A California federal jury has returned a verdict against Darwin Select Insurance Co. in a case involving a refusal to cover a claim. The jurors found that Darwin breached its obligation of good faith and fair dealing by refusing to cover Millennium Laboratories Inc.’s defense costs in a pair of lawsuits in which two rival companies accused Millennium of false advertising. The verdict followed a first-phase jury trial, which followed the trial judge’s granting of summary judgment against Darwin on breach of contract claims. In May, U.S. District Judge Marilyn L. Huff granted Millennium’s motion for partial summary judgment, ruling that under its general liability insurance policy, Darwin was obligated to provide coverage in two cases: a Florida federal suit brought by Ameritox Ltd., which claimed Millennium deceived medical providers into using its service by distributing misleading billing manuals; and a Massachusetts state court suit brought by Calloway Laboratories Inc. over Millennium’s alleged disparagement of Calloway and its goods, products or services.
Millennium’s suit for coverage alleged that it was owed defense costs under the terms of the policy as to claims alleging personal or advertising injury. Darwin responded by claiming the underlying allegations didn’t qualify as personal or advertising injury and that coverage was barred by the policy’s “prior noticed claims” exclusion. But the court rejected Darwin’s claim that the underlying suits did not qualify for coverage. The court also shot down Darwin’s argument that the claims fell within an exclusion to the policy, finding the exclusion did not overcome Darwin’s duty to defend.
In ruling on the contract claims, the court left the issue of whether Darwin acted in bad faith when denying coverage to the jury. Millennium is a national medication monitoring company that provides laboratory analysis to doctors and clinicians, according to the complaint. Rival company Ameritox alleged in its April 2011 suit that Millennium not only distributed misleading advertisements to health care providers in a bid to compete for market share, but also engaged in a host of unfair business practices that included providing illegal inducements to garner business, performing medically unnecessary confirmatory testing, and not collecting legally required copayments and deductibles, according to court documents.
The Calloway suit, filed in Massachusetts Superior Court, also alleged that Millennium disparaged Calloway’s goods, products or services within the policy period. It was also alleged that Darwin was therefore likewise obligated to cover costs associated with those claims. Millennium sought coverage from Darwin for both underlying suits, but the insurer denied any obligation in the actions based on an “improperly narrow” interpretation of the competitors’ claims and its own failure to conduct a good faith investigation of the case.
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