Courts surprisingly affirm insurance coverage to defend against economic loss
Courts surprisingly affirm insurance coverage to defend against economic loss

For parties facing class action lawsuits, where the class seeks to recover for economic losses, there may still be opportunities for insurance coverage. Thus, where economic losses arise out of the purchase of products that have the potential for causing bodily injury, insurance coverage, at least for purposes of the duty to defend, may well be available.

Two fairly recent cases take up this scenario and both affirm coverage, at least for purposes of the duty to defend. Coverage was affirmed even though the relief sought in the class action complaints was solely for damages occasioned by economic loss.

In Plantronics, Inc. v. American Home Assurance Company, C 07-6038 PVT (N. D. Cal. 2008), the insured manufactured bluetooth headsets. It was sued in class actions in which the underlying complaints alleged that the headsets had the potential of causing noise induced hearing loss.

Importantly, there were no allegations in the class action complaints that any of the plaintiffs had suffered any bodily injury. Instead, the class action complaints asserted that the allegedly defective design of the bluetooth headsets constituted a breach of warranty entitling the class plaintiffs to a refund of the purchase price of the product.

The Court posed the coverage question in this way: “absent any finding in the Underlying Actions that actual bodily injury occurred to any specific individual, would any damages [the insured] becomes obligated to pay be because of bodily injury?”

The Court, applying California law, answered that question in the affirmative. The Court reasoned that but for the potential for bodily injury caused by the bluetooth headsets, there would be no viable claims for defective design, unfair marketing or breach of warranty. Thus even though no damages for personal injury were sought, coverage was found for purposes of the duty to defend.

In Northern Ins. v. Baltimore Bus. Comm. Inc., 68 F. App’x 414 (4th Cir. 2003), the Court reached a similar conclusion. There the insured was sued in class actions which charged that the insured’s cell phones emitted radio frequency radiation which had the potential of causing bodily injury. The class action plaintiffs alleged that the injury caused by the cell phones created an increased health risk that the insured could have eliminated or significantly mitigated by providing cell phone purchasers with headsets and appropriate warnings.

As in Plantronics, the plaintiffs in Northern Ins. did not seek compensation for bodily injury. Instead, they sought “compensatory damages, including but not limited to, amounts necessary to purchase a cell phone headset for each class member.” The Court held that the insured could be potentially liable to the class plaintiffs for any and all compensatory damages, including damages for already existing bodily injury. On this basis, the Court reversed the trial court’s granting of summary judgment to the insurer.

Although both Plantronics and Northern Ins. are still good law, at least one appeals court declined to apply the holdings in those cases in the context of another products liability suit. Medmarc Casualty Insurance Company v. Avent America, Inc., 612 F. 3d 607 (7th Cir. 2010). In Medmarc, the underlying class action suits were filed by parents who bought certain products from Avent containing Bisphenol – A (“BPA”). The parents refused to use the products once they learned of the health risks posed by BPA. Notably, the plaintiffs never alleged that they or their children ever used the products or were actually exposed to BPA. Instead, the plaintiffs alleged economic losses arising from their purchase of an unusable product.

In concluding that the insurance companies had no duty to provide a defense, the Seventh Circuit first noted the parents’ concession in the underlying case that they were “seeking only economic damages and [did] not claim any bodily injury.” Id. at 615. The Court then held that “[e]ven considering the broader duty to defend created by the phrase ‘because of bodily injury,’ the complaints in the underlying suits [did] not reach the level of asserting claims ‘because of bodily injury.’“ Id. at 616. The Court reasoned that the parents’ theory of relief was “not that a bodily injury occurred and the damages sought flow from that bodily injury.” Instead, it was “that the plaintiffs would not have purchased the products had [the manufacturer] made certain information known to consumers . …” Id.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters. Articles may be reprinted with permission and acknowledgment. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. All rights reserved.


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