Foster Farms, LLC v. Everest National Insurance Company

Background

This insurance-coverage dispute concerned Foster Farms, LLC and Foster Poultry Farms, collectively referred to as Foster, and Everest National Insurance Company. Foster had been sued in antitrust litigation involving broiler chickens. When Foster later faced antitrust suits concerning turkey products, it sought coverage under an Everest policy that included antitrust coverage but contained a Specific Matter Exclusion (SME) concerning the earlier chicken antitrust suits.

The SME excluded claims based on, arising from, or attributable to the chicken suits; claims alleging the same or substantially the same wrongful acts, facts, circumstances, or situations; and claims related directly or indirectly to an interrelated wrongful act alleged in the chicken suits. The policy defined an interrelated wrongful act as a fact, circumstance, act, or omission alleged in the listed events, or a wrongful act that was the same as, similar to, related to, or a repetition of one alleged in those events.

Foster notified Everest of the turkey litigation. Everest denied coverage, concluding that the SME applied. Foster sued for breach of contract and declaratory relief, seeking a ruling that the SME did not apply and that Everest had to advance defense costs. Everest counterclaimed for a declaration that the policy did not cover the turkey suits and that it had no duty to defend or advance costs.

Parties’ Motions and Arguments

Everest moved for summary judgment on Foster’s claims and its counterclaim. Foster filed a cross-motion for partial summary judgment on the declaratory-judgment claims. Foster argued that the chicken and turkey lawsuits involved different markets, objectives, classes of plaintiffs, alleged acts, and decision-makers. Everest argued that the suits were substantially the same because both alleged that poultry producers used Agri Stats information to coordinate production reductions and increase prices.

Court’s Analysis

The court applied California contract law. It held that the SME’s terms were not ambiguous. The court interpreted “based upon,” “arising out of,” and “attributable to” broadly but concluded that some causal or incidental connection was still required. The turkey suits did not originate from, grow out of, flow from, or have a sufficient causal connection with the chicken suits. Although both sets of lawsuits alleged use of Agri Stats reports and coordinated production reductions, the alleged conduct in the turkey market could have occurred independently of the alleged conduct in the chicken market.

The court also held that the turkey suits did not allege the same or substantially the same wrongful acts, facts, circumstances, or situations as the chicken suits. The lawsuits involved different products, markets, reports, time periods, production-reduction methods, actors, facilities, purchasers, and alleged results. The court concluded that a layperson would not understand the two sets of lawsuits to be the same or substantially the same.

The court further held that the turkey suits were not “related” to the chicken suits within the policy’s meaning. Under California law, related claims may have a logical or causal connection, including being part of a single course of conduct or plan, or causing the same injury. Here, the alleged chicken-related conduct affected chicken purchasers and sought increased profitability in the chicken market, while the alleged turkey-related conduct affected turkey purchasers and sought increased profitability in the turkey market. The court found separate products, separate alleged injuries, distinct wrongful acts, and independent business decisions. The suits therefore were not logically or causally related under the SME.

The court added that even if the SME were ambiguous, California law would require an ambiguous exclusion to be interpreted narrowly against the insurer and in favor of the insured’s objectively reasonable expectations. Under that alternative analysis, the court also concluded that the SME would not exclude coverage for the turkey suits.

Ruling

Judge William H. Orrick granted Foster’s motion for partial summary judgment and denied Everest’s motion for summary judgment. The court declared that the policy did not preclude coverage for the turkey antitrust suits, that Everest had a duty to reimburse Foster for past costs, and that Everest had an ongoing obligation to defend the suits up to the policy limit.

The court stated that the order resolved all issues in the case and directed Foster to prepare a proposed judgment. A footnote states that Foster’s breach-of-contract claim was mooted by the order.