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An insurer is not obligated to defend or indemnify an incontinence products manufacturer in a dispute with a competitor under terms of its coverage, said a federal appeals court Wednesday in affirming a lower court ruling.
The ruling in Great American E&S Insurance Co. v. Theos Medical Systems Inc.; Saket Bhatia stems from unfair competition litigation between Santa Clara, California-based Theos Medical Systems Inc. and Nottingham, England-based Malem Medical Ltd., according to the underlying ruling in the case.
The litigation between the two firms led to a settlement agreement, but Malem then accused Theos of violating the consent decree by filing disparaging and false reports about Malem’s products, and sought attorneys’ fees.
Theos insurer Great American E&S Insurance Co., a unit of Cincinnati-based Great American Insurance Group, filed suit in U.S. District Court in San Jose, California, seeking a ruling it had no duty to defend or indemnify Theos in the contempt proceeding.
The district court ruled in the insurer’s favor and was affirmed by a three-judge appeals court panel. The policies exclude coverage for any “suit” arising out of any intellectual property right or violation of any statutes concerning unfair competition, said the ruling.
“The parties do not dispute that the underlying action in which the civil proceeding arose (the so-called Malem Action) constitutes a ‘suit’ that alleges claims for intellectual property infringement and unfair competition. Accordingly, the Malem Action is excluded from coverage. It follows that the contempt proceeding, which arose in the Malem Action, is excluded as well,” said the ruling, in affirming the lower court’s decision.
Theos attorney Anthony Boskovich said in a statement, “While I certainly respect the Court’s opinion in this novel coverage case, I believe that the Court was wrong when it denied coverage. The exclusion in question allows a plaintiff in a lawsuit to unilaterally eliminate coverage at its whim.
“By simply adding a claim for intellectual property violations, that allegation, even if frivolous, excludes every other claim in the suit even if they are all clearly covered. By permitting this to happen, a plaintiff could inform the insured before suit that if the insured did not pay out of its own pocket that the lawsuit would make certain that there was no coverage for anything, and the insured is put in a no-win situation and denied coverage that was paid for. This, in my view, clearly is against the public policy of the State of California.”
Great American’s attorneys did not respond to a request for comment.
In January, a federal appeals court upheld a lower court and ruled a Great American Insurance Group unit was not required to defend or indemnify a concrete company under a pollution exclusion in its insurance policy, in a case involving contamination of a New Jersey stream.
A Great American Insurance Group unit does not have to indemnify a homebuilding services firm for a copyright settlement because the settlement agreement did not apportion the payment to losses covered and not covered under its commercial general liability insurance policy, a federal appeals court ruled Tuesday, affirming a lower court decision.