Insurance Coverage for Antitrust Claims

Many insureds face claims of antitrust violations, anticompetitive conduct, unfair competition, and theft of trade secrets. Too often these businesses fail to consider that they may have a very valuable asset to protect them against the expense, and any settlements or judgments, incurred in such lawsuits ' their comprehensive or commercial general liability (“CGL”) insurance policies.

Coverage Under CGL Policies

Standard form CGL policies long have covered claims asserting “personal injury” and “advertising injury.” CGL policies typically obligate insurance carriers to pay “those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury.' …” Commercial General Liability Insurance Policy Form, 'I, Coverage B, ' 1.a (ISO Properties, Inc. 2000). The policies also typically obligate carriers to “defend any 'suit' seeking those damages.” Id. “Personal and advertising injury” is defined to include the “offenses” of “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services … ,” “[t]he use of another's advertising idea in [the insured's] advertisement,” and [i]nfringing upon another's copyright, trade dress or slogan in [the insured's] advertisement.” Id. 'V, ' 14.

Commentaries and Insurance Carrier Positions

It long has been recognized that personal and advertising injury provisions provide extremely broad coverage for most business torts. As one publication stated more than 40 years ago, personal injury coverage covers “with very few exceptions the complete tort liability of the policyholder.” Northern California Chapter of CPCUs, Umbrella Liability Coverage, 13 C.P.C.U. Annals 243, 245 (Summer 1960) (citing “[m]aintaining a monopoly” as an example of an insured exposure). Similarly, two authors explained the scope of the coverage as follows 35 years ago:

[N]othing … would require that “personal injury” be interpreted in a manner restricting coverage. The general reference to “other defamatory or disparaging material” in fact appears to create coverage for a wide range of economic injuries. For example, the plaintiff may allege that the defendant circulated a false rumor that he is a malingerer, thus preventing him from obtaining employment. This could be actionable defamation, but it is also an interference with a prospective advantage, and could be actionable on that distinct theory of recovery. Similarly, inducing a third person to breach a contract with the plaintiff, procuring his wrongful discharge from employment, stealing his customers, or his trade secrets, all may involve defamatory or disparaging utterances or the publication of private information. Donald Farbstein & Francis Stillman, Insurance for the Commission of Intentional Torts, 20 Hastings L.J. 1219, 1240 n.95 (1969) (citations omitted).

Insurance carriers also have argued in favor of coverage for antitrust claims. For example, International Insurance Company took the following position in a dispute with another insurance carrier:

The language of the policy makes it abundantly clear that [the liability insurer] had the affirmative duty and obligation to defend any suit against its insured seeking damages for unfair competition issues arising out of advertising activity. The federal [antitrust] action sought this type of damages. Brief of Appellant, at 6 (filed Nov. 30, 1989), in Internat'l Ins. Co. v. Florist's Mut. Ins. Co., 201 Ill. App. 3d 428, 559 N.E.2d 7 (Ill. App. 1990).

One of the CNA family of companies advanced a similar argument in another case. Specifically, CNA Casualty of California argued that “an antitrust violation is commonly considered unfair competition,” that there is no need “to strain the construction of the term 'unfair competition'” to find coverage, and that insurance companies are wrong when they argue that antitrust claims are “per se” uninsurable. Reply Brief of Respondent CNA Casualty of California in Reply to Appellants Seaboard Surety Company and Insurance Company of North America and Opening Brief of Cross-Appellant CNA Casualty of California, at 21 & 31 (Aug. 15, 1984), in CNA Cas. v. Seaboard Sur. Co., 176 Cal. App. 3d 598, 222 Cal. Rptr. 276 (1986).

Another insurance company, Aetna Casualty & Surety Company, has acknowledged that courts have found coverage under CGL policies for antitrust claims. Aetna noted the existence of a line of cases “where the complaint pleads only a federal antitrust cause of action which is based upon facts which could arguably also be used to formulate a common law tort claim, if set out in a separate cause of action or later pleaded in an amended complaint.” Defendant's Memorandum of Law in Opposition to Plaintiff's Motion for Partial Summary Judgment, at 8 (April 7, 1989), in Ethicon, Inc. v. Aetna Cas. & Sur. Co., 737 F. Supp. 1320 (S.D.N.Y. 1990). As Aetna acknowledged, “under this line of cases, a duty to defend may be found at least at the pleading stage, despite the absence in the pleading of an express cause of action in common law tort.” Id. In fact, Aetna referred to this as the “California rule.” Id.

