INTRODUCTION
Last year, the District of Columbia Court of Appeals issued a decision that provides insight into its approach to handling insurance coverage cases. In Travelers Indemnity Co. of Ill. v. United Food & Commercial Workers' Int'l Union, 770 A.2d 978 (D.C. Ct. App. 2001), the court, per Judge Vanessa Ruiz, affirmed in part and reversed in part the grant of summary judgment in favor of an insured in a declaratory judgment action seeking coverage from its insurer. The insured had sought a declaration that its insurer was obligated to defend and potentially to indemnify it in two lawsuits filed against it by Food Lion, Inc. ("Food Lion"). Food Lion claimed that the insured, a union, encouraged a Food Lion employee's suit against it and that the suit made false claims against the company.
The court of appeals affirmed the trial court's finding that the allegations in the 1993 lawsuit commenced by Food Lion stated a cause of action within the coverage of the policy, albeit on the alternative ground that the complaint stated a claim cognizable under the "liable, slander, and disparagement" provision of the policy. It reversed as premature the trial court's finding that the insurer had waived its affirmative defense of late or defective notice. Concluding that the insurer should have been permitted limited discovery to establish the defense prior to consideration of a motion for summary judgment, the court remanded the case for further proceedings.
Part one of this insurance law update reviews the factual and procedural background of the case. Part two reviews the court's legal analysis.
Given the concentration of business and union headquarters as well as political organizations in the D.C. area, insurers should be mindful of the United Food case. It provides insight into the approach taken by the D.C. Court of Appeals in handling insurance coverage issues such as late and defective notice, policy interpretation, the duty to defend and waiver. The decision addresses these issues within the context of an underlying defamation case.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Insurance Policy At Issue
Travelers Indemnity Company of Illinois ("Travelers") issued several primary, umbrella, comprehensive, general insurance policies to the United Food & Commercial Workers' International Union ("UFCW"). The policies provided that Travelers will pay those sums that the insured "becomes legally obligated to pay as damages because of 'personal injuries' … to which this insurance applies." They further provided that Travelers "will have the right and duty to defend any 'suit' seeking those damages." They defined personal injuries to include injury other then bodily injury, arising out of one or more of the following offenses:" … (b) malicious prosecutions; … (d) oral or written publication material that is slanderous or libels a personal organization or disparages a person's organization's goods, products or services." The insurance contract further required that Travelers receive prompt written notice of a claim or suit and that the UFCW immediately send Travelers copies of any demands, notices, summons or legal papers received in connection with the claim or suit.
B. The Underlying Case
In February 1993, Food Lion sued UFCW in South Carolina state court for abuse of process. It alleged that UFCW secretly supported and encouraged a lawsuit brought against Food Lion by a former employee. The suit was subsequently removed to the federal district court. Food Lion alleged that UFCW controlled the employee's case "for the ulterior purpose of inflicting economic harm on [Food Lion]. . ." Food Lion further alleged that the allegations in the employee's litigation were non-privileged and demonstrably false, and that UFCW engaged in various "willful acts in its use of the process, not proper to the regular conduct of the proceedings."
C. Tender of Defense
On February 17, 1993, UFCW notified its insurance broker of the Food Lion action via a letter with an accompanying copy of the complaint. One week later, Travelers received a letter from the broker enclosing UFCW's letter and the complaint. Subsequently, Travelers notified UFCW that it was researching the issue of coverage and would advise UFCW of its views concerning its defense and indemnity obligations. The letter also advised UFCW to do whatever was necessary to protect its interests in the litigation. UFCW had already hired counsel. In August 1993, UFCW's counsel informed Travelers that Food Lion's lawsuit had been dismissed, but that Food Lion had moved for reconsideration and for leave to amend its complaint. UFCW's counsel provided copies of Food Lion's motion for reconsideration and proposed amended complaint. Subsequently, Travelers was informed that the Food Lion litigation was concluded and that it did not need to do anything more with respect to the litigation.
D. The Trial Court's Decision
UFCW commenced a declaratory judgment action in the District of Columbia Superior Court alleging that Travelers breached its contractual duties under the insurance policy by refusing to defend the union in the Food Lion lawsuits and that it violated the implied covenant of good faith and fair dealing in connection with its handling of the Union's claim for coverage. Travelers defended the action on the grounds that the Food Lion's lawsuits did not come within the insurance policy's coverage and, even if they were covered, the union failed to give Travelers timely notice of Food Lion's claims or failed to tender the defense of the lawsuits. UFCW filed a motion for partial summary judgment seeking a determination that Travelers breached its duty to defend the 1993 Food Lion suit. The trial court granted UFCW's motion. It rejected Travelers' argument that there was a difference between an abuse of process claim and a malicious prosecution claim under the policy. Travelers' appeal followed.
II. THE COURT'S LEGAL ANALYSIS
A. The Duty to Defend
At the outset of her analysis, Judge Ruiz addressed Travelers' argument that the policy's coverage of malicious prosecution actions did not extend to Food Lion's abuse of process claim. Travelers maintained that the tort of malicious prosecution is both broader and substantively different than the tort of abuse of process. Judge Ruiz concluded that the court did not need to decide the question because it was affirming the trial court's ruling based on a different provision in the insurance contract.
