272 F. Supp. 3d 948
E.D. Tex.2017Background
- Colony Insurance issued Commercial General Liability (CGL) policies (Coverage B — Personal & Advertising Injury) to Custom Ag for 2012–2016. Colony seeks declaration it has no duty to defend or indemnify Custom Ag in related Missouri lawsuits.
- Purina and a consumer class sued Blue Buffalo for false advertising, alleging Blue Buffalo marketed products as free of by‑product meal while they contained chicken/poultry by‑product meal, corn, and artificial preservatives.
- Blue Buffalo impleaded Diversified (ingredient broker) and Wilbur‑Ellis/Custom Ag (suppliers) seeking contribution/indemnity, alleging suppliers provided adulterated chicken meal in breach of contract and concealed defects, causing Blue Buffalo’s losses and defense costs.
- Diversified cross‑claimed against Custom Ag for contribution/indemnity; Custom Ag demanded defense from Colony under Coverage B for claims tied to Blue Buffalo’s false‑advertising litigation.
- Colony moved for summary judgment denying any duty to defend or indemnify; Diversified and Custom Ag cross‑moved seeking a duty to defend. Magistrate Judge recommended Colony’s motion be granted; district court adopted the recommendation and entered judgment for Colony.
Issues
| Issue | Plaintiff's Argument (Colony) | Defendant's Argument (Diversified/Custom Ag) | Held |
|---|---|---|---|
| Whether Colony owes a duty to defend Custom Ag under Coverage B (Personal & Advertising Injury) | Policy requires insured’s own actionable conduct to trigger Coverage B; third‑party advertising by others does not create coverage for Custom Ag. | Coverage B’s disparagement provision (14(d)) is broad and does not require the disparaging act to have been performed by the insured; Custom Ag can be "caught up in" false‑advertising litigation and thus covered. | Duty to defend denied: coverage applies only when Custom Ag itself committed the covered publication/conduct; third‑party acts do not convert uncovered conduct into covered conduct. |
| Whether pleadings other than third‑party petition (e.g., Purina/consumer complaints against Blue Buffalo) are considered under the eight‑corners rule | Only the third‑party petition against the insured (Custom Ag) and the policy govern duty analysis. | Diversified/Custom Ag urged consideration of the underlying Purina/consumer complaints incorporated by reference. | Held for Colony: only the third‑party pleadings against Custom Ag are considered; underlying complaints against Blue Buffalo do not expand coverage. |
| Whether the fortuity doctrine bars coverage because conduct began before the policy period | Fortuity bars coverage for known losses or losses in progress; Custom Ag’s alleged adulteration began in 2011 before Colony issued policies in 2012. | Defendants argue Blue Buffalo’s alleged false‑advertising began later (2013), so fortuity should not apply. | Fortuity bars coverage: alleged wrongful supply began in 2011 (a loss in progress) so policy issued later does not cover it. |
| Whether Policy exclusions (breach of contract) preclude coverage | Exclusion 2(f) (personal/advertising injury arising out of breach of contract) applies because Diversified’s claims against Custom Ag arise from alleged contractual breaches. | Defendants dispute that claims are limited to breach‑of‑contract or contend genuine issues of fact exist on exclusions. | Held for Colony: even if Coverage B otherwise applied, Exclusion 2(f) excludes claims arising from Custom Ag’s alleged breach of contract. (Other exclusions raised factual issues and were not decided on summary judgment.) |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (genuine issue of material fact standard)
- Zurich Am. Ins. Co. v. Nokia, 268 S.W.3d 487 (Tex. 2008) (eight‑corners rule; duty to defend requires potential coverage under pleadings)
- Farmers Tex. Cty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81 (Tex. 1997) (focus on factual allegations, not legal theories, for duty to defend)
- LCS Corr. Servs., Inc. v. Lexington Ins. Co., 800 F.3d 664 (court may decide duty to indemnify when same reasons negate both defense and indemnity)
- Primrose Operating Co. v. Nat'l Am. Ins. Co., 382 F.3d 546 (insured bears initial burden to show claim potentially within coverage)
- Gibson & Assocs., Inc. v. Home Ins. Co., 966 F. Supp. 468 (N.D. Tex. 1997) (coverage for third‑party claims examined by reference to third‑party petition, not underlying plaintiff’s complaint)