In insurance law, as in many other areas, context is (or should be) important, so lets start by adding some context to the title of this post. On June 18, 2010 the Supreme Court of Appeals of West Virginia filed its decision in favor of CGL and Umbrella insurers in Mylan Laboratories, Inc v. American Motorists Ins. Co., a case involving coverage for underlying complaints alleging antitrust violations and fraud in the marketing of generic pharmaceuticals. A link to the decision appears here.
Use of the adverb “Discriminatingly” next to the verb “Decided” in the title of this post is both an homage to the old school context of “discriminatingly” i.e. with good judgment or judiciously, and a foreshadowing of the decision itself, in which the court considered and rejected Mylan’s argument that alleged “price discrimination” was covered under Personal and Advertising Injury Coverage which expressly included the undefined term “discrimination.” In other words, the court considered the context of the coverage in which the word “discrimination” appeared, which included “false arrest,” “malicious prosecution,” “slander” etc. and found that in the context of Personal Injury coverage, “discrimination” was not ambiguous and was limited. The court noted:
[T]he term “personal injury” in the Federal policies is defined by offenses against the liberty, emotional well-being, reputation, or peaceful possession of property of the plaintiff as opposed to economic injury. These offenses include false arrest; malicious prosecution; wrongful eviction from, entry into, or invasion of the right of occupancy of one’s property; slander and libel; and violation of the right of privacy. In this context, the term “discrimination” ordinarily would be understood to mean the type of discrimination based on personal characteristics….
In making this common sense distinction, the court expressly rejected the reasoning of the Seventh Circuit in Federal Ins. Co. v. Strohs Brewing Co., 127 F.3d 563 (7th Cir. 1997) which found coverage under similar language for underlying claims of price discrimination in the wholesale beer market. The Seventh Circuit in Strohs adopted a strained iteration of the common sense “reasonable expectations” doctrine. It reasoned:
Because the term “discrimination” is not defined in the policy and because price discrimination suits such as [the instant one] are common in the beer industry, it is not objectively unreasonable for Heileman to have believed that it was purchasing coverage for just such a suit [as the instant one].
The suggestion in Stroh, that insureds (and presumably insurers) would believe that frequent suits among market participants for unfair competition are commercially insurable, is either naïve or disingenuous, and seems strained when the entirety of the CGL policy with its several “business risk exclusions” is considered.
The Supreme Court of West Virginia’s application of “reasonable expectations” puts the doctrine in its proper context:
Finally, we believe that it is significant that the term “discrimination” appears in the “personal injury” section of the Federal policy. Given this fact, it is difficult for this Court to believe that Mylan reasonably believed when it purchased the Federal policies that it was purchasing coverage for injuries arising from the marketing of a fraudulent pricing scheme.
No doubt, there was a time when “the insurer loses” was the principal rule of construction in many jurisdictions. Increasingly, however, courts are examining the context of the insureds business, the uninsurable nature of certain risks and the nature of the conduct for which the insured seeks recovery in determining the parties reasonable expectations.