Failure to Conform Exclusion
March 4, 2013
The insurer brought an action seeking a declaration that its policies did not cover a class action lawsuit filed against the insured. This case is Westfield Insurance Company v. Robinson Outdoors, Inc., 700 F.3d 1172 (2012).
Robinson Outdoors marketed and sold camouflage products that, according to Robinson, would eliminate human scent so that wild game would not be able to detect a hunter's presence. Consumers who purchased these products brought class action lawsuits against Robinson, claiming that the products did not actually eliminate human odor. Robinson sought defense and indemnification from its insurer, Westfield.
Westfield denied coverage, saying that its general liability policies with Robinson did not cover the underlying lawsuits because the advertisements were first published before the policy period, and the claims were excluded under the failure to conform provision. The insurer then filed a declaratory judgment action seeking a ruling that it did not owe defense or indemnification to Robinson. The district court ruled in favor of the insurer and Robinson appealed.
On appeal, Robinson argued that the claims were within the policies' scope of coverage and that, even if coverage does not exist, Robinson is entitled to relief under the reasonable expectations doctrine. The appeals court assumed, without deciding, that the underlying claims are covered by the insurance policies. However, the court then said that the exclusion provision precludes coverage. The court ruled that the policies do not cover claims arising out of the failure of goods, products, or services to conform with any statement of quality or performance made in the insured's advertisements.
Robinson argued that the failure to conform exclusion was ambiguous but the court stated that insurance policy provisions are ambiguous only when they are reasonably subject to more than one interpretation. In this instance, the court found that Robinson did not articulate how the failure to conform exclusion is subject to multiple interpretations. In fact, the court found that the exclusion directly applies to Robinson's conduct. Robinson marketed goods and was then sued because the goods did not conform to promises regarding their performance as advertised.
The insured also contended that some of its advertisements were either literally true or ambiguous and do not represent a specific degree of quality or performance. As a result, Robinson said that at least some of the misleading advertisements do not fall within the scope of the failure to conform exclusion because they do not make a statement of quality or performance. The court ruled that the underlying lawsuits allege that Robinson misled consumers into buying hunting clothing that did not perform as it was advertised. The thrust of the claims was that Robinson sold hunting clothing that was advertised to eliminate human odor, but it did not. Therefore, the failure to conform exclusion precludes coverage in this case because it captures all of the legal claims asserted by the consumers.
The ruling of the district court was affirmed.
Editor's Note: The standard CGL form contains a failure to conform exclusion under the personal and advertising injury liability coverage section. The United States Court of Appeals, Eighth Circuit, noted that exclusions in a policy are as much a part of the contract as other parts and must be given the same consideration in determining what is the coverage. Comparing the exclusion with the claims made against the insured, the court found that the failure to conform exclusion clearly applied in this instance.