Denial of Insurance for Consumer Fraud/Lanham Act Claims: Blaming the Product, Not the Advertising?
UPDATE: For those interested in reviewing the Axis policy discussed in the motion, it can be linked here.
I'm often asked in my practice about the availability of insurance coverage for claims by consumers or competitors that products are deceptively labeled, marketed or advertised. Those interested in the topic should follow the litigation between Welch Foods, Inc. and its insurers regarding coverage for the putative consumer fraud and the Lanham Act claims asserted against Welch’s over the marketing of its pomegranate-containing juice products.
No rulings have been issued as of yet. But one of Welch's insurers, AXIS Surplus Insurance Company, has taken the interesting position that the "Media Wrongful Act" coverage in its policy provides no coverage. According to Axis's Motion for Summary Judgment, "[i]n a covered Media Wrongful Act claim, the Loss arises from, and is actionable based on, the creation or dissemination of the advertising."
Axis argues that the underlying claims that Welch's marketing of its product created "confusion, deception and mistake in the pomegranate juice market" are not covered under the Media Wrongful Act coverage because "the POM Complaint does not allege that Welch’s liability results from a media liability — i.e., a harm created by the creation or dissemination of Welch’s advertising — but from a liability resulting from the sale of juice which does not live up to such advertising." Axis explains further that "if the product conformed to the standards set forth in the advertisements, the putative class would not have a claim against Welch’s."
How is Axis's reasoning not circular? Can't Welch's argue the reverse in an equally compelling way: That had the putative class or competition believed that the advertising conformed to the product, there would be no claims against Welch's?
Indeed, isn't the counter to Axis's "blame the product argument" more compelling because claims against the labeling of the product itself are subject to federal preemption, and, therefore, they could not be brought by the putative class or the competition? The putative class and competition can ONLY bring claims related to the advertising and marketing.
Court Cuts Back Claims In Great Pomegranate Dispute
By Guest Blogger Jay Eckhardt
In a dispute over product labeling and marketing, the Coca-Cola Company avoids liability as a result of its careful compliance with FDA rules. (Also, see Rick's post from last week, regarding Coca-Cola's victory in a dispute over its original formula label found on Coke® Classic.) But pomegranate champion POM Wonderful can still pursue a Lanham Act deceptive advertising claim against the company.
On May 5 the U.S. District Court for the Central District of California issued summary judgment orders that cut out two of POM's claims against Coca-Cola's "Minute Maid Enhanced Pomegranate Blueberry Flavored 100% Juice Blend." (Download a copy of the Central District of California's Order here.)
The court acknowledged that consumers have griped about the emphasis on pomegranate and blueberry in the Minute Maid product labeling and advertising. (See Ken's post about a consumer class action concerning Tropicana's pomegranate blueberry juice blend here.) Still, the court agreed with Coca-Cola that POM could not bring a Lanham Act claim challenging the product name, because the company complied with FDA labeling requirements. The Minute Maid product contains less than one-half of one percent (0.5%) pomegranate and blueberry juice, but the court determined that the name is compliant with FDA rules, which allow for product names that prominently cite ingredients that are less than prominent in volume. Because the label clearly notes that the juice is "flavored" with pomegranate and blueberry juice and that the juice is a "blend" of several juices, the court held that the name complies with applicable FDA regulations (21 C.F.R. §§ 102.33(c) and 101.22(i)(1)(i)).
A second claim raised by POM was thrown out by the court. POM sought restitution under California Business & Professions Code section 17200, which provides a cause of action for "Unfair Competition." The court dismissed this claim because "restitution" has been narrowly interpreted by the California Supreme Court, thus barring POM's claim for recovery of a "lost business opportunity." Among authorities cited for the decision to dismiss this claim, the court reported that POM's similar claims under California's Unfair Competition law, brought against Tropicana and Welch's, have recently been dismissed in separate actions.
A third claim survived Coca-Cola's summary judgment attack. POM may proceed under the Lanham Act to challenge the marketing and advertising for the "blueberry pomegranate" product. The court held that POM may attempt to prove at trial that advertising and marketing actually deceived customers, or that Coca-Cola willfully and intentionally misled customers with the marketing of its product.
As noted from the court's order, Coca-Cola is not the only target of POM's litigation strategy. Other juice makers, Tropicana and Welch's, have been the focus of POM's efforts to defend its niche. Ken reported on POM's challenge to Ocean Spray's pomegranate cranberry juice blend last August, when POM survived Ocean Spray's initial motion to dismiss all claims.
An inspired marketing campaign for POM's products, and its essential ingredient, helped build the pomegranate franchise. It's hard to say whether litigation against advertising and labeling practices of POM's pomegranate competitors will be effective. At the same time, there's no doubt that POM is well aware of the burdens of FDA labeling regulations – the company was one among 17 companies notified by the FDA last February that its product labeling and advertising did not pass muster. The FDA warned POM that its advertising was suspect, based on the health claims made on its web site about the benefits of pomegranate juice.
