Are consumer protection or misleading advertising claims covered by insurance? | Ervin Cohen & Jessup LLP


Whether consumer protection or misleading advertising claims are covered by insurance depends on the type of insurance policies involved. For example, coverage for such claims under a CGL policy is limited. probable because the misrepresentation or false advertising of an insured person on the qualities of his products does not generally come under any of the “offences” listed in the context of the granting of “publicity harm” cover. See Applied Bolting Tech Products v. US Fid & Guar Co., 942 F Supp 1029 (ED Pa 1996), in which the court held that alleged false advertising that an insured’s products conform to certain industry standards did not constitute publicity damage in a lawsuit brought by another manufacturer of the same or similar product See also Law v. Golden Eagle Ins. Co., 99 Cal. App. 4th 109 (2022), which involved coverage of an uncertified consumer class action arising from the sale of appetite suppressants and diet products.

The situation changes however if a D&O or management liability policy is involved. In such a policy, the existence of a “wrongdoing” is the trigger for coverage. Importantly, the “wrongdoing” covered is not limited to negligent or involuntary conduct. Thus, “arguing…that the alleged wrongdoings are not covered by the policy because the plaintiffs alleged knowing, intentional and intentional acts” that do not constitute “negligence, fault or error” is misplaced, because the police do not limit the definition of wrongdoing to acts done through negligence or error.” TWP Charter of Shelby it Argonaut Insurance Company, 2015 WL 9392727, at *8 (Mich. Ct. App.). See also Amos ex rel. Amos versus Campbell, 593 NW2d 263, 266 (Minn. Ct App. 1999) (“The term ‘Wrongful Act’ has generally been understood to encompass willful misconduct as well as negligence.”).

Two recent cases have involved consumer action coverage under a D&O or directors’ liability policy. Both of these cases involved the application of the antitrust or unfair trade practice exclusion commonly found in these policies. A typical wording of this exclusion reads as follows:

This policy will not cover any loss in connection with a claim alleging, arising out of, based on or attributable to a violation of any law, whether statutory, regulatory or common, with respect to any of the following: anti-trust , commercial competition, unfair commercial practices or tortious interference in the commercial or contractual relations of others; provided, however, that this exclusion only applies to the Company.

In cases interpreting this exclusion, the key question is whether this type of exclusion prohibits coverage of consumer claims arising from the sale or marketing of products, as opposed to claims arising from violations of antitrust laws.

In James River Ins. Co. it Rawlings Sporting Goods Co. Inc., 2021 US Dist. Lexis 20970 (CD Cal. 2021), the district court had to determine whether this exclusion prohibited coverage of allegations that the defendant misrepresented the weight of its baseball bats on their labeling. The consumers filed these claims as part of a class action, seeking relief under California laws dealing with unfair competition, misleading advertising and consumer legal remedies. James River Policy did not define “unfair trading practices”.

In analyzing coverage issues, the James River court rejected the carrier’s position that “unfair trade practices” as used in this exclusion encompassed consumer protection claims. The Court based its conclusion on the rule that exclusions should be interpreted restrictively against the insurer. The Court held that the carrier’s interpretation of the exclusion “would virtually read the term ‘misrepresentation, misrepresentation, omission’ directly out of the policies’ coverage. [grant]vitiating them.” Id. at *13-*14. As the Court found, this exclusion from the insurance policy could not be construed to vitiate the grant of the underlying coverage. See also Big Bridge Holdings, Inc. v. Twin City Fire Ins. Co., 132 E Sup. 3d 982 (ND Ill. 2015) (finding that the term “unfair trading practice” is ambiguous and resolving this ambiguity in favor of the insured).

Likewise, in G-New, Inc. v. Endurance American Insurance Company, et al., 2022 Del. Great. LEXIS 371 (September 12, 2022), the Court addressed insurance coverage for settlement payments arising from a class action lawsuit in which consumers alleged that the labeling of a chocolatier’s (Godiva) products was misleading. The plaintiffs’ claims were based on New York and California consumer protection laws.

Godiva’s primary and excess liability policies contained an “unfair trade practices” exclusion that prohibited coverage for claims “based on, arising out of, or attributable to an actual or alleged violation of the Sherman Anti-Trust Act, the Clayton Act or the Federal Trade Commission Act, as amended, or any other federal, state, local, municipal or foreign law relating to competition, monopoly, price fixing, price discrimination, pricing of exclusion, restraint of trade, unfair trade practices or tortious interference with the actual or potential activities of another business or contractual relationship or opportunity”.

In G-New, the Court defined the key question as whether the term “unfair commercial practices” includes consumers and false advertising. Identifier. 29. Noting that the underlying settlement agreement did not contain language awarding monetary payment for unfair business practices, the Court nonetheless concluded that a broad definition of “loss” under the policy resulted in the conclusion that the amounts paid under the settlement agreement were covered. Identifier. at *31. The Court reserved for future resolution whether amounts paid under the settlement agreement could be attributed to both covered and uncovered claims.


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