applying California law, has held that two exclusions in a media liability policy were ambiguous. Illinois Union Ins. Co. v. Mattel, Inc., 2026 WL 261466 (C.D. Cal. Jan. 28, 2026). The court found that extrinsic evidence was needed to discern the parties’ intent.

A manufacturer was sued in a consumer class action lawsuit alleging that its infant swings were defective. The class action lawsuit alleged that the manufacturer intentionally misrepresented the safety of its swings and asserted 20 causes of action related to purportedly wrongful communications made as part of their marketing campaign. The manufacturer’s media liability policy excluded coverage for any claim alleging, based upon, arising out of or attributable to (1) “the failure of any goods or services to conform with the standards of quality or performance stated in [any communication, regardless of its nature or form, and the content therein]” (the “Nonconformance Exclusion”) and (2) “any actual or alleged price fixing, restraint of trade, monopolization, unfair trade practices or other violation of” certain specified statutes (the “Unfair Trade Practices Exclusion”). The insurer denied coverage based on both exclusions and filed a declaratory judgment action against the manufacturer.

The court denied the insurer’s motion for judgment on the pleadings. As to the Nonconformance Exclusion, the court concluded that the undefined term “standards” was subject to at least two reasonable interpretations in context. The insurer contended that “standards” referred only to recognized benchmarks or certifications whereas the manufacturer argued that it referred more broadly to a generally acceptable or desirable level of quality. As to the Unfair Trade Practices Exclusion, the court explained that the parties had cited conflicting decisions regarding whether the exclusion should be limited to antitrust claims or applies to a broader variety of consumer protection claims. Because both exclusions were subject to multiple reasonable interpretations, the court held that the exclusions were ambiguous, and extrinsic evidence was required to ascertain the parties’ mutual intent.