The 9th U.S. Circuit Court of Appeals has handed the sports card maker Upper Deck Company a defeat when it affirmed a trial court’s ruling that the company’s insurer was not obligated to defend Upper Deck because the company’s legal claim had nothing to do with a “bodily injury.”
Rather, Upper Deck was accused in a class action lawsuit of randomly inserting valuable cards in packs of trading cards, which amounted, the plaintiffs alleged, to illegal gambling and a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) and California law.
The plaintiffs charged specifically that they had “’been injured in their business or property’ as a direct and proximate result of Upper Deck’s violations of 18 U.S.C. §§ 1962(b) and (d).” They “sought treble damages, attorney’s fees, declaratory relief, injunctive relief, restitution, and disgorgement of Upper Deck’s improper gains.”
Over the years, Upper Deck’s arrangement with Federal included successive primary and umbrella commercial general liability policies. The terms of each renewed primary policy were “virtually identical” and provided in part:
“We will pay the damages the insured becomes legally obligated to pay by reason of liability imposed by law or assumed under an insured contract because of:
bodily injury or property damage caused by an occurrence; or personal injury or advertising injury to which this insurance applies.
This insurance applies:
1. to bodily injury or property damage which occurs during the policy period; and
2. to personal injury or advertising injury only if caused by an offense committed during the policy period.
We will defend any claim or suit against the insured seeking such damages. We will pay in addition to the applicable limit of insurance the defense expense.”
Upper Deck sought coverage from Federal for the RICO suit, while the insurance company refused. The dispute escalated to federal court, where Upper Deck filed a breach of contract claim. The district court sided with Federal, prompting the appeal.
The 9th Circuit concluded that “the plaintiffs in the underlying suit do not allege the type of damages covered by the policy. To support a finding of potential liability, the plaintiffs would need to allege new facts of bodily injury. Mere speculation that the plaintiffs could or will allege such facts does not give rise to a duty to defend.” The Upper Deck Co. v. Federal Insurance Co., No. 02-56081
9th Cir., 1/12/04