The Courts' Recognition of Coverage

Given these commentaries and the arguments by insurance companies, it is not surprising that many courts have held that insurance carriers have duties to defend and indemnify their insureds against antitrust claims, claims of libel, slander, and trade disparagement, and claims of unfair competition. For example, in CNA Casualty v. Seaboard Surety Co., 176 Cal. App. 3d 598, 222 Cal. Rptr. 276 (1986), the California Court of Appeal upheld coverage for claims of antitrust violations and misappropriations of trade secrets. The insured had been sued for antitrust violations and intentional interference with contractual relationships. The insurance carrier defended the insured and then brought a lawsuit for contribution against three other insurance carriers. The court held that the claims against the insured were covered, explaining:

[The allegations] charged that [the insured] misappropriated, stole and misused property interests and trade secrets and made misrepresentations to the [claimants] 'in an effort to further eliminate the competition of [claimants].' These charges are arguably within [the] coverage for piracy, unfair competition and idea misappropriation, particularly since these terms are undefined in [the] policy, and must therefore be construed against the insurance carrier. … Similarly, … the provisions in the … insurance policies for libel, slander, or other defamatory or disparaging material potentially covered allegations … that [the insured] misrepresented 'the business, property and rights possessed by [claimants] to persons with whom [claimants] did business in an effort to disrupt and prevent' the business relationships between those persons and the [claimants]. Id. at 608.

In California Shoppers, Inc. v. Royal Globe Insurance Co., 175 Cal. App. 3d 1, 221 Cal. Rptr. 171 (1985), the insured had been held liable for violating a California antitrust statute by selling “below-cost advertising 'with the intent to injure [a competitor].'” The insurance carrier contended that it did not owe a duty to its insured under its “advertising offense” provisions, claiming that coverage was excluded by the policy's exclusion for claims arising “out of the willful violation of a penal statute. … ” The court of appeal disagreed, holding that the carrier had breached its duties to defend and indemnify its insured. The court first noted that the action against the insured was a civil antitrust action for a civil remedy. Id. at 16. It then ruled that even though a “purpose to harm” may have been presumed under the California antitrust statute, that did not mean that the insured had, in fact, acted with an intent to injure. Indeed, given the facts before it, the court of appeal concluded that coverage should have been afforded.

In Ethicon, Inc. v. Aetna Casualty & Surety Co., 737 F. Supp. 1320 (S.D.N.Y. 1990), the court addressed the question of coverage for claims under the Sherman Antitrust Act, alleging that the insured had conspired to restrain trade, had conspired to monopolize and attempted to monopolize a market, had individually attempted to monopolize a market, had, in fact, monopolized, individually and collectively, the market, and had acquired another company to monopolize or lessen the competition in the market. The insured sought coverage under a liability policy. The court upheld coverage, rejecting Aetna's various arguments. First, the court ruled that a carrier has a duty to defend an action containing allegations of covered common law claims and federal statutory claims arising from the same facts and allegations, despite the fact that the federal claim is not explicitly covered in the policy.” Id. at 1328. The court so ruled even though there was no common law claim asserted against the insured. As it explained, “if the underlying facts and allegations of [the] claims against [the insured] averred a pattern of activity which would, if pled as a common law claim, be covered under the policies at issue, then Aetna had a duty to defend that action (or reimburse for defense costs), even if the claim was labeled as one for federal antitrust injuries. Id. at 1329. Second, the court noted that “[t]here is no limitation in the policy to coverage only when the lawsuit at issue is grounded in common law, nor is there an exclusion of statutory claims. The Court will not read such a limitation or exclusion into the policy.” Id. at 1331. Third, the court rejected Aetna's argument that because the jury in the underlying suit had determined that the insured intended to monopolize the applicable market, coverage would be precluded. The court explained that “the intentional nature of the act is not the determining factor in deciding whether coverage is available. Instead, the … focus [is] on whether the injuries compensated by the damage award were intentional.” Id. at 1334. The court noted that “[t]he act of monopolization is an attack on the marketplace, not necessarily against specific competitors. There is nothing … that indicates that [the insured] intended the specific injuries for which [the underlying claimant] was compensated. Id. Fourth, the court rejected the argument that coverage should be lost because antitrust laws are penal in nature: “While it is true that criminal sanctions are available under portions of the antitrust laws, the [underlying] action was purely civil, was filed under the civil penalty provisions of the antitrust laws, and thus cannot be considered penal in nature.” Id. at 1335 n.14. Fifth, the court rejected Aetna's argument that the policy would not provide coverage for the treble damage award against the insured. The court noted that “[t]here is no requirement of a showing of egregious conduct, or willfulness of injury, in order for treble damages to be imposed. A showing of harm arising from a proven antitrust injury results automatically in the imposition of the trebling provision. Thus, … the Court finds that [Aetna] is liable to indemnify [the insured] for its entire loss after trebling, up to the limits of the applicable policy.” Id. at 1336.

