An Illinois appeals court Friday upheld a ruling that a Liberty Mutual Holding Co. Inc. unit has no duty to defend a food supplier against a lawsuit lodged by a cracker manufacturer that resulted in an $8.3 million verdict.

The three-judge appellate court panel ruled in State Auto Property & Casualty Insurance Co. v. Distinctive Foods LLC et al. that the underlying litigation between Distinctive and RyKrisp LLC did not constitute an occurrence under Distinctive Food’s policy.

The court also agreed with the trial judge that a “knowing violation of rights of another” exclusion barred coverage because Distinctive was accused of seizing and withholding equipment and because Distinctive CEO Joshua Harris intentionally interfered with RyKrisp’s relationship with another manufacturer.

Minneapolis-based RyKrisp contracted with Distinctive to make its crackers and sent manufacturing equipment to a facility. RyKrisp removed the equipment after it became concerned about Distinctive’s efficiency and cost-effectiveness. Mr. Harris then instructed Distinctive personnel to enter RyKrisp’s warehouse, seize the equipment and transport it back to the manufacturing facility. Distinctive then changed the locks to the facility, court records show. 

RyKrisp then contracted with iBake Foods LLC to make its crackers and shipped equipment to its facility. Mr. Harris then contacted iBake and told it not to make RyKrisp’s crackers. He also sent a cease-and-desist letter to iBake, saying that Distinctive and RyKrisp had entered into a confidentiality agreement.

RyKrisp sued Distinctive, which sought coverage and a defense from Liberty Mutual unit State Auto in April 2018. The insurer initially agreed to defend Distinctive but later sent a letter declaring that the suit was not covered. The case did not settle, and a jury later found in RyKrisp’s favor for $8.3 million, court records show.

State Auto filed suit seeking a determination that it was not obligated to defend or cover the settlement and that it was entitled to recover defense costs. It moved for a ruling that it had no duty to defend, which was granted by the trial judge. 

Representatives for the parties did not respond to requests for comment.