Case Notes

On appeal, the California Supreme Court affirmed, holding that coverage for claims arising from “[o]ral, written, or electronic publication of material that ' disparages a person's or organization's goods, products or services” was not implicated by the underlying suit. In so ruling, the court first determined that “[t]he term 'disparagement' in the context of an insurance policy, in light of its proximity to the terms 'libel' and 'slander,' suggests that it may be understood as a common law tort[.]” Next, the court observed “ that a claim for disparagement requires a plaintiff to show a false or misleading statement that (1) specifically refers to the plaintiff's product or business and (2) clearly derogates that product or business,” and it noted that “[e]ach requirement must be satisfied by express mention or by clear implication.” In this regard, the court expressed disagreement with the ruling in Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., 207 Cal. App. 4th 969 (Cal. Ct. App. 2012), observing that while the policyholder's act in that case of discounting the claimant's merchandise clearly referred to the claimant's products, there was no disparagement by implication because price reductions “did not carry an implication clear enough to derogate [the claimant's] product for purposes of a disparagement claim.”

Under the facts before it, the court ruled that there was no implied disparagement claim triggering coverage. First, the court noted that “[a] false or misleading statement that causes consumer confusion, but does not expressly assert or clearly imply the inferiority of the underlying plaintiff's product, does not constitute disparagement.” Second, the court held that the policyholder's general statements in advertising did not clearly denigrate the claimant's products to support a claim for disparagement, either. For example, the court ruled that the policyholder's claims to sell “superior” products were not specific enough to imply a derogatory comparison with the claimant's products. Likewise, the court ruled that the policyholder's advertisements featuring “patent-pending” product components did not call into question the claimant's proprietary rights in its own products. Instead, the court found that these statements were “more akin to mere puffing,” which did not support liability in tort and, consequently, did not trigger coverage.

The California intermediate appellate court's decision in Charlotte Russe had thrown basic principles of disparagement law and coverage into doubt. Here, by disapproving the ruling in Charlotte Russe and setting out the necessary elements of any disparagement claim, Swift Distribution provides important guidance on California law concerning disparagement claims and the application of the personal and advertising injury coverage part. '
Laura Foggan and Edward R. Brown , Wiley Rein

Judge Orders Punitives Against Insurance Carrier

In Berg v. Nationwide Mutual Insurance, a Berks County, PA, trial judge has levied $18 million in punitive damages and $3 million in attorney fees against defendant Nationwide Mutual Insurance Co.

According to court documents, plaintiffs Daniel and Sheryl Berg took their damaged 1996 Jeep Grand Cherokee to a facility participating in Nationwide Mutual Insurance Co.'s “Blue Ribbon Repair Program,” where one appraiser told them the vehicle's frame had been too twisted to fix, and recommended that the vehicle be totaled. The Bergs submitted that the evidence showed Nationwide reversed that appraisal without informing them and ordered the vehicle off to another repair facility, court documents said.

The Bergs had alleged that Nationwide, in an attempt to avoid paying replacement costs, knowingly returned to them a vehicle with structural damages despite four months of repairs following a collision, and then paid millions to drag out the litigation of their disputed insurance claim, according to court documents. The Bergs argued this was done because Nationwide did not want to have to pay to replace the vehicle. They also argued that, despite four months of attempted repairs, Nationwide knowingly returned to them their vehicle with an unsound structural frame, according to court documents.

A jury found that Nationwide violated the Unfair Trade Practice and Consumer Protection Law (“UTPCPL”) during the first phase of a bifurcated trial, according to court documents. However, in the second phase, the trial court granted Nationwide's motion for a directed verdict on the bad-faith claim because the Blue Ribbon Program “is not a part of” Nationwide's auto-insurance policy.

The Superior Court reversed the lower court's ruling and remanded the case to allow the Bergs to argue that the jury's finding that Nationwide violated the UTPCPL was evidence of the insurer's bad faith.

The appellate court also allowed the Bergs to present evidence that Nationwide paid its defense counsel just under $1 million as part of a litigation strategy with an emphasis on not cooperating with policyholders who retain lawyers and aggressively litigate claims of less than $25,000.

Nationwide appealed, but the state Supreme Court denied allocatur in April 2013. On remand, the trial court said that Nationwide admitted that its total legal spend up to the Supreme Court's April 2013 allocatur denial was about $2.5 million.

Berks County Court of Common Pleas Judge Jeffrey K. Sprecher said that, by paying its lawyers so much, Nationwide “screamed to the litigation world that it is 'a defense-minded carrier in the minds of the plaintiff legal community.'”

According to the judge, Nationwide also obstructed discovery in the Berg litigation by refusing to disclose one of its experts' reports detailing the inadequate repair of the Jeep. The judge also questioned Nationwide's refusal to purchase and total the Bergs' Jeep until 28 months after the accident, by which point the Bergs had paid off their lease.

“Defendant's defense is that it totaled the Jeep at this time solely because it wanted ownership of the suspect vehicle to prepare and preserve its defense,” Sprecher said. “Or did defendant ultimately total the Jeep and secure its ownership to protect itself from any potential future litigation to a third party who next leases or buys the Jeep because the bent frame makes the Jeep unsafe in sustaining a collision?”