Another federal court reached similar conclusions. In Flodine v. State Farm Insurance Co., 2001 U.S. Dist. LEXIS 2204 (N.D. Ill. Feb. 27, 2001), the court held that a carrier had a duty to defend its insured in a suit alleging, among other things, violations of deceptive business and trade practices acts arising from the marketing of “Southwestern style” arts and crafts. The court reasoned that the statutory schemes “codify common-law unfair competition theories” and that the claims involved the wrongful misappropriation of a competitor's “marketing advantage.” Id. at 36.

While the discussions are not uniform, many other courts have upheld coverage under personal injury and advertising injury provisions in a wide range of settings for antitrust claims and other alleged business torts. The breadth of these decisions shows how important this coverage may be to an insured. The decisions include:

• American Contract Bridge League v. Nationwide Mutual Fire Insurance Co., 752 F.2d 71, 75 (3d Cir. 1985) (claims of monopoly power and antitrust violations by bridge player for suspension from play);
• Bankwest v. Fidelity & Deposit Co., 63 F.3d 974, 981 (10th Cir. 1995) (claim for interference with bank lines of credit);
• Curtis-Universal v. Sheboygan Emergency Medical Services, Inc., 43 F.3d 1119 (7th Cir. 1994) (claim of conspiracy to exclude competing ambulance service from market);
• Federal Insurance Co. v. Stroh Brewing Co., 127 F.3d 563 (7th Cir. 1997) (discriminatory pricing practices in beer distribution);
• Insurance Corp. of Ireland v. Board of Trustees, 937 F.2d 331, 333 (7th Cir. 1991) (claim of antitrust violations for university's refusal to let faculty members practice at hospital);
• Lime Tree Village Community Club Ass'n, Inc. v. State Farm General Insurance Co., 980 F.2d 1402, 1406-07 (11th Cir. 1993) (claims of discrimination, slander of title, and unreasonable restraint on trade in marketing of residential real property);
• Ruder & Finn, Inc. v. Seaboard Casualty Co., 52 N.Y.2d 663, 422 N.E.2d 518 (1981) (claims of conspiracy to circulate anti-aerosol publicity intended to result in aerosol product boycott and drive claimant out of business);
• St. Paul Fire & Marine Insurance Co. v. Medical X-Ray Center, P.C., 146 F.3d 593, 594-95 (8th Cir. 1998) (antitrust and interference claims by competing radiologist);
• Tews Funeral Home, Inc. v. Ohio Casualty Insurance Co., 832 F.2d 1037 (7th Cir. 1987) (claims for antitrust and unfair trade practices in conspiracy to maintain artificially high prices for funeral services and products);
• Tire Kingdom, Inc. v. First State Insurance Co., 573 So. 2d 885 (Fla. 1990) (suit involving claims of antitrust violations, Lanham Act violations, unfair trade practices, misleading advertising, disparagement, and defamation in tire industry).

All of these cases also recognize, at least implicitly, that there may be coverage even though the policies do not expressly mention antitrust claims as a covered “offense.” Therefore, insureds faced with claims of antitrust violations and other business torts should consider notifying their insurance carriers and seek a defense and indemnity under their CGL policies. Otherwise, they may not obtain the protection for which they paid when they bought their policies.

