Facts

On Jan. 19, 2010, ABS Power Brake Inc. tendered its defense to Western Heritage Insurance Co. ABS had been sued by Bosch, which alleged trademark infringement, as well as reputational damage. In return correspondence dated Jan. 21, 2010, Western refused the tender, saying that the 2009 policy did not provide any coverage whatsoever for any of the Bosch claims. Thus, ABS sued Western for breach of duty to defend and claimed that Western was obligated to pay the Bosch judgment as damages for its breach. ABS moved for summary adjudication on the issue of the duty to defend, based upon on the existence of the disparagement allegations in the underlying complaint, which the court granted. After that, the remaining issues in the case concerned the damages Western Heritage Insurance Co. should pay for the breach of its duty to defend.

PLAINTIFF'S CONTENTIONS:
According to ABS, although the Bosch complaint set forth allegations of trademark infringement, it also made explicit allegations that ABS had disparaged it. ABS claimed that this was something Western understood, because in its Jan. 21 denial letter, it summarized Bosch's complaint as alleging that the actions of ABS had "damaged Bosch's goodwill and reputation." Nevertheless, Western disclaimed coverage either because the 2009 policy did not have coverage for reputational injuries, or reputational injuries do not come within "personal injury" coverage. ABS claimed that neither reason was viable. In all policies issued by Western to ABS from the year 2000 until 2009, personal injury was defined as "arising out of one or more of the following offenses: . . . 4. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services. . . Therefore, ABS claimed it was not possible for Western to say that a policy with the personal injury endorsement would not afford coverage for a disparagement claim Western knew was included in Bosch's complaint. Plaintiff also alleged there was no reasonable explanation as to why Western would disclaim coverage for a claim that it itself recognized, and claimed that Western offered none. Instead, Western tried to obfuscate the issue of coverage, making representations such as the 2009 policy did not have personal injury coverage, despite knowing that its own general agent had already informed Western that the endorsement had been omitted due to the agent's own error. Plaintiff claimed Western's decision could be explained only if Western simply focused its attention on Bosch's trademark allegations and disregarded the disparagement allegations. Furthermore, plaintiff alleged that Western's claim file revealed that it never sought any additional information about the loss date from ABS; Western's claim file reveals that its entire initial claim investigation in January 2010 was completed in less than two days; and in March 2011, when ABS asked Western to reconsider its denial under provisions of policies prior to 2009, Western refused, claiming that no policy it issued covered any of the claims asserted by the Bosch complaint, despite knowing that the Bosch complaint sought damages for reputational injuries, and that every policy Western had issued to ABS provided coverage for reputational injuries. The outcome of this claims handling process left ABS having to defend itself against Bosch's lawsuit for some two years, in the process spending $127,000 of its own money (and falling in arrears for another $167,000). Because it did not have the resources to continue further – ABS' trademark litigation attorney informed it that to continue to trial would require another $500,000 to $750,000 in fees and costs – ABS had to withdraw its answer in April 2012. Shortly thereafter, the Federal District Court in Michigan entered a default judgment against ABS in the amount of nearly $13 million. The default judgment against ABS was the result of its inability to afford paying for its defense.

DEFENDANT'S CONTENTIONS:
Defendant claimed that the underlying judgment was based on ABS' intentional conduct for which no indemnity could be paid pursuant to Insurance Code Section 533.

Damages

Plaintiff sought the amount of the default judgment against insured in the amount of $13 million.

Result

The parties settled for $14,100,000.

Other Information

Plaintiff's successful motion for summary adjudication on the duty to defend was taken up on a writ by defendant to the 4th District Court of Appeal and rejected. Defendant then petitioned the California Supreme Court for relief and was likewise rejected. MEDIATOR: Ralph O. Williams III, ADR Services. FILING DATE: May 13, 2011.