Court decisions

Rough Notes, May 2003

INSURANCE-RELATED COURT CASES

Digested from case reports published in the North Eastern Reporter 2d, West Publishing Co., St. Paul, MN

Trade secret misappropriation not covered under CGL

Amico, an Illinois corporation, had issued two comprehensive general liability policies to Lexmark, a Kentucky corporation, effective from April 3, 1997, to April 3, 1999. Transportation Insurance Company, also an Illinois corporation, had issued three commercial general liability policies to Lexmark, effective from March 27, 1994, to March 27, 1997. The insurance companies were asked to defend and indemnify Lexmark in litigation brought against the insured by BDT Products, Inc., and Buro Datentechnik GMBH & Co (herein referred to BDT) Both companies refused, and Lexmark filed suit against Amico and Transportation for a declaratory judgment that the companies had a duty to defend the insured.

The trial court granted summary judgment in favor of Lexmark, finding "there is a potential for coverage based upon the language" in the complaint. That court found the insurance companies were obligated to defend the action against its insured. The insurance companies appealed.

The policies issued to Lexmark were almost identical and covered personal injury and advertising injury claims against the insured. The basis for the action against Lexmark was a laser printer manufactured by BDT The record showed that in 1992, and for several years thereafter, BDT provided information and prototype printers to Lexmark for evaluation and testing. The joint development project was stopped in September 1995. It was not until January 1997 that BDT became suspicious that Lexmark was misappropriating BDT's technologies. It later received Lexmark's new Optra Sprinter and was convinced that Lexmark was using its technology.

On appeal, the court pointed out that the key phrases in the policies involved were "personal injury" and "advertising injury." Both were defined in the policies. In this case, Lexmark did not buy insurance that specifically covered claims against it for misappropriation of trade secrets. The complaint did not allege "personal injury" or "advertising injury," and there were no allegations to show such injuries.

The judgment entered in the lower court in favor of Lexmark was reversed and remanded with instructions to enter summary judgment in favor of the insurance companies.

Lexmark International, Inc. v. Transportation Insurance Company et al., Appellants-- Nos. 1-01-0719, 1-- 01-0962-Appellate Court of Illinois, First District, Third Division-- December 19, 2001-761 North Eastern Reporter 2d 1214.

Court decides question of company's duty to settle

James Griffith was seriously injured in a one-car accident. Larry Woodley, Jr, owned the car The police report showed that Woodley was driving. While in the emergency room, Woodley was issued a ticket for driving under the influence. The men were taken to different hospitals. A week later, Woodley said he did not remember the accident and did not know who was driving.

Woodley had an auto insurance policy with a limit of $20,000 per person. Griffith died, and his administrator notified Valor Insurance that the medical bills incurred as a result of the accident were in excess of $82,500. The attorney for the estate demanded settlement, and Valor replied on August 22, 1996, that it would discuss settlement after it received a copy of the police report. On March 7, 1997, Ella Haddick was named special administrator of Griffith's estate. On the same date, she demanded the policy limits within 14 days. The demand letter stated she would not settle the claim within the policy limit after that time. Valor replied it was still investigating to determine who was driving. The administrator extended the time limit to April 7, 1997. She filed suit a short time later

About a year later Valor offered to settle for the policy limits, and the offer was refused. The trial court entered summary judgment in favor of the estate on the issue of liability. Judgment was later entered in favor of the estate for $150,924.80. The special administrator alleged that Valor had acted in bad faith by failing to settle the claim for the policy limit. The court dismissed the complaint on the ground Valor had no duty to settle prior to suit and the administrator could not maintain a bad-faith claim after Haddick had withdrawn her demand for the policy limit. The administrator appealed.

The court noted that the duty to settle in good faith does not arise until a claim has been made against the insured and there is a reasonable probability of recovery in excess of policy limits and a reasonable probability of liability against the insured.

In this case, Valor was aware that the medical expenses were in excess of $80,000. The insured owned the insured automobile, and proof of ownership raises a presumption that the owner of the car was in control at the time of the accident. The court believed these facts were sufficient to show a reasonable probability of recovery in excess of the policy limits, and a probability of liability against Woodley. Valor did not offer to settle for the policy limits until April 1, 1998-- almost a year after the administrator withdrew her settlement demand.