Many insureds face claims of antitrust violations, anticompetitive conduct, unfair competition, and theft of trade secrets. Too often these businesses fail to consider that they may have a very valuable asset to protect them against the expense, and any settlements or judgments, incurred in such lawsuits ' their comprehensive or commercial general liability (“CGL”) insurance policies.

Coverage Under CGL Policies

Standard form CGL policies long have covered claims asserting “personal injury” and “advertising injury.” CGL policies typically obligate insurance carriers to pay “those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury.' …” Commercial General Liability Insurance Policy Form, 'I, Coverage B, ' 1.a (ISO Properties, Inc. 2000). The policies also typically obligate carriers to “defend any 'suit' seeking those damages.” Id. “Personal and advertising injury” is defined to include the “offenses” of “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services … ,” “[t]he use of another's advertising idea in [the insured's] advertisement,” and [i]nfringing upon another's copyright, trade dress or slogan in [the insured's] advertisement.” Id. 'V, ' 14.

Commentaries and Insurance Carrier Positions

It long has been recognized that personal and advertising injury provisions provide extremely broad coverage for most business torts. As one publication stated more than 40 years ago, personal injury coverage covers “with very few exceptions the complete tort liability of the policyholder.” Northern California Chapter of CPCUs, Umbrella Liability Coverage, 13 C.P.C.U. Annals 243, 245 (Summer 1960) (citing “[m]aintaining a monopoly” as an example of an insured exposure). Similarly, two authors explained the scope of the coverage as follows 35 years ago:

[N]othing … would require that “personal injury” be interpreted in a manner restricting coverage. The general reference to “other defamatory or disparaging material” in fact appears to create coverage for a wide range of economic injuries. For example, the plaintiff may allege that the defendant circulated a false rumor that he is a malingerer, thus preventing him from obtaining employment. This could be actionable defamation, but it is also an interference with a prospective advantage, and could be actionable on that distinct theory of recovery. Similarly, inducing a third person to breach a contract with the plaintiff, procuring his wrongful discharge from employment, stealing his customers, or his trade secrets, all may involve defamatory or disparaging utterances or the publication of private information. Donald Farbstein & Francis Stillman, Insurance for the Commission of Intentional Torts, 20 Hastings L.J. 1219, 1240 n.95 (1969) (citations omitted).

Insurance carriers also have argued in favor of coverage for antitrust claims. For example, International Insurance Company took the following position in a dispute with another insurance carrier:

The language of the policy makes it abundantly clear that [the liability insurer] had the affirmative duty and obligation to defend any suit against its insured seeking damages for unfair competition issues arising out of advertising activity. The federal [antitrust] action sought this type of damages. Brief of Appellant, at 6 (filed Nov. 30, 1989), in Internat'l Ins. Co. v. Florist's Mut. Ins. Co., 201 Ill. App. 3d 428, 559 N.E.2d 7 (Ill. App. 1990).

One of the CNA family of companies advanced a similar argument in another case. Specifically, CNA Casualty of California argued that “an antitrust violation is commonly considered unfair competition,” that there is no need “to strain the construction of the term 'unfair competition'” to find coverage, and that insurance companies are wrong when they argue that antitrust claims are “per se” uninsurable. Reply Brief of Respondent CNA Casualty of California in Reply to Appellants Seaboard Surety Company and Insurance Company of North America and Opening Brief of Cross-Appellant CNA Casualty of California, at 21 & 31 (Aug. 15, 1984), in CNA Cas. v. Seaboard Sur. Co., 176 Cal. App. 3d 598, 222 Cal. Rptr. 276 (1986).

Another insurance company, Aetna Casualty & Surety Company, has acknowledged that courts have found coverage under CGL policies for antitrust claims. Aetna noted the existence of a line of cases “where the complaint pleads only a federal antitrust cause of action which is based upon facts which could arguably also be used to formulate a common law tort claim, if set out in a separate cause of action or later pleaded in an amended complaint.” Defendant's Memorandum of Law in Opposition to Plaintiff's Motion for Partial Summary Judgment, at 8 (April 7, 1989), in Ethicon, Inc. v. Aetna Cas. & Sur. Co., 737 F. Supp. 1320 (S.D.N.Y. 1990). As Aetna acknowledged, “under this line of cases, a duty to defend may be found at least at the pleading stage, despite the absence in the pleading of an express cause of action in common law tort.” Id. In fact, Aetna referred to this as the “California rule.” Id.