Sprecher said the evidence suggested the latter was true.

“If defendant had not bought it and a collision occurred with the new owner and/or passengers and the Jeep had not been crashworthy as the plaintiffs' expert evidence and common sense logically show, defendant's exposure to liability and damages to that innocent third party would have been astronomical,” Sprecher said.

While Nationwide argued that a significant punitive damages award was not warranted because no one was physically injured as a result of its conduct, Sprecher disagreed. Sprecher said $18 million was an appropriate amount for a punitive damages award because it would punish Nationwide and warn other insurers against similar conduct. He said Nationwide “spent well in excess of $2.5 million in a failed attempt to cover up its knowledge of the failed repairs and to price the Bergs out of litigating their meritorious claim dispute.”

“Sadly, defendant did wear down the plaintiffs,” Sprecher said. “There will be no further litigation because while big corporations live forever, not so for the little policyholder. Mrs. Berg will not have the opportunity to continue this litigation should Nationwide appeal this decision. More importantly, she will never see the case concluded and she will never receive her due justice.”

Counsel for the plaintiffs, Ben Mayerson of Mayerson Injury Law in Pottstown, PA, said he was “extremely gratified” by the verdict, which, along with punitives and attorney fees, included interest on the Bergs' original claim.

The judge issued his verdict, along with a harshly worded opinion, finding that “Nationwide strong-armed its own policyholder rather than negotiating in good faith to compensate plaintiff for the loss suffered in the automobile collision.”' Zack Needles , The Legal Intelligencer

Laura Foggan , a member of this newsletter's Board of Editors, is a partner in the Insurance Practice and Chair of the Insurance Appellate Group of Wiley Rein LLP. Edward R. Brown is an associate in the firm's Insurance Practice. Zack Needles is a reporter for The Legal Intelligencer , an ALM sister publication of this newsletter.

California Clarifies Coverage B

In Hartford Casualty Insurance Co. v. Swift Distribution, Inc., et al., No. S07172 (Cal. June 12, 2014), the California Supreme Court, applying California law, held that the personal and advertising injury section of an insurance policy did not afford coverage for various infringement and unfair trade claims asserted against a policyholder because the advertisements upon which the claims were based did not disparage the claimant or its products and thus did not support a claim for product disparagement. In so ruling, the court disagreed with the theory of disparagement accepted by an intermediate appellate court in Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc. , 207 Cal. App. 4th 969 (Cal. Ct. App. 2012).

The policyholder advertised and sold a product, the “Ulti-Cart.” Subsequently, the policyholder was sued by another company that manufactured and sold a similar product, the “Multi-Cart,” for patent and trademark infringement, unfair competition, dilution of a famous mark, and misleading advertising. The claimant attached advertisements for the Ulti-Cart to its complaint, but those advertisements did not name or expressly refer to the claimant, its products (including the Multi-Cart), or the products of any other company. The policyholder tendered the suit to its insurer and sought coverage under the personal and advertising injury section of its policy, but the insurer denied coverage. In a coverage action that followed, the trial court granted summary judgment in favor of the insurer, and the intermediate appellate court affirmed.

On appeal, the California Supreme Court affirmed, holding that coverage for claims arising from “[o]ral, written, or electronic publication of material that ' disparages a person's or organization's goods, products or services” was not implicated by the underlying suit. In so ruling, the court first determined that “[t]he term 'disparagement' in the context of an insurance policy, in light of its proximity to the terms 'libel' and 'slander,' suggests that it may be understood as a common law tort[.]” Next, the court observed “ that a claim for disparagement requires a plaintiff to show a false or misleading statement that (1) specifically refers to the plaintiff's product or business and (2) clearly derogates that product or business,” and it noted that “[e]ach requirement must be satisfied by express mention or by clear implication.” In this regard, the court expressed disagreement with the ruling in Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc. , 207 Cal. App. 4th 969 (Cal. Ct. App. 2012), observing that while the policyholder's act in that case of discounting the claimant's merchandise clearly referred to the claimant's products, there was no disparagement by implication because price reductions “did not carry an implication clear enough to derogate [the claimant's] product for purposes of a disparagement claim.”

Under the facts before it, the court ruled that there was no implied disparagement claim triggering coverage. First, the court noted that “[a] false or misleading statement that causes consumer confusion, but does not expressly assert or clearly imply the inferiority of the underlying plaintiff's product, does not constitute disparagement.” Second, the court held that the policyholder's general statements in advertising did not clearly denigrate the claimant's products to support a claim for disparagement, either. For example, the court ruled that the policyholder's claims to sell “superior” products were not specific enough to imply a derogatory comparison with the claimant's products. Likewise, the court ruled that the policyholder's advertisements featuring “patent-pending” product components did not call into question the claimant's proprietary rights in its own products. Instead, the court found that these statements were “more akin to mere puffing,” which did not support liability in tort and, consequently, did not trigger coverage.

