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Ace liable for Abercrombie defense in gift card litigation

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An Ace Ltd. unit is obligated to defend retailer Abercrombie & Fitch Co. in connection with three pending class action lawsuits stemming from a promotion, an appeals court ruled.

New Albany, Ohio-based Abercrombie gave a $25 gift card to customers who had purchased either $75 or $100 worth of goods during the 2009 holiday season, according to Thursday's ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Ace European Group Ltd. v. Abercrombie & Fitch Co.

Although Abercrombie refused to honor the cards after Jan. 30, 2010, some of the gift card had the phrase “no expiration date” printed on the surface, and others had no expiration date.

Abercrombie customers filed three class action lawsuits still pending in Illinois, California and Ohio claiming customer fraud stemming from the retailer's refusal to honor the cards and breach of contract.

Abercrombie, which had purchased an “advertisers and Internet liability” policy from Ace unit Ace European Group Ltd. in September 2009, requested that the insurer defend it in the litigation, but the insurer refused, stating the subject matter fell outside its policy's coverage.

Abercrombie sued Ace for breach of contract and related claims, while Ace sought a declaratory judgment stating it was not obligated to provide coverage.

The U.S. District Court in Columbus, Ohio, ruled the insurer was obligated for defense costs, and the 6th Circuit's three-judge appellate panel agreed in a unanimous ruling.

According to the appellate ruling, Ace argued it has no duty to defend Abercrombie under two exclusions in its policy.

The first exclusion said the insurer has no liability assumed under any contract or agreement, including any breach or express warranty or guarantee. That exclusion is not applicable, said the panel. “Under Ohio law, contracts are legally enforceable agreements consisting of — among other things — offer, acceptance and consideration … Under this definition, we do not understand the promotional gift cards to be 'contracts' within the meaning” of the exclusion.

The second policy exclusion, for “coupons, prize discounts, prizes, awards or any other valuable considerations” also does not apply, said the panel. “Ace neither shows that the plain and ordinary meaning of 'coupon' embraces the promotional gift cards nor justifies looking beyond the policy's plain language,” said the ruling.

As a result, the exclusion “does not relieve Ace of its duty to defend,” said the panel, in affirming the lower court's ruling.