Fair Isaac Corporation v. Certain Underwriters at Lloyd's

Background

Fair Isaac Corporation (FICO) brought an insurance-coverage action against Certain Underwriters at Lloyd’s, London Subscribing to Beazley AFB Media Tech Policy Number W100FC171201, Syndicates 2623 and 623 (Beazley). FICO alleged that Beazley breached its duty to defend FICO against consolidated class-action lawsuits pending in the Northern District of Illinois. Those lawsuits alleged that FICO engaged in anticompetitive conduct, charged monopoly prices, and used advertising and other communications to disparage VantageScore, a competing credit-score product.

The policy provided coverage for certain claims involving product disparagement and required Beazley to defend claims seeking damages payable under the policy or certain injunctions. The policy also excluded claims arising from actual or alleged antitrust violations, restraint of trade, unfair competition, false or misleading advertising, false or unfair trade practices, or violations of consumer-protection laws. A separate endorsement excluded claims connected to specified prior or pending litigation, but the court did not decide whether that endorsement applied.

Beazley had agreed to defend FICO in an earlier lawsuit brought by TransUnion after initially denying coverage. Beazley treated that lawsuit and the later lawsuits as a single claim under the policy’s related-claims provision but denied coverage for the later lawsuits. FICO argued that the earlier defense triggered a duty to defend the later lawsuits as well. Both parties moved for summary judgment, meaning they asked the court to decide the case without a trial because they agreed there were no material factual disputes.

Court’s Analysis

The court applied New York law because the parties agreed that the policy’s choice-of-law provision required it. Under that law, an insurer generally must defend when the allegations suggest a reasonable possibility of coverage. The insurer bears the burden of proving that a clear exclusion applies and that the allegations fall entirely within that exclusion.

The court first held that treating the TransUnion lawsuit and the consolidated lawsuits as a single claim did not, by itself, extend Beazley’s duty to defend. The related-claims provision primarily determined matters such as which policy applied, the applicable limits, and the applicable retention, or deductible. FICO’s coverage claim for the consolidated lawsuits therefore had to be evaluated independently based on those lawsuits’ allegations.

The court found that the consolidated complaints alleged facts involving product disparagement, even though the underlying plaintiffs did not assert a separate cause of action for product disparagement. The policy language was at least ambiguous about whether coverage required a formal product-disparagement claim or allegations directed at the underlying plaintiffs’ own products. Reading the ambiguity in FICO’s favor, the court determined that FICO made a preliminary showing that the allegations could potentially fall within the policy’s coverage.

The court nevertheless concluded that Beazley met its burden to establish that the antitrust and consumer-protection exclusions applied. The underlying plaintiffs asserted claims under the Sherman Act, state antitrust laws, state consumer-protection laws, and unfair or deceptive trade-practices laws. The indirect purchasers also asserted unjust-enrichment claims based on alleged monopoly pricing. The court found that the product-disparagement allegations merely supported those excluded claims and that the alleged disparagement concerned a third party’s product rather than the underlying plaintiffs’ own products. As a result, the claims arose from or resulted from the excluded antitrust and consumer-protection conduct.

The court also rejected FICO’s argument that this interpretation made the policy’s coverage illusory. The policy could still cover product-disparagement claims that did not arise from excluded antitrust or consumer-protection conduct, such as the earlier TransUnion lawsuit, where the alleged disparagement concerned the plaintiff’s own product.

Indemnification and Disposition

Beazley argued that the absence of a duty to defend necessarily meant there was no duty to indemnify. FICO argued that indemnification should not be decided until liability was determined in the underlying lawsuits. The court held that deferring the indemnification issue would be appropriate when the duty to defend had been triggered, but not here. Because the court found no duty to defend, it included FICO’s indemnification claims in the summary judgment.

Judge Eric C. Tostrud ordered that FICO’s motion for partial summary judgment on Beazley’s alleged breach of the duty to defend was denied. The court granted Beazley’s motion for summary judgment and directed that judgment be entered accordingly. The court stated that the ruling would not prejudice FICO’s ability to enforce its rights if circumstances in the consolidated lawsuits materially changed so that a reasonable possibility of coverage arose.