Why it matters

Major League Soccer (MLS) scored on its insurer recently, when a New York judge ruled that an antitrust exemption in the league’s policy did not prohibit coverage for an underlying lawsuit making additional allegations. MLS faced a suit claiming the league engaged in antitrust and racketeering violations and conspired to put a soccer promoter out of business. MLS was forced to pay for its own defense in the case when insurer Federal Insurance Company refused to pay. In the league’s breach of contract suit, the court said a policy exclusion for antitrust claims was inapplicable and MLS was entitled to reimbursement for its defense costs. The underlying plaintiff would be able to succeed in its suit without proving anti-competitive conduct, the court said, even though the other claims referenced the antitrust claims.

Detailed Discussion

In 2006, ChampionsWorld LLC sued the United States Soccer Federation and MLS in federal court. The complaint contained a total of seven causes of action. The first three alleged various antitrust violations by the defendants, alleging that they worked together to drive ChampionsWorld, a soccer promoter, out of business through anticompetitive practices.

The other causes of action included racketeering activities, federal extortion in violation of the Hobbs Act, and unjust enrichment. Each of the causes of action incorporated all of the previous allegations in the complaint.

MLS provided notice to Federal of the suit and sought defense coverage under its policy, which provided for $5 million and an additional $1 million for defense costs. The insurer denied coverage, relying on the antitrust exemption, which read:

“No coverage will be available … for any Insured Organization Claim … based upon, arising from, or in consequence of allegations of price fixing, restraint of trade, monopolization, unfair trade practices or any actual or alleged violation of the Federal Trade Commission Act, the Sherman Antitrust Act, the Clayton Act, or any other federal statutory provision involving antitrust, monopoly, price fixing, price discrimination, predatory pricing or restraint of trade activities, and any amendments thereto or any rules or regulations promulgated thereunder or in connection with such statutes; or any similar provision of any federal, state, or local statutory law or common law anywhere in the world.”

MLS paid for its own defense in the case. The defendants won their summary judgment motion and the complaint was dismissed but the league said its defense costs exceeded the $6 million policy limit.

Reviewing the allegations in the complaint, New York Supreme Court Justice O. Peter Sherwood said the dispute centered on whether the racketeering and unjust enrichment claims “arise from” anticompetitive conduct. If so, then the policy did not provide for defense costs.

But the court answered in the negative. “Although the RICO and unjust enrichment claims incorporate by reference other causes of action that allege excluded anticompetitive conduct, the RICO and unjust enrichment claims do not depend on a finding of such conduct to succeed,” Justice Sherwood wrote. “As such, the exclusion does not apply. [Federal] owed a duty to defend MLS.”

The insurer failed to demonstrate that it would have been impossible for ChampionsWorld to succeed on any of its claims without proving anticompetitive conduct, the court said. Separate causes of action for Hobbs Act violations, for example, “could plausibly stand in the absence of any anticompetitive behavior. Merely because these causes of action also incorporate by reference the first through third causes of action (as is customary in drafting complaints), it does not follow that the racketeering causes of action ‘arise from’ anticompetitive conduct.”

Antitrust violations “appear to predominate but nonetheless are merely among multiple bases of liability,” Justice Sherwood concluded, denying Federal’s motion to dismiss.

To read the decision in Major League Soccer v. Federal Insurance Company, click here.