Claims Based on Similar Wrongdoing Deemed “Related” Despite Geographic Differences of Class Composition

A Utah federal district court has held that claims based on similar acts of wrongdoing were barred by a prior notice exclusion despite geographic differences among the putative class definitions.  Starr Indem. & Liab. Co. v. Monavie, Inc., 2019 WL 1227930 (D. Utah Mar. 5, 2019).  The court also ruled that the insurer was entitled to recoup defense costs incurred in connection with the non-covered claims.

The insured operated a multi-level marketing company engaged in the sale of juice products.  Before the relevant policy period, consumers filed a putative class action against the insured on behalf of Arkansas residents for alleged false and misleading advertising, including with respect to claims that the insured’s juices prevented or treated illnesses.  Later, during subsequent policy periods, two new putative class actions were filed based on similar alleged marketing misrepresentations.  The insurer on the risk during the later two lawsuits denied coverage based on a prior notice exclusion, which barred coverage for “any Losses in connection with any Claim alleging, arising out of, based upon, or attributable to the same or essentially the same facts alleged, or to the same or related Wrongful Act(s) alleged or contained in any Claim which has been reported.”  The insured defaulted in ensuing coverage litigation, and the underlying claimants intervened, arguing that coverage existed for the suits because the operative lawsuits were not “related.”

The court disagreed, finding no coverage based on the relatedness of the three lawsuits.  The court noted that courts “have defined the term ‘related’ as encompassing any kind of connection or relationship,” and ruled that the three lawsuits “clearly arise from the same Wrongful Acts and necessarily have a connection or relationship” rendering them “related.”  The court rejected the claimants’ argument that the earlier lawsuit was filed on behalf of Arkansas residents only, finding the geographic differences in the class definitions were insufficient to make the later claims unrelated.  Instead, the court observed that the insured was the defendant in all three lawsuits and allegedly used the same marketing scheme and false representations.  On that basis, the court held that the prior notice exclusion barred coverage for the later two lawsuits.

In addition, the court ruled that the insurer was entitled to recoup defense costs it incurred in defending the two suits.  The court noted that the policy language provided for repayment of such costs by the insured in the event the insured was not entitled to defense costs, and the court ruled that the insurer’s recoupment right was implicated given the application of the prior notice exclusion.

Tags

Wiley Executive Summary

Sign up for updates

Necessary Cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Analytical Cookies

Analytical cookies help us improve our website by collecting and reporting information on its usage. We access and process information from these cookies at an aggregate level.