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Appeals court affirms dismissal of Office Depot suit against AIG unit

Office Depot

A federal appeals court has affirmed the dismissal of a lawsuit filed by Office Depot Inc. against an American International Group Inc. unit, stating the insurer had no duty to defend nor indemnify the office supply retailer in connection with whistleblower litigation that led to a $68.5 million settlement plus $9 million in plaintiff attorneys fees.

In its second ruling in the case, the 9th U.S. Circuit Court of Appeals in San Francisco agreed with a lower court in Pasadena, California, that AIG Specialty Insurance Co. had no obligation to defend or indemnify the Boca Raton, Florida-based retailer under a policy exclusion in its coverage, according to Friday’s ruling in Office Depot Inc. v. AIG Specialty Insurance Co.

The case involved 19 California political subdivisions, on whose behalf the whistleblower originally sued, which intervened in the lawsuit. The whistleblower had alleged that Office Depot had overcharged the entities for office supplies.

After AIG denied coverage, the District Court granted AIG summary judgment on the charges alleging breaches of AIG’s duty to defend and indemnify Office Depot but refused to dismiss a good faith and fair dealing charge.

On appeal, the 9th Circuit unanimously overturned the lower court’s ruling that the California False Claims Act precluded coverage, but gave the District Court leave to consider AIG’s alternative arguments based on the insurance policy’s scope for coverage and exclusions.

On remand, the district court again ruled in AIG’s favor and was affirmed by a three-judge appeals court panel.

The panel’s ruling said the insurance agreement’s contract exclusion precludes coverage.

“We conclude, noting the uncomfortable breadth of such contract exclusions, that the allegations in the (whistleblower) lawsuit are premised directly or indirectly on Office Depot’s contractual obligations and therefore the lawsuit is precluded from coverage under the contract exclusion,” the ruling said, in affirming the lower court’s decision.

Attorneys in the case did not respond to requests for comment.