Forbidden Fruit Ciderhouse, LLC v. Ohio Sec. Ins. Co.

• Decision Date: 05 January 2022
• Docket Number: 3:20-cv-00844-AC
• Parties: FORBIDDEN FRUIT CIDERHOUSE, LLC, dba 2 TOWNS CIDERHOUSE, an Oregon limited liability company, Plaintiff, v. OHIO SECURITY INSURANCE COMPANY, a New Hampshire insurance company; and OHIO CASUALTY INSURANCE COMPANY, a New Hampshire insurance company, Defendants.
• Court: U.S. District Court — District of Oregon

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FORBIDDEN FRUIT CIDERHOUSE, LLC, dba 2 TOWNS CIDERHOUSE, an Oregon limited liability company, Plaintiff, v. OHIO SECURITY INSURANCE COMPANY, a New Hampshire insurance company; and OHIO CASUALTY INSURANCE COMPANY, a New Hampshire insurance company, Defendants.

No. 3:20-cv-00844-AC

United States District Court, D. Oregon, Portland Division

January 5, 2022

FINDINGS AND RECOMMENDATION

JOHN V. ACOSTA United States Magistrate Judge

Plaintiff Forbidden Fruit Ciderhouse, LLC, doing business as 2 Towns Ciderhouse (“Two Towns”), brings this action against Defendants Ohio Security Insurance Company (“Ohio Security”) and Ohio Casualty Insurance Company (“Ohio Casualty”) (collectively “Defendants”) seeking a declaration that Defendants breached their duty to defend and duty to indemnify under commercial liability policies they issued to Two Towns. Presently before the court are the parties' cross-motions for summary judgment (ECF Nos. 37 & 41) and Defendants' Motion for Relief from Summary Judgment (ECF No. 51). For the following reasons, Two Towns' motion for summary judgment should be denied Defendants' motion for summary judgment should be granted, and Defendants' motion for relief should be denied as moot.^[1]

Factual Background

I. The Underlying Action

Two Towns operates a craft cider brewery that manufactures and distributes hard cider products and is based in Corvallis, Oregon. On March 12, 2020, Richard Winters initiated a putative class action against Two Towns, Winters et al v. Two Towns Ciderhouse, Inc., Case No. 20CV0468 BAS BGS (S.D. Cal.) (the “Underlying Action”). (Compl. ¶ 5, ECF No. 1.) The Underlying Action alleged violations of the California False Advertising Act and the California Unfair Competition Act. Cal. Bus. & Prof. Code §§ 17200-17210; Cal Bus. & Prof. Code §§ 17500-17536. (Decl. Michael B. Merchant Supp. Pl.'s Mot. Summ. J. (“Merchant Decl.”) Ex. 4 (“Winters Compl.”) ¶¶ 72, 84, ECF No. 38-4.) In the Underlying Action, Winters alleged that Two Towns' packaging falsely claimed its products contained “no artificial flavors, ” when in fact they contained DL-Malic Acid, a synthetic form of malic acid derived from petroleum. (Id. ¶¶ 11, 55.) The allegedly offending packaging stated:

WHOLE INGREDIENTS

Made from 100% fresh-pressed Northwest apples, sourced exclusively from local Oregon & Washington farms, as well as other whole, locally harvested agricultural ingredients.

NO SHORTCUTS

Our cider is always slow fermented at cold temperatures. This time intensive process retains the natural character and delicate aromatics of the apples, eliminating the need for additives, which plainly fall short.

NOTHING ARTIFICIAL

NO concentrates or refined sugars.

NO essences or artificial flavors.

NO velcorin or sorbate.

(Id. ¶ 44.)

The Underlying Action specifically alleged that Winters purchased Two Towns' products because it advertised that its products do not contain artificial flavors. (Id. ¶ 46.) Winters contended that Two Towns' made false and untrue statements by stating its products contained “nothing artificial” and “no artificial flavors” fully knowing that its products contained DL-Malic Acid. (Id. ¶¶ 75-77.) Winters alleged that he and other class members “were deceived into paying money for products they did not want” and “were deprived of their protected interest to choose the foods and ingredients they ingest.” (Id. ¶¶ 12, 48, 50-51.) Winters sought economic harm in the form of restitution, statutory and punitive damages, and attorney fees. (Id. ¶¶ 78, 99.) Winters alleged that as a result of Two Towns' acts and omissions, he “suffered concrete and particularized injuries, including lost money, wasted time, stress, frustration, and aggravation, and lost confidence in product labeling.^[2] (Id. ¶ 57.)

