General Liability Policies May Cover Antitrust, Patent and Other Business Litigation - Part 2

by Farella Braun + Martel LLP
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In a prior post, we explained how a general liability policy may cover antitrust, patent, trade secret and other business litigation claims, if there are allegations that insured made negative comments about the other party’s product or business conduct. Claims that the insured engaged in improper use of the litigation process may also lead to coverage in such cases.

The standard general liability policy covers “malicious prosecution.” The term “malicious prosecution” has been construed broadly to include other similar torts, including abuse of process. See, e.g., Lunsford v. Am. Guarantee & Liab. Ins. Co., 18 F.3d 653, 654-56 (9th Cir. 1994). Thus, coverage is not limited to claims involving the strict elements of malicious prosecution, such as “favorable termination.” This opens the door to coverage for counter-claims by a defendant that allege that plaintiff’s lawsuit is being brought for improper purposes.

Courts have found, for example, that “malicious prosecution” coverage extends to antitrust claims based on the “sham” litigation exception to the Noerr-Pennington doctrine. In the Seaboard Surety case, supra, plaintiff alleged, as one of the factual bases for his antitrust claim, that the insured filed “false, frivolous and sham counterclaims in this action.” 176 Cal. App. 3d at 608 n.3. The court held that these allegations triggered a duty to defend because they “raised at least the possibility of liability under the malicious prosecution coverage contained in the insurance policies.” Id. at 608-09.

Counterclaims in patent litigation may also fall within the “malicious prosecution” coverage, since they often allege that the plaintiff’s efforts to protect its patent rights, in that suit or in other suits, amount to “sham” litigation intended to monopolize the market. Similarly, so-called “Walker Process” claims involve allegations that the insureds attempted to enforce a fraudulent patent. These allegations of improper action to enforce a patent may also trigger a duty to defend.

As these cases illustrate, general liability policies can apply in a wide variety of commercial litigation settings. Counsel defending such claims (or counterclaims) should be alert to this potential and take full advantage of the insurance purchased by their clients.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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