The Courts' Recognition of Coverage

Given these commentaries and the arguments by insurance companies, it is not surprising that many courts have held that insurance carriers have duties to defend and indemnify their insureds against antitrust claims, claims of libel, slander, and trade disparagement, and claims of unfair competition. For example, in CNA Casualty v. Seaboard Surety Co., 176 Cal. App. 3d 598, 222 Cal. Rptr. 276 (1986), the California Court of Appeal upheld coverage for claims of antitrust violations and misappropriations of trade secrets. The insured had been sued for antitrust violations and intentional interference with contractual relationships. The insurance carrier defended the insured and then brought a lawsuit for contribution against three other insurance carriers. The court held that the claims against the insured were covered, explaining:

[The allegations] charged that [the insured] misappropriated, stole and misused property interests and trade secrets and made misrepresentations to the [claimants] 'in an effort to further eliminate the competition of [claimants].' These charges are arguably within [the] coverage for piracy, unfair competition and idea misappropriation, particularly since these terms are undefined in [the] policy, and must therefore be construed against the insurance carrier. … Similarly, … the provisions in the … insurance policies for libel, slander, or other defamatory or disparaging material potentially covered allegations … that [the insured] misrepresented 'the business, property and rights possessed by [claimants] to persons with whom [claimants] did business in an effort to disrupt and prevent' the business relationships between those persons and the [claimants]. Id. at 608.

In California Shoppers, Inc. v. Royal Globe Insurance Co., 175 Cal. App. 3d 1, 221 Cal. Rptr. 171 (1985), the insured had been held liable for violating a California antitrust statute by selling “below-cost advertising 'with the intent to injure [a competitor].'” The insurance carrier contended that it did not owe a duty to its insured under its “advertising offense” provisions, claiming that coverage was excluded by the policy's exclusion for claims arising “out of the willful violation of a penal statute. … ” The court of appeal disagreed, holding that the carrier had breached its duties to defend and indemnify its insured. The court first noted that the action against the insured was a civil antitrust action for a civil remedy. Id. at 16. It then ruled that even though a “purpose to harm” may have been presumed under the California antitrust statute, that did not mean that the insured had, in fact, acted with an intent to injure. Indeed, given the facts before it, the court of appeal concluded that coverage should have been afforded.

In Ethicon, Inc. v. Aetna Casualty & Surety Co., 737 F. Supp. 1320 (S.D.N.Y. 1990), the court addressed the question of coverage for claims under the Sherman Antitrust Act, alleging that the insured had conspired to restrain trade, had conspired to monopolize and attempted to monopolize a market, had individually attempted to monopolize a market, had, in fact, monopolized, individually and collectively, the market, and had acquired another company to monopolize or lessen the competition in the market. The insured sought coverage under a liability policy. The court upheld coverage, rejecting Aetna's various arguments. First, the court ruled that a carrier has a duty to defend an action containing allegations of covered common law claims and federal statutory claims arising from the same facts and allegations, despite the fact that the federal claim is not explicitly covered in the policy.” Id. at 1328. The court so ruled even though there was no common law claim asserted against the insured. As it explained, “if the underlying facts and allegations of [the] claims against [the insured] averred a pattern of activity which would, if pled as a common law claim, be covered under the policies at issue, then Aetna had a duty to defend that action (or reimburse for defense costs), even if the claim was labeled as one for federal antitrust injuries. Id. at 1329. Second, the court noted that “[t]here is no limitation in the policy to coverage only when the lawsuit at issue is grounded in common law, nor is there an exclusion of statutory claims. The Court will not read such a limitation or exclusion into the policy.” Id. at 1331. Third, the court rejected Aetna's argument that because the jury in the underlying suit had determined that the insured intended to monopolize the applicable market, coverage would be precluded. The court explained that “the intentional nature of the act is not the determining factor in deciding whether coverage is available. Instead, the … focus [is] on whether the injuries compensated by the damage award were intentional.” Id. at 1334. The court noted that “[t]he act of monopolization is an attack on the marketplace, not necessarily against specific competitors. There is nothing … that indicates that [the insured] intended the specific injuries for which [the underlying claimant] was compensated. Id. Fourth, the court rejected the argument that coverage should be lost because antitrust laws are penal in nature: “While it is true that criminal sanctions are available under portions of the antitrust laws, the [underlying] action was purely civil, was filed under the civil penalty provisions of the antitrust laws, and thus cannot be considered penal in nature.” Id. at 1335 n.14. Fifth, the court rejected Aetna's argument that the policy would not provide coverage for the treble damage award against the insured. The court noted that “[t]here is no requirement of a showing of egregious conduct, or willfulness of injury, in order for treble damages to be imposed. A showing of harm arising from a proven antitrust injury results automatically in the imposition of the trebling provision. Thus, … the Court finds that [Aetna] is liable to indemnify [the insured] for its entire loss after trebling, up to the limits of the applicable policy.” Id. at 1336.