II. The Insurance Policies

Ohio Security issued Commercial Package Policy No. BKS(20)55239179 to Two Towns for the policy period from September 24, 2019 to September 24, 2020 (the “OSIC Policy”). (Decl. Kimberly Chong Supp. Defs.' Mot. Summ. J. (“Chong Decl.”) ¶ 3 & Ex. A (“OSIC Policy”), ECF Nos. 42, 42-1.) The OSIC Policy includes several parts: commercial property, commercial inland marine, commercial general liability (“CGL”), and liquor liability. (OSIC Policy, ECF No. 42-1 at 155.) Section I of CGL coverage describes the insuring agreement, and generally triggers coverage by “bodily injury, ” “property damage, ” or an “occurrence” under the OSIC Policy. (Id. at 185.) Section I provides two main coverage areas, Coverage A, Bodily Injury and Property Damage Liability, and Coverage B, Personal and Advertising Injury Liability. (Id. at 185, 190.) Section I provides in relevant part:

SECTION I - COVERAGES

COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim for “suit” that may result. . . .

. . . .

b. This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory” . . . .

. . . .

COVERAGE B - PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “personal and advertising injury” to which this insurance does not apply. . . .

. . . .

b. This insurance applies to “personal and advertising injury” caused by an offense arising out of your business but only if the offense was committed in the “coverage territory” during the policy period.

(OSIC Policy, ECF No. 42-1 at 185, 190.) Section V of the OSIC Policy defines the policy terms, including “bodily injury, ” “occurrence, ” and “personal and advertising injury” as follows:

3. “Bodily Injury” means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.

. . . .

13. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

14. “Personal and advertising injury” means injury, including consequential “bodily injury”, arising out of [a listed offense.]

(Id. at 198-200.)

Ohio Security issued a Commercial General Liability Extension Endorsement that, among other things, replaced the definition of “bodily injury” with the following:

3. “Bodily Injury” means physical injury, sickness or disease sustained by a person. This includes mental anguish, mental injury, shock, fright or death that results from such physical injury, sickness or disease.

(Id. at 233.)

Ohio Casualty issued Commercial Umbrella Policy No. USO(20)55239179 to Two Towns for the policy period from September 24, 2019 to September 24, 2020 (the “Umbrella Policy”). (Chong Decl. Ex. B (“Umbrella Policy”), ECF No. 42-2.) The Umbrella Policy similarly provides coverage for “bodily injury, ” “property damage, ” “personal injury, ” or “advertising injury” caused by an “occurrence.” (Id. at 23.) The Umbrella Policy provides in relevant part:

I. COVERAGE

We will pay on behalf of the “Insured” those sums in excess of the “Retained Limit” that the “Insured” becomes legally obligated to pay by reason of liability imposed by law or assumed by the “Insured” under an “insured contract” because of “bodily injury, ” “property damage, ” “personal injury, ” or “advertising injury” that takes place during the Policy Period and is caused by an “occurrence” happening anywhere. . . . .

(Id. at 23.) Section V of the Umbrella Policy defines the policy terms, including “bodily injury” and “occurrence”:

C. “Bodily Injury” means physical injury, sickness, or disease, including death of a person. “Bodily injury” also means mental injury, mental anguish, humiliation, or shock, if directly resulting from physical injury, sickness, or disease to that person.

. . . .

J. “Occurrence” means:

1. as respects “bodily injury” or “property damage, ” an accident, including continuous or repeated exposure to substantially the same general harmful conditions[.]

(Id. at 28, 30.) In an endorsement to the Umbrella Policy, the definition of “bodily injury” in section C was amended to provide that: “‘Bodily injury' does not include ‘bodily injury' arising out of ‘personal and advertising injury.'” (Id. at 61.)

III. Tender of The Winters Complaint

On March 27, 2020, Two Towns tendered the Underlying Action to Ohio Security. (Chong Decl. Ex. C, ECF No. 42-3.) Defendants did not immediately accept or deny coverage, requiring Two Towns to hire outside counsel to respond. (Decl. Lee Larsen Supp. Pl.'s Mot. Summ. J. (“Larsen Decl.”) ¶¶ 3-6, ECF No. 40.) In an April 14, 2020 email Matthew Bougor, a senior claims resolution specialist with Ohio Security, responded to Two Towns' attorney Michael Merchant that he was aware that the Underlying Action had been served, that his initial review did not confirm coverage, and that secondary coverage review could take thirty days. (Chong Decl. Ex. C.) Bougor further stated that if coverage was ultimately confirmed, Ohio Security...