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Travelers Indemnity Co. v. United Food & Commercial Workers International Union

April 12, 2001


Before Wagner, Chief Judge, Ruiz, Associate Judge, and Belson, Senior Judge.

The opinion of the court was delivered by: Ruiz, Associate Judge

Appeal from the Superior Court of the District of Columbia

Hon. Brook Hedge, Trial Judge

Argued April 12, 2000

This case concerns an insurance company's duty to defend under provisions of several comprehensive general liability insurance policies. Appellee, United Food & Commercial Worker's International Union ("UFCW"), brought this insurance coverage action against appellant, Travelers Indemnity Company of Illinois ("Travelers"), seeking a declaration that Travelers is obligated to defend (and, potentially, to indemnify) the UFCW in two lawsuits filed against the union by Food Lion, Inc. ("Food Lion") which claim that the union for improper purposes encouraged an employee's suit against Food Lion that made false claims against the company. *fn1 UFCW alleged that Travelers breached its contractual duties under the insurance policy by refusing to defend the union or to pay its defense costs in those lawsuits, and had violated the implied covenants of good faith and fair dealing in connection with its handling of UFCW's claims for coverage. Travelers defended on the grounds that the Food Lion lawsuits did not come within the insurance policy's coverage and, even if they were covered, UFCW had failed to give Travelers timely notice of Food Lion's claims or tender the defense of the lawsuits.

The trial court considered cross-motions for partial summary judgment regarding Travelers' duty to defend UFCW in the first suit (the "1993 Food Lion suit"), and ruled in favor of the UFCW against Travelers. *fn2 The trial court found that a pleaded theory of recovery in the lawsuit, "abuse of process," was sufficiently similar to "malicious prosecution," an "offense" covered by the Travelers' policies, so as to trigger the insurance company's duty to defend. Because it found that Travelers had a duty to defend under the "malicious prosecution" provision, the trial court did not address the separate claim that Travelers had a duty to defend the UFCW under the "libel, slander, and disparagement" provision of the policy. The trial court rejected, as waived, Travelers' defense that UFCW had failed to give timely notice of its claim. The trial court denied Travelers' motion to alter or amend the judgment, and certified its decision as final pursuant to Super. Ct. Civ. R. 54 (b). *fn3 We affirm in part and reverse in part; we affirm the trial court's finding that the allegations in the complaint of the 1993 Food Lion suit state a cause of action within the coverage of the policy, albeit on the alternative ground that the complaint states a claim cognizable under the "libel, slander, and disparagement" provision; *fn4 we reverse the trial court's grant of summary judgment as premature because Travelers had not waived its affirmative defense of defective notice and should have been permitted limited discovery to establish that defense prior to consideration of summary judgment.

I. Statement of Facts

A. The Contracts

Travelers issued several primary and umbrella comprehensive general insurance contracts to the UFCW. The primary contracts provide that Travelers "will pay those sums that the insured becomes legally obligated to pay as damages because of 'personal injury' . . . to which this insurance applies." The contracts further provide that Travelers "will have the right and duty to defend any 'suit' seeking those damages." The contracts define "personal injury" as:

injury, other than 'bodily injury,' arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. Wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies;

d. Oral 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, or

e. Oral or written publication of material that violates a person's right of privacy.

The insurance contract requires that Travelers "receive prompt written notice of [a] claim or `suit,'" and that the UFCW "immediately send [Travelers] copies of any demands, notices, summonses or legal papers received in connection with the claim or `suit.'"

B. The Underlying Case

In February 1993, Food Lion sued UFCW in South Carolina state court for abuse of process, *fn5 alleging that UFCW secretly supported and encouraged a lawsuit brought against Food Lion by a former employee named Rickey Bryant. *fn6 Food Lion alleged that UFCW controlled the Bryant case "for the ulterior purpose of inflicting economic harm on [Food Lion] to erode [Food Lion's] business as much as possible, divert management attention, create doubt about management's bona fides, and ultimately destroy the reputation of [Food Lion]." Food Lion further alleged that the allegations in the Bryant litigation were "non-privileged" and "demonstrably false," and that UFCW engaged in various "willful acts in its use of the process, not proper to the regular conduct of the proceedings," including "[u]tilizing discovery . . . as a pretext to develop evidence and other information for collateral purposes," thus causing Food Lion "to expend grossly disproportionate amounts of time and resources relative to [the] damages claimed."

C. Tender of Defense

On February 17, 1993, UFCW notified its insurance broker of the Food Lion action, enclosing a copy of the complaint. One week later, Travelers received a letter from the broker enclosing UFCW's February 17 letter and the Food Lion complaint. Travelers subsequently acknowledged that it had received the complaint in a letter which notified UFCW that it was researching the issue of coverage and would, after completing its research and analysis, thereafter advise the union of its views concerning its defense and indemnity obligations. In the meantime, the letter advised, UFCW was to do whatever was necessary to protect its interests in the litigation; UFCW had already hired local counsel to do so. In August 1993, UFCW's local counsel, David Flowers, informed Travelers that the United States District Court for the District of South Carolina had dismissed Food Lion's lawsuit, but that Food Lion had moved for reconsideration and leave to amend its complaint, enclosing copies of Food Lion's motion to reconsider and proposed amended complaint. The affidavit of Lionel Martin, who supervised liability claims for Travelers, states that "[s]ometime after" Travelers received the notice of the complaint's dismissal from Flowers, Martin spoke with Richard ...

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