Consumer Protection Claims Not Barred By Antitrust Exclusion

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The United States District Court for the Central District of California, applying California law, has held that antitrust exclusions in two D&O policies did not bar coverage for a class action against an insured sports equipment manufacturer asserting violations of consumer protection laws. James River Ins. Co. v. Rawlings Sporting Goods Co., 2021 WL 346418 (C.D. Cal. Jan. 25, 2021).

The insured sports equipment manufacturer produces baseball equipment. A group of baseball bat buyers filed a class action against the manufacturer, alleging that it misrepresented the weight of its baseball bats in violation of several consumer protection laws, including California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. The manufacturer tendered the suit to its D&O insurer, which denied coverage under policies issued to the manufacturer and its parent company. The manufacturer’s CGL insurer subsequently filed a declaratory judgment action seeking a determination that its policy did not cover the class action and asserting counterclaims against the D&O insurer for allegedly breaching its duties to defend and indemnify under the D&O policies. The manufacturer and the D&O insurer both filed motions for summary judgment based on the application of an exclusion for claims alleging “any violation of any law” with respect to “anti-trust, business competition, unfair trade practices or tortious interference.”

The court concluded that the exclusion did not bar coverage and interpreted the phrase “unfair trade practices” to refer to anti-competitive business conduct, but not consumer protection claims. The court reasoned that the antitrust exclusion did not expressly include consumer protection claims or cite consumer protection laws, opining that “[i]t would be strange for [the insurer] to intend to include a consumer-protection component in an exclusion titled ‘Anti-Trust Exclusion’ without mentioning words such as ‘fraud,’ ‘misrepresentation’ or ‘consumer protection.’” In addition, the excluded conduct referred only to “anti-competitive business practices,” but not to “any conduct directed at consumers.” The court also noted that the policy did not specifically eliminate coverage for false advertising or misrepresentation in advertising or labeling. Accordingly, the court granted the insured’s motion for partial summary judgment and denied the D&O insurer’s motion for summary judgment.

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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