Umbrella coverage typically provides two types of coverage: excess coverage and gap-filling coverage, which obligates the insurer to defend for any loss covered by the terms and conditions of the umbrella policy and not covered by the primary policy. In Dairy Road Partners v. Island Ins. Co., Ltd., 92 Hawai`i, 992 P.2d 93 (2000), the Hawaii Supreme Court found there was no duty to defend under a commercial umbrella policy that was excess to an auto policy. The Hawaii Supreme Court has not analyzed the reach of umbrella policy since Dairy Road.
In a recent decision by the Seventh Circuit, the court determined the insured was not entitled to coverage under its umbrella policies. See BASF AG v. Great American Assurance Co. , No. 06-3938 (April 14, 2008 7th Cir.). The insured manufactured, marketed and sold Synthroid, a synthetic thyroid drug. Before it was marketed, a study was commissioned to prove Synthroid was superior to competing synthetic thyroid hormones on the market. Instead, the study determined Synthroid and its competitors were bioequivalents and that all other synthetic hormones were as effective as Synthroid in treating thyroid diseases. The insured blocked publication of the study and continued to publicly maintain that Synthroid had no known bioequivalents.
When the Wall Street Journal revealed the results of the study, over 70 lawsuits were filed against the insured alleging the insured had wrongfully asserted monopoly control over the market for thyroid medication. The insured tendered the complaints to its primary insurers, who refused to defend. The insured notified its umbrella insurers, but reached a settlement in the underlying suits before the umbrella carriers could decide on coverage. The insured then sued its primary insurers and ultimately settled.
Subsequently, the insured sued its umbrella carriers for settlement and defense costs not covered by the primary policies in the underlying litigation. The district court found the umbrella insurers had breached their contractual duty to defend the underlying suits. Although the underlying complaints did not allege libel, slander, or disparagement, the district court determined the claims grew out of various disparaging, defamatory, and libelous statements, such as the claim that Synthroid was superior to other thyroid drugs. Such claims would fall under the umbrella policies definition of advertising injury.
The Seventh Circuit reversed. The underlying complaints were insufficient to sketch a claim for common-law slander, libel or disparagement. The complaints only allegedly actionable statements did not “disparage” thyroid patients but attacked other thyroid drugs as unsuitable bioequivalents of Snythroid.
