For decades, retailers and all other kinds of companies have faced suits alleging breach of contract, unfair trade practices or tortious interference. Typically, these companies are left to defend these suits and incur substantial defense costs without the benefit of insurance coverage because the claims are generally not covered under their commercial general liability policies. For some lucky insureds, however, courts have found coverage for these lawsuits where they include allegations of product disparagement—a covered “personal and advertising injury” under typical commercial general liability policies. For example, the Ninth Circuit recently affirmed a district court’s ruling that a liability insurer had a duty to defend its insured based on only two to three isolated allegations of conduct that could be considered product disparagement even though the rest of the claims dealt with different theories of liability. See Millennium Laboratories, Inc. v. Darwin Select Ins. Co., No. 15-55227 (9th Cir. Jan. 27, 2017).
In Millennium, the Ninth Circuit relied on well-established insurance law requiring a liability insurer to defend a suit, if the allegations in the complaint could potentially be covered under the policy. The Court explained that the insurer should have realized that Millennium faced potential disparagement claims because the insurer knew that Millennium’s sales team had allegedly told customers that a competitor’s business was illegal and because it knew that Millennium’s general counsel gave a presentation to sales representatives, which included a slide depicting the plaintiff and its compliance officer in body bags with the sounds of gunshots. Accordingly, the Ninth Circuit affirmed that the insurer was required to defend two lawsuits, notwithstanding that one of the complaints failed to include any allegations of disparagement.
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