Judge Ruiz next examined the policy provision providing coverage for suits seeking damages for slanders, liables or disparagement. She concluded that because Food Lion's complaint alleged that UFCW intended to damage Food Lion's reputation through the knowing and unprivileged written publication of defamatory material that on its face suggested that Food Lion injured its employees and, in effect, stole from them, it had adequately alleged a libel actionable on its face under South Carolina law. Thus, according to the terms of the policy requiring Travelers to defend against suits arising out of "oral or written publication of material that slanders or libels a person or organization," the allegations in the Food Lion compliant stated a cause of action within the scope of the policy. The fact that Food Lion's complaint against UFCW might be dismissed did not negate Travelers' duty to defend UFCW if the complaint against it makes out a facial claim of defamation.
B. Notice of Claim and Tender of Defense
Next, Judge Ruiz addressed Travelers' argument that UFCW failed to tender the defense of the 1993 litigation and did not comply with the notice provisions in the insurance policy. The policy provided that UFCW must "immediately send [Travelers] copies of any demands, notices, summons or legal papers received in connection with the claim or 'suit.'" The term "suit" was defined in the policy. The term "claim" was not. However, the court concluded that its inclusion in addition to the term "suit" contemplated assertions of liability that are not contained in an actual suit. Generally, unless the assertion is made in circumstances so unusual that they negate the possibility of a formal proceeding involving defense costs as well as liability, virtually any assertion or exposure to liability within the risk covered by the insurance policy is a potential claim. It was undisputed that Travelers had notice from UFCW that a suit had been initiated against UFCW. Nevertheless, Travelers argued that the trial court improperly denied discovery on the issue of notice, specifically whether Food Lion made "claims" prior to actually filing suit which UFCW was obligated under the policy, to bring to Travelers' attention.
Judge Ruiz concluded that notice provisions such as those found in the policies at issue required notice "within a reasonable time in view of all the facts and circumstances of each particular case." Reasonableness of notice is usually a question for the jury. Because "claim" was an undefined term in the policy, Judge Ruiz held that it was a question of fact, whether any communication by Food Lion prior to the filing of the complaint was a "claim" which UFCW was required to give notice to Travelers and whether the notice given was reasonable under the circumstances.
C. The Waiver Issue
In response to UFCW's notice of the Food Lion suit, Travelers had sent a letter to UFCW stating that it was "researching the existence, terms and conditions in the applicable policy" and "upon completion of [its] research and analysis, it would advise UFCW of the extent of The Travelers defense and/or indemnity obligation, if any." The letter further stated that The Travelers fully reserved its rights. After the letter, however, Travelers never reported any decision to UFCW.
However, Judge Ruiz disagreed with the trial court's conclusion that Travelers had waived its defective notice defense. Although she agreed with the trial court that a four year silence after a timely and proper tendered defense by an insured calls for an inference of a waiver as a matter of law. She did not see the facts before the court as so straight forward. Travelers produced an affidavit in support of its cross-motion for summary judgment which indicated that: (1) Travelers received a letter from UFCW's counsel which stated that the Food Lion litigation had been dismissed, but enclosed a copy of Food Lion's motion for reconsideration and to amend the complaint as well as an unsigned proposed amended complaint; (2) "sometime after, receiving the letter from UFCW's counsel, the attorney notified a Travelers' supervisor by telephone that the litigation was concluded and that Travelers did not need to do anything more…"; (3) Travelers was never subsequently notified that Food Lion had been allowed to amend its complaint and never received a copy of the filed amended complaint. Judge Ruiz pointed out that even if it was determined that UFCW gave contractual notice there may still be an issue for the trier of fact as to whether Travelers was under a contractual duty factual after the alleged telephone call from UFCW's attorney.
D. The Issue of Additional Discovery
Given the history of conflict between Food Lion and UFCW, Travelers argued that it was unlikely that Food Lion never sent the UFCW a letter threatening litigation or a draft complaint before actually filing suit. Travelers further argued that such a letter or draft complaint would constitute a "claim" which UFCW had an obligation to bring to Travelers' attention. Thus, Travelers maintained that it was entitled to discovery in order to prove that UFCW's notice was untimely.
Travelers had filed relevant discovery requests prior to UFCW's filing its motion for summary judgment. Judge Ruiz concluded that the trial court's grant of summary judgment without affording such discovery was premature. Thus, she reversed the grant of summary judgment and remanded the case for discovery limited to the issue of whether Food Lion made a claim prior to filing of the 1993 lawsuit which triggered UFCW's obligation to notify Travelers.
CONCLUSION
Given the concentration of business and union headquarters as well as political organizations in the D.C. area, insurers should be mindful of the United Food case. It provides insight into the approach taken by the D.C. Court of Appeals in handling insurance coverage issues such as late and defective notice, policy interpretation, the duty to defend and waiver. The decision addresses these issues within the context of an underlying defamation case.
1 The employee's suit claimed inter alia, that Food Lion engaged in a company wide scheme to discharge employees before their rights vested in Food Lion's profit sharing plan. Bryant v. Food Lion, Inc., 100 F.Supp.2d 346, 349 (D.S.C. 2000).
2 Although D.C. law applied to the interpretation of the insurance policy, Judge Ruiz relied on South Carolina law to interpret the allegations in Food Lion's complaint in order to determined whether there was coverage.
3 Judge Ruiz noted that the trial court's decision assumed that if one claim in the Food Lion's complaint was covered, Travelers had to provide a complete defense to UFCW. Travelers Indemnity, 770 A.2d at 988 n12. The parties had not addressed the scope of an issurer's duty to defend under such circumstances. Thus, she proceeded on this assumption.
If you have any questions regarding this client update or Halloran & Sage's appellate or insurance practice groups, please do not hesitate to contact Daniel Scapellati at (860) 297-4622.