Another federal court reached similar conclusions. In Flodine v. State Farm Insurance Co., 2001 U.S. Dist. LEXIS 2204 (N.D. Ill. Feb. 27, 2001), the court held that a carrier had a duty to defend its insured in a suit alleging, among other things, violations of deceptive business and trade practices acts arising from the marketing of “Southwestern style” arts and crafts. The court reasoned that the statutory schemes “codify common-law unfair competition theories” and that the claims involved the wrongful misappropriation of a competitor's “marketing advantage.” Id. at 36.

While the discussions are not uniform, many other courts have upheld coverage under personal injury and advertising injury provisions in a wide range of settings for antitrust claims and other alleged business torts. The breadth of these decisions shows how important this coverage may be to an insured. The decisions include:

• American Contract Bridge League v. Nationwide Mutual Fire Insurance Co., 752 F.2d 71, 75 (3d Cir. 1985) (claims of monopoly power and antitrust violations by bridge player for suspension from play);
• Bankwest v. Fidelity & Deposit Co., 63 F.3d 974, 981 (10th Cir. 1995) (claim for interference with bank lines of credit);
• Curtis-Universal v. Sheboygan Emergency Medical Services, Inc., 43 F.3d 1119 (7th Cir. 1994) (claim of conspiracy to exclude competing ambulance service from market);
• Federal Insurance Co. v. Stroh Brewing Co., 127 F.3d 563 (7th Cir. 1997) (discriminatory pricing practices in beer distribution);
• Insurance Corp. of Ireland v. Board of Trustees, 937 F.2d 331, 333 (7th Cir. 1991) (claim of antitrust violations for university's refusal to let faculty members practice at hospital);
• Lime Tree Village Community Club Ass'n, Inc. v. State Farm General Insurance Co., 980 F.2d 1402, 1406-07 (11th Cir. 1993) (claims of discrimination, slander of title, and unreasonable restraint on trade in marketing of residential real property);
• Ruder & Finn, Inc. v. Seaboard Casualty Co., 52 N.Y.2d 663, 422 N.E.2d 518 (1981) (claims of conspiracy to circulate anti-aerosol publicity intended to result in aerosol product boycott and drive claimant out of business);
• St. Paul Fire & Marine Insurance Co. v. Medical X-Ray Center, P.C., 146 F.3d 593, 594-95 (8th Cir. 1998) (antitrust and interference claims by competing radiologist);
• Tews Funeral Home, Inc. v. Ohio Casualty Insurance Co., 832 F.2d 1037 (7th Cir. 1987) (claims for antitrust and unfair trade practices in conspiracy to maintain artificially high prices for funeral services and products);
• Tire Kingdom, Inc. v. First State Insurance Co., 573 So. 2d 885 (Fla. 1990) (suit involving claims of antitrust violations, Lanham Act violations, unfair trade practices, misleading advertising, disparagement, and defamation in tire industry).

All of these cases also recognize, at least implicitly, that there may be coverage even though the policies do not expressly mention antitrust claims as a covered “offense.” Therefore, insureds faced with claims of antitrust violations and other business torts should consider notifying their insurance carriers and seek a defense and indemnity under their CGL policies. Otherwise, they may not obtain the protection for which they paid when they bought their policies.