The California intermediate appellate court's decision in Charlotte Russe had thrown basic principles of disparagement law and coverage into doubt. Here, by disapproving the ruling in Charlotte Russe and setting out the necessary elements of any disparagement claim, Swift Distribution provides important guidance on California law concerning disparagement claims and the application of the personal and advertising injury coverage part. '
Laura Foggan and Edward R. Brown , Wiley Rein

Judge Orders Punitives Against Insurance Carrier

In Berg v. Nationwide Mutual Insurance, a Berks County, PA, trial judge has levied $18 million in punitive damages and $3 million in attorney fees against defendant Nationwide Mutual Insurance Co.

According to court documents, plaintiffs Daniel and Sheryl Berg took their damaged 1996 Jeep Grand Cherokee to a facility participating in Nationwide Mutual Insurance Co.'s “Blue Ribbon Repair Program,” where one appraiser told them the vehicle's frame had been too twisted to fix, and recommended that the vehicle be totaled. The Bergs submitted that the evidence showed Nationwide reversed that appraisal without informing them and ordered the vehicle off to another repair facility, court documents said.

The Bergs had alleged that Nationwide, in an attempt to avoid paying replacement costs, knowingly returned to them a vehicle with structural damages despite four months of repairs following a collision, and then paid millions to drag out the litigation of their disputed insurance claim, according to court documents. The Bergs argued this was done because Nationwide did not want to have to pay to replace the vehicle. They also argued that, despite four months of attempted repairs, Nationwide knowingly returned to them their vehicle with an unsound structural frame, according to court documents.

A jury found that Nationwide violated the Unfair Trade Practice and Consumer Protection Law (“UTPCPL”) during the first phase of a bifurcated trial, according to court documents. However, in the second phase, the trial court granted Nationwide's motion for a directed verdict on the bad-faith claim because the Blue Ribbon Program “is not a part of” Nationwide's auto-insurance policy.

The Superior Court reversed the lower court's ruling and remanded the case to allow the Bergs to argue that the jury's finding that Nationwide violated the UTPCPL was evidence of the insurer's bad faith.

The appellate court also allowed the Bergs to present evidence that Nationwide paid its defense counsel just under $1 million as part of a litigation strategy with an emphasis on not cooperating with policyholders who retain lawyers and aggressively litigate claims of less than $25,000.

Nationwide appealed, but the state Supreme Court denied allocatur in April 2013. On remand, the trial court said that Nationwide admitted that its total legal spend up to the Supreme Court's April 2013 allocatur denial was about $2.5 million.

Berks County Court of Common Pleas Judge Jeffrey K. Sprecher said that, by paying its lawyers so much, Nationwide “screamed to the litigation world that it is 'a defense-minded carrier in the minds of the plaintiff legal community.'”

According to the judge, Nationwide also obstructed discovery in the Berg litigation by refusing to disclose one of its experts' reports detailing the inadequate repair of the Jeep. The judge also questioned Nationwide's refusal to purchase and total the Bergs' Jeep until 28 months after the accident, by which point the Bergs had paid off their lease.

“Defendant's defense is that it totaled the Jeep at this time solely because it wanted ownership of the suspect vehicle to prepare and preserve its defense,” Sprecher said. “Or did defendant ultimately total the Jeep and secure its ownership to protect itself from any potential future litigation to a third party who next leases or buys the Jeep because the bent frame makes the Jeep unsafe in sustaining a collision?”

Sprecher said the evidence suggested the latter was true.

“If defendant had not bought it and a collision occurred with the new owner and/or passengers and the Jeep had not been crashworthy as the plaintiffs' expert evidence and common sense logically show, defendant's exposure to liability and damages to that innocent third party would have been astronomical,” Sprecher said.

While Nationwide argued that a significant punitive damages award was not warranted because no one was physically injured as a result of its conduct, Sprecher disagreed. Sprecher said $18 million was an appropriate amount for a punitive damages award because it would punish Nationwide and warn other insurers against similar conduct. He said Nationwide “spent well in excess of $2.5 million in a failed attempt to cover up its knowledge of the failed repairs and to price the Bergs out of litigating their meritorious claim dispute.”

“Sadly, defendant did wear down the plaintiffs,” Sprecher said. “There will be no further litigation because while big corporations live forever, not so for the little policyholder. Mrs. Berg will not have the opportunity to continue this litigation should Nationwide appeal this decision. More importantly, she will never see the case concluded and she will never receive her due justice.”

Counsel for the plaintiffs, Ben Mayerson of Mayerson Injury Law in Pottstown, PA, said he was “extremely gratified” by the verdict, which, along with punitives and attorney fees, included interest on the Bergs' original claim.

The judge issued his verdict, along with a harshly worded opinion, finding that “Nationwide strong-armed its own policyholder rather than negotiating in good faith to compensate plaintiff for the loss suffered in the automobile collision.”' Zack Needles , The Legal Intelligencer

Laura Foggan , a member of this newsletter's Board of Editors, is a partner in the Insurance Practice and Chair of the Insurance Appellate Group of Wiley Rein LLP. Edward R. Brown is an associate in the firm's Insurance Practice. Zack Needles is a reporter for The Legal Intelligencer , an ALM sister publication of this newsletter.