Why it matters 

We’ve all sat through some pretty boring PowerPoint presentations. But the lesson from a recent decision: it might be a good idea to keep your talking points relatively tame or face a coverage battle with an insurer as a result of a multi-million dollar defamation lawsuit filed by a competitor. Labeling toe-tags of body bags with the names of competitors landed a drug testing company in federal court, facing charges of defamation. Adding to the problem, the company’s insurer argued that the suits were not covered by the policy’s “personal or advertising injury” provision. The court sided with the policyholder, however, finding the allegations in the underlying complaint (that a competitor sold “bad science” and harmed patients) were potentially disparaging and therefore fell within coverage.

Detailed Discussion

A diagnostics laboratory providing specialty testing services, Millennium Labs offers urine drug testing to identify the presence or absence of medications, illegal drugs, or other substances in a patient’s system. Millennium purchased a general liability policy from Darwin Select Insurance Company that included coverage for “personal and advertising injury.”

The provision defined such as injuries as “injury, other than bodily injury, arising out of … [o]ral or written publication, in any manner, that slanders or libels a person or organization or disparages a person’s or organization’s goods, product or services.”

In 2011, a competitor of Millennium, Ameritox Ltd., filed multiple lawsuits alleging causes of action like false advertising, unfair competition, and tortious interference, as well as violations of state consumer protection statutes. Specifically, Ameritox alleged that Millennium was engaged in a scheme to cause the destruction of Ameritox and that “Millennium’s general counsel…gave a PowerPoint presentation to a gathering of Millennium’s nationwide sales representatives which included a slide with a graphic of a target over Ameritox’s name. On a follow-up slide, Ameritox’s name was displayed in a body bag with a toe-tag hanging from it.”

In separate litigation brought by Millennium against Calloway Laboratories, another competitor, it filed a counterclaim making similar allegations about a Millennium PowerPoint presentation.

Millennium tendered its defense request to Darwin but the insurer denied coverage, arguing that the underlying actions did not allege personal or advertising injury under the policy.

But U.S. District Court Judge Marilyn L. Huff agreed with Millennium that the suits created a potential for coverage under the terms of the policy. When the insured tendered its claim for coverage of both actions, it included language from the complaint with allegations that Millennium “engaged in a concerted plan to ‘attack’” competitors and instructed sales reps to do likewise.

“Based on this information, Darwin could have determined that the underlying actions fell within the policy’s coverage of claims based on disparagement of an organization’s goods, products, or services,” the court said. Millennium further produced the notes used during the PowerPoint presentation with a sales pitch to be repeated by sales reps, including comments like “I don’t want Ameritox’s money. I want to help you drive them out of business in 2012. They have nothing to sell against us but bad science and illegal inducements.”

“These comments disparage Ameritox’s products and services,” Judge Huff wrote, demonstrating that the underlying claims may fall within policy coverage. A similar showing was made for the Calloway action.

Darwin’s attempt to evade coverage based on an exclusion for “Related Acts Deemed Single Act” also failed. A general assertion that the PowerPoint presentations were part of “the same alleged scheme” was insufficient to sway the court, which held that Darwin did not provide evidence to show that the comments constituted a “same or related act.”

Judge Huff granted Millennium’s motion for summary judgment, finding that Darwin breached its duty to defend the underlying lawsuits.

To read the order in Millennium Laboratories, Inc. v. Darwin Select Insurance Co., click here.