The Payne & Fears team of Nathan A. Cazier, Jared De Jong, and Blake A. Dillion secured a win for Rawlings Sporting Goods Co. in its coverage dispute with Starr Indemnity & Liability Co.
Rawlings was sued in a consumer class action alleging that Rawlings misrepresented the weight of its baseball bats in violation of Californiaâs Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law. (Richard Sotelo v. Rawlings Sporting Goods Co., Inc., U.S. District Case No. 2:18-cv-09166j-GW-MAA). Rawlings tendered its defense to Starr under two Directors & Officers Liability (âD&Oâ) policies. Starr denied coverage, arguing that the alleged consumer-based violations in Sotelo fell within Starrâs Anti-Trust Exclusion, which excludes coverage for losses from any claim alleging the violation of âany lawâŠas respects to any of the following: anti-trust, business competition, unfair trade practices or tortious interference in anotherâs business or contractual relationships.â
Rawlings sued Starr seeking, among other things, declaratory relief regarding the meaning of Starrâs Anti-Trust Exclusion. In its motion for partial summary judgment, Rawlings argued that California law requires the district court to interpret the exclusionary language narrowly against Starr, and that the Anti-Trust Exclusion can only reasonably be interpreted as applying to anti-competitive conduct, not garden-variety consumer misrepresentation claims like Sotelo, even when they are pled under Unfair Competition Laws, the Consumer Legal Remedies Act, or False Advertising Laws.
The district court agreed with Rawlings, calling Starrâs position âlogically defective,â finding that Starrâs Anti-Trust Exclusion only refers to âanti-competitive business practices and not to any conduct directed at consumers.â The district court stated that â[i]t would be strange for Starr to intend to include a consumer-protection component in an exclusion titled âAnti-Trust Exclusionâ without mentioning words such as âfraudâ or âmisrepresentationâ or âconsumer protection.ââ And that â[i]t would lead to a strange result if an innocuously titled âAnti-Trust Exclusionâ could vitiate half of a policyâs coverage designed to protect (both the company and its directors and officers) against claims arising out of misleading statements or omissions.â This was especially true in the courtâs eye, since Starr has used exclusions in other policies which expressly eliminate coverage for false advertising, misrepresentation, or unfair or deceptive trade practices. Starr simply chose not to use that language in the coverage it sold to Rawlings, and should not, therefore, benefit from this omission.
âNot only is this a home run for Rawlings, but this is a great decision for policyholders in California and throughout the country who purchase D&O policies to cover misrepresentation claims filed by consumers,â said Nate Cazier, a partner in Payne & Fearsâ Insurance Litigation Group. âThis decision reinforces the rule that insurers cannot use poorly drafted and overly broad exclusionary language to gut the core coverage they agree to provide companies that purchase D&O insurance. It also puts insurers on notice that there are consequences for not using readily available language.â