A federal judge from the Northern District of Georgia has granted the summary judgment motions of State Farm, eliminating any liability the insurance company may have to two golf companies that were embroiled in a legal dispute.
The biggest reason for court’s decision was that both the insured, King Sports, and the company that was suing the insured, Cleveland Golf, ignored State Farm, ultimately reaching a settlement on their own.
In December 2002, State Farm issued a business liability policy to King Sports.
Five years later, State Farm received notice of two separate lawsuits filed by Callaway Golf and Nike against King Sports for alleged trademark infringement of golf clubs and accessories. Through counsel hired by State Farm, King Sports settled both suits, paying Callaway $18,500 and Nike $17,500.
In June 2008, Cleveland Golf sent King Sports a cease-and-desist letter alleging that King Sports was violating Cleveland Golf’s trademarks by advertising and selling golf clubs that looked like clubs manufactured by Cleveland Golf. That same month, State Farm sent King Sports a reservation-of-rights letter informing King Sports that State Farm reserved its right to not defend or indemnify King Sports under certain policy exclusions. A few days later, State Farm sent another letter to King Sports, alerting its officers that it wanted to discuss the matter.
Despite Cleveland Golf’s cease-and-desist letter, King Sports continued to advertise and sell the allegedly infringing products. Consequently, on August 18, 2009, Cleveland Golf filed suit against King Sports, alleging direct trademark infringement, unfair competition, false advertising, trade dress infringement, trademark dilution, trademark counterfeiting, unfair and deceptive trade practices, violations of the Georgia anti-dilution statute, and common-law trademark infringement.
In early November 2009, State Farm sent King Sports a letter, which informed the company that (1) State Farm had hired attorney Bruce Hedrick to represent them in the underlying suit, and that (2) the policy required them to cooperate with State Farm in defending Cleveland Golf’s suit.
According to Hedrick, King Sports “completely failed to communicate with him, severely hampering his ability to defend (the insured) from the claims filed by Cleveland Golf.” State Farm fared no better in its attempts to contact the insured, according to the court.
“In January 2010, after receiving numerous extensions from the Court, Hedrick filed an answer in the underlying suit …,” wrote the court. “However, Hedrick testified that he did not feel that his answer was adequate and that its deficiencies were due to his inability to communicate with his clients.”
State Farm ultimately got wind of settlement talks between the two parties and sent a letter, which quoted a relevant portion of the policy: “Except at their own cost, no insureds will voluntarily make a payment, assume any obligation or incur any expense, other than for first aid, without our consent.”
Nevertheless, the parties moved forward and reached a settlement, consenting to a judgment of $1,000,000, “a decidedly larger sum than Cleveland Golf had negotiated in prior settlement agreements with other alleged infringers in similar cases,” noted the court. “In fact, over the prior ten years, Cleveland Golf settled approximately fifty cases against alleged infringers; in none of those settlements was the amount to be paid more than $10,000. As part of the settlement agreement, King Sports assigned to Cleveland Golf any claims that King Sports might have against them under the policy.
“Despite knowing that State Farm’s policy with King Sports required State Farm’s approval of any settlement, Cleveland Golf did not inform State Farm of the agreement, much less obtain State Farm’s consent.”
Prior to that settlement, on January 15, 2010, State Farm filed a complaint for a declaratory judgment against King Sports and Cleveland Golf, seeking a declaration that its policy does not provide (the insured) coverage for any liability incurred by King Sports (1) that does not arise from an ‘occurrence’ as defined by the policy, or (2) for any claims encompassed within the policy’s exclusions.” In addition, State Farm sought a declaration that it “owed no coverage” whatsoever to the insured since King Sports “failed to abide by, satisfy, comply with or fulfill the duties” associated the policy’s “general conditions.”
State Farm’s winning argument hinged on King Sports’ lack of cooperation with the company. St. Paul Fire & Marine Ins. Co. v. Gordon, 116 Ga. App. 658, 660, 158 S.E.2d 278, 279 (1967); see also S. Mut. Ins. Co. v. Mason, 213 Ga. App. 584, 588, 445 S.E.2d 569, 572 (1994) (‘It is well established that the insured has a duty to cooperate with his insurer in all aspects of a lawsuit and to make a full, fair, complete, and truthful disclosure of all facts relating to the [incident].’).”
Agreeing with State Farm, the court wrote that the insured “had no substantive communication with State Farm or Hedrick regarding the lawsuit despite Hedrick’s multiple attempts to gain information.”
The court was unmoved by Cleveland Golf’s argument that State Farm “must show a ‘total failure’ to cooperate in order to obtain summary judgment.” Even with some cooperation, King Sports “never provided Hedrick with any substantive information regarding the underlying suit,” wrote the court. The insured “had a duty to cooperate throughout the course of the entire suit, and the undisputed evidence shows that they utterly failed to do so.”
State Farm Fire & Casualty Company v. King Sports, INC., Jui-Chen Chang, and Roger Cleveland Golf Company, INC.; N.D. Ga.; CIVIL ACTION FILE NUMBER 1:10-cv-131-TCB, 2011 U.S. Dist. LEXIS 140441; 12/7/11.
Attorneys of Record: (for plaintiff) Douglas Lee Clayton, LEAD ATTORNEY, Swift, Currie, McGhee & Hiers, LLP, Atlanta, GA; Maren R. Cave, LEAD ATTORNEY, Swift Currie McGhee & Hiers, Atlanta, GA. (for defendants) Christopher S. Finnerty, Jeffrey Patterson, LEAD ATTORNEYS, PRO HAC VICE, Nelson Mullins Riley & Scarborough-MA, Boston, MA; M. Maran White, Matthew Brian Lerner, LEAD ATTORNEYS, Nelson Mullins Riley & Scarborough-ATL, Atlanta, GA. Douglas Lee Clayton, LEAD ATTORNEY, Swift, Currie, McGhee & Hiers, LLP, Atlanta, GA; Maren R. Cave, LEAD ATTORNEY, Swift Currie McGhee & Hiers, Atlanta, GA.
