Court Rejects Insurance Carrier’s Broad Interpretation of Exclusion of Specific Antitrust Matters

Written by: Nneka A. Egwuatu Anunobi, Esq.

The U.S. District Court for the Northern District of California recently rejected an attempt by Everest National Insurance Company to deny coverage for antitrust lawsuits involving Foster Farms, LLC’s and Foster Poultry Farms’ (collectively, “Foster”) turkey products.

Background

In 2016 Foster was sued in various antitrust lawsuits brought on behalf of the direct and indirect purchasers of boiler chickens (Chicken Antitrust Suits). The plaintiffs alleged violations of §1 of the Sherman Act, violations of state antitrust laws, violations of state consumer production laws, and unjust enrichment. In essence, the Chicken Antitrust Suits alleged the 20 largest chicken producers in the United States, including Foster, engaged in anti-competitive conduct by conspiring to coordinate output and limit the production of broiler chickens with the goal of increasing prices and profitability.

Foster sought new liability insurance coverage in 2017, including coverage for antitrust claims. Everest was aware of the pending Chicken Antitrust Suits, so it proposed a Private Company Liability Policy that included a Specific Matter Exclusion. The exclusion stated Everest would not be obligated to defend or be liable to pay losses for “AIG Claim #501-519830-001 (Claimant: Broiler Chicken Antitrust)” and two other pending claims.

Foster was subsequently named in three antitrust lawsuits brought against turkey producers (Turkey Antitrust Suits). The plaintiffs asserted violations of §1 of the Sherman Act, violations of state antitrust laws, violations of state consumer production laws, and unjust enrichment. Similar to the plaintiffs in the Chicken Antitrust Suits, these plaintiffs alleged that Foster and other defendants conspired to raise and fix prices by exchanging information regarding turkey production and sale with the goal of increasing profitability in the market.

Everest denied coverage for the Turkey Antitrust Suits based on the Specific Matter Exclusion, and Foster filed a breach of contract action and sought a declaratory judgment that the Specific Matter Exclusion did not apply to the Turkey Antitrust Suits.

Fundamental Issue

The fundamental issue before the court was whether the Turkey Antitrust Suits were (1) based upon, arising out of, or attributable to the Chicken Antitrust Suits or an Interrelated Wrongful Act; (2) alleging the same or substantially the same Wrongful Acts, Interrelated Wrongful Acts, facts, circumstances, or situations underlying or alleged in the Chicken Antitrust Suits; or (3) in any way related directly or indirectly, in whole or in part, to an Interrelated Wrongful Act in the Chicken Antitrust Suits.

Findings

As an initial matter, the court found that the policy language was not ambiguous. After an extensive discussion and case review on the meanings of “based upon”, “arising out of”, “same,” and “related to”, the court found the Specific Matter Exclusion did not apply to the Turkey Antitrust Suits for the following reasons:

• None of the claims in the Turkey Antitrust Suits were based upon or arising out of the Chicken Antitrust Suits. The allegations in the Turkey cases were independent from the facts and circumstances of the Chicken cases.
• The Chicken Antitrust Suits and Turkey Antitrust Suits were not the same or substantially similar. The allegations in each lawsuit involved different products, different markets, different reports, different time periods, and different acts taken to decrease production.
• The claims in the Chicken Antitrust Suits were not directly or indirectly related to the claims in the Turkey Antitrust Suits because there was no logical or casual connection.

In this instance Everest issued an insurance policy providing broad antitrust coverage to Foster with an exclusion that was limited to specific matters. The court found there was no basis in the policy language or the law allowing Everest to expand the exclusion beyond those specific matters.

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