Travelers Prop. Cas. v. Com

• Decision Date: 12 March 2010
• Docket Number: No.09-5136.,No. 09-5113,09-5113,09-5136.
• Citation: 598 F.3d 257
• Parties: TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, fka The Travelers Indemnity Company of Illinois; Travelers Casualty & Surety Company, fka The Aetna Casualty & Surety Company, Plaintiffs-Appel-Iees/Cross-Appellants, v. HILLERICH & BRADSBY COMPANY, INC., Defendant-Ap-pellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

598 F.3d 257

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, fka The Travelers Indemnity Company of Illinois; Travelers Casualty & Surety Company, fka The Aetna Casualty & Surety Company, Plaintiffs-Appel-Iees/Cross-Appellants, v. HILLERICH & BRADSBY COMPANY, INC., Defendant-Ap-pellant/Cross-Appellee.

No. 09-5113

No.09-5136.

United States Court of Appeals Sixth Circuit.

Argued: Jan. 20, 2010.

Decided and Filed: March 12, 2010.

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ARGUED: Merrill S. Schell, Wyatt Tarrant & Combs, LLP, Louisville, Kentucky, for Appellant. Robert G. Kamenec Plunkett Cooney, Bloomfield Hills, Michigan, for Appellees. ON BRIEF: Merrill S. Schell, Wyatt, Tarrant & Combs, LLP Louisville, Kentucky, for Appellant. Robert G. Kamenec, Plunkett Cooney, Bloomfield Hills, Michigan, James R. Lilly Plunkett Cooney, Detroit, Michigan, for Appellees.

Before: SILER, MOORE, and CLAY, Circuit Judges.

OPINION

CLAY, Circuit Judge.

Plaintiffs, Travelers Property Casualty Company of America and Travelers Casualty & Surety Company (together "Travelers"), and Defendant, Hillerich & Bradsby Co., Inc. ("Hillerich") cross-appeal a series of orders entered by the United States District Court for the Western District of Kentucky resolving cross-motions for summary judgment. First, the district court ruled that Travelers has a right to seek reimbursement for settlement costs paid in the underlying litigation and that the underlying litigation did not include a disparagement claim at the time of settlement. The district court also ruled that Travelers' duty to defend Hillerich began with the First Amended Complaint filed on November 8, 1999. Pre-judgment interest was awarded to Travelers at 8% simple interest and no pre-judgment interest was awarded to Hillerich. For the reasons set forth below, we conclude the district court's orders should be AFFIRMED in their entirety.

I

A. Procedural History

This dispute began with a different litigation involving Baum Research and Development Co., Inc. ("Baum"), and Hillerich. That litigation (the "Baum Litigation") involved several claims alleging antitrust violations and tortious interference with contract and with other business relations. Hillerich was one of several defendants in that case, Baum Research and Development Co., Inc. v Hillerich & Bradsby Co., et al., No. 9872946 (E.D.Mich.). Hillerich sought insurance coverage and defense assistance from Plaintiff, Travelers, for the Baum Litigation. Travelers initially denied coverage and refused to defend Hillerich but after a Second Amended Complaint was filed by Baum, Travelers began providing a defense to Hillerich.

At the conclusion of the plaintiffs case in the Baum litigation, a settlement was negotiated. Travelers requested that Hillerich agree to a right of reimbursement for any settlement funds that were later determined to cover claims that would not fall under Travelers' insurance coverage, which Hillerich refused. Travelers contributed Hillerich's funds to the settlement anyway, and then filed this action initially in the Eastern District of Michigan. The case was transferred upon motion of Hillerich to the Western District of Kentucky.

In this litigation, Travelers sought reimbursement for their settlement contribution which necessitated a ruling that the settlement did not include a "disparagement" claim that would have been covered by the insurance policy. Hillerich counterclaimed for defense costs from the start of the Baum Litigation, arguing Travelers breached its duty to defend from the inception of the lawsuit.

On cross-motions for summary judgment, the district court made the following rulings in several separate orders as the litigation progressed: 1) Travelers could seek reimbursement despite no express consent from Hillerich; 2) The Baum Litigation settlement did not include a "disparagement" claim and so Travelers was entitled to reimbursement; 3) Travelers breached its duty to defend because it should have entered the litigation upon the November 8, 1999 filing of Baum's First Amended Complaint; 4) Travelers is entitled to simple pre-judgment interest for the reimbursement funds while Hillerich is entitled to no pre-judgment interest for its defense costs. Both parties timely appealed these rulings.

