In DEL MONTE FRESH PRODUCE v. TRANSPORTATION INSURANCE CO, 2007 WL 2484951 (C.A.7 (Ill.)), Del Monte sought coverage due to a series of consumer class actions filed against the insured claiming fraud and violations of the antitrust laws. According to the complaints, Del Monte misrepresented patent information alleging that a new pineapple variety was “extra sweet” and differed from other varieties. Del Monte is alleged to have disseminated misrepresentations through industry publications and sued competitors for patent infringement, even though it knew that claims about the extra-sweetness of its new pineapple were false. Eventually, Del Monte withdrew the patent and settled the infringement lawsuits. The customer's alleged injuries accrued during the period of time when Del Monte had a monopoly in an alleged market for extra-sweet pineapples. Each complaint is based on allegations that Del Monte knowingly submitted fraudulent patent applications, knowingly sent false letters to competitors regarding its patent rights, and knowingly engaged in fraudulent patent litigation.
Del Monte tendered the complaints to Transportation, seeking coverage under its policy. Transportation rejected them on two bases: (1) the class actions did not arise from “advertising injury” or “personal injury” under the policy; and (2) the class actions were excluded from coverage because they alleged fraud. Del Monte then filed this action for a declaratory judgment establishing Transportation's duty to defend and indemnify it under the policy. Following discovery, both parties moved for summary judgment. The district court granted Transportation's motion. Del Monte had argued that the “knowledge of falsity” exclusion does not apply because the policy, did not exclude coverage for intentional acts but only for the narrower set of acts that are done with knowledge of falsity. Transportation argued that if Del Monte knows that something is wrong and does it anyway, it should not have the right to demand that Transportation pick up the pieces. The district court agreed.
On appeal, the circuit court said that, in a duty-to-defend action, the deck is stacked in favor of the insured. “[A]llegations of the underlying complaint must be construed liberally, and any doubt as to coverage must be resolved in favor of the insured.” “If the facts alleged in the underlying complaint fall within or potentially within, the policy's coverage provisions, then the insurer has a duty to defend the insured.” The court's task is to evaluate the allegations to see whether the district court correctly concluded that the policy does not cover them. A complaint that is “barren of any mention of negligence, inadvertence, error, or mistake, or anything even implying such conduct would not escape an exclusion clause like the one Transportation issued here. The complaint must be read as a whole to assess its true nature. “Phrases such as 'mislead and conceal,' 'scheme or device,' and 'intentionally and willfully' are the paradigm of intentional conduct and the antithesis of negligent actions. Implied claims can be ignored. If “knowledge of falsity” was not proved, there was a duty to defend.
The appeals court found that Del Monte actively sought to defraud its competition through a series of letters. This can be read only as a specific allegation of fraudulent and knowingly false statements; there is no charge of negligence or mistake. This allegation of fraud is essential to the plaintiffs' claim. These are specific allegations of fraud, with no alternative negligence theory. Each complaint is based on fraud or knowingly false acts. Not one could lead to relief on a showing of negligent conduct alone.
Del Monte claims that plaintiffs' allegations do not require a finding of knowledge of falsity in order to be proved. However, that reading is precluded by the allegations in the complaints that the false and misleading letters are part of a knowingly fraudulent scheme; they do not seek any relief based on the contents of the letters. Del Monte does not point to a single factual allegation that is not a part of a specific allegation of fraud and that does not use the language of the “paradigm of intentional conduct.” The complaints at issue in this case fall squarely within the exclusion in the policy for personal or advertising injury if the injury arose out of statements made by the insured (or at its direction) with knowledge of falsity.
The conduct at issue was not Del Monte's advertising; it is Del Monte's fraudulent conduct to undermine its competitors' advertising. Because the allegations specifically charge fraudulent conduct and an underlying fraudulent scheme, there is no duty to defend under the policy. The ruling of the district court is affirmed.