B. Factual History

1. The Baum Litigation

The Baum litigation was originally filed on July 11, 1998 in the Eastern District of Michigan alleging that Hillerich and several other defendants had engaged in antitrust violations, tortious interference with contract, and tortious interference with prospective advantage. Hillerich points to allegations related to the final claim in which Baum alleges that defendants engaged in a conspiracy to "misrepresent information... that related to the accuracy of the Baum Hitting Machine or the characteristics of the Baum Bat." (Dist. Ct Doc. No. 59, Ex. A, Baum Compl. ¶ 141). Upon a motion to dismiss filed by all defendants, the district court ruled on November 19, 1998 to dismiss the antitrust claims and to grant leave to amend to Baum regarding the remaining claims. Baum filed a motion for reconsideration on December 4, 1998 to which it attached as an exhibit "Plaintiffs First Amended Complaint" containing amended versions of the tortious interference with prospective advantage claim and the dismissed antitrust claims.

The judicial panel on multidistrict litigation transferred the Baum, litigation to the District of Kansas on December 9, 1998 and that court denied Baum's motion for reconsideration as to the antitrust claims on October 29, 1999. Baum then filed its First Amended Complaint containing only the tortious interference with prospective advantage claim on November 8, 1999. That claim included the following allegations:

Recently Easton [another Defendant]... has embarked on a program to falsely disparage the effectiveness of the Baum Testing Machine in correspondence to college coaches and institutions.... These acts perpetuated the consequences caused by the conspiracy. Defendants... interfered with Baum's business opportunity and expectancy and with Baum's efforts to market the Baum Bat and license use of the Baum Hitting Machine by unethically, unlawfully, fraudulently, and with legal malice, intentionally committing the following acts:

Easton falsely described the results of tests performed on the Baum Hitting Machine... and broadcast handwritten notes and typed materials containing false descriptions of these tests to the NCAA Baseball Rules Committee and to a large number of college and high school baseball coaches....

As a direct and proximate result of [Defendants'] interference with Baum Research's business relationships and prospective economic advantage, through improper means including but not limited to fraudulent misrepresentations, Baum Research has been damaged....

(Dist. Co. Doc. No. 59, Ex. B, Baum First Am. Compl. ¶¶ 71, 78-79).

The case was then transferred back to the Eastern District of Michigan. Baum sought and was granted leave to further amend its complaint and filed a Second Amended Complaint on January 9, 2001. This complaint included the language regarding the tortious interference claim alleging fraudulent misrepresentation of information, specifically using the words "falsely disparage" in reference to the defendants' actions. (Dist. Ct. Doc. No. 58, Ex. A, Baum Second Am. Compl. ¶ 51).

Ultimately the Baum litigation proceeded to trial, which continued into 2005. Settlement negotiations were ongoing throughout trial, and on March 18, 2005 the parties settled after the close of Baum's case-in-chief. Hillerich's portion of the settlement was $500,000.

2. The Relationship Between Travelers and Hillerich

At all relevant times, Hillerich had insurance through Travelers under several Commercial General Liability policies. The claims in the Baum litigation potentially invoked coverage under Coverage B Personal and Advertising Injury Liability. The policy covers personal injury "caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you" and advertising injury "caused by an offense committed in the course of advertising your goods, products or services." (Dist.Ct.Doc. No. 58, Ex. C, Ins.Contract, 4). The covered offenses include "[o]ral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services." (Id. at 9-10). The policy also has a falsity exclusion whereby such offenses done by the insured with the knowledge of the information's falsity were not covered.

Travelers initially notified Hillerich that it was declining coverage based on its review of the original Baum Litigation complaint due to a lack of a specific enumerated offense and a lack of any claimed personal or advertising injury. This notification was on September 7, 2000 though Hillerich had notified Travelers of the litigation on March 19, 1999 by providing the December 4, 1998 draft First Amended Complaint. Hillerich did not tender the First Amended Complaint, which was filed on November 8, 1999, to Travelers until December 22, 2000. The record does not reveal when Travelers learned of the Second Amended Complaint. However, upon review of the second amended complaint, Travelers notified Hillerich on May 21, 2001 that it would fund Hillerich's defense from January 9, 2001 (the filing date of the Second Amended Complaint), noting that this version of the complaint used the term "disparage." Travelers noted that it was still reviewing whether the litigation involved a covered claim, stating in its letter that Hillerich's defenses costs would be funded "until such time that the availability of coverage could be more definitively determined." (Dist.Ct.Doc. No. 42, Ex. B, 1-2, 19). In a September 21, 2001 letter, Travelers reiterated its position that it

reserves any and all rights to contest coverage at a...