A Delaware Superior Court judge has ruled that the settlement costs of a class-action lawsuit against the chocolate company Godiva, are not excluded from coverage under either Godiva's D&O policy with Endurance American Insurance Company (Endurance) or Godiva's excess policy with National Union Fire Insurance Company, a subsidiary of American International Group (National Union). The case is G-New, Inc. v. Endurance Am. Ins. Co., 2022 Del. Super. LEXIS 371 (Del. Super. Ct. 2022).
Godiva was hit with a class-action lawsuit in 2019, facing 13 counts of consumer protection and common law violations in California and New York. The plaintiffs in that lawsuit claimed the statement "Belgium 1926" appearing on labels for Godiva confections deceived consumers about the candy's origins. The suit went to mediation, where the parties eventually settled; Godiva is expected to pay $20 million in attorney fees and monetary relief in addition to associated fees and class representative awards, pending final approval of the settlement.
When Godiva sought coverage from Endurance and National Union (collectively, Defendants), both companies denied the claims. In the subsequent suit by Godiva for coverage, Endurance and National Union asserted that Godiva "ha[d] not satisfied it[s] burden of proving the claim constitutes a 'Loss' under the Insuring Agreements" because Godiva's actions in the underlying suit were intentional. Even if Godiva's claims were covered, the insurers contended that the policy exclusions for unfair trade practices and fines imposed by law precluded coverage. Godiva stated that the language of the policies was sufficiently broad to cover both intentional and unintentional acts, and the exclusions didn't apply because the monies it was obligated to pay weren't of the type excluded; alternatively, even if they had been, neither Endurance nor National Union had proved the acts in question were willful violations of the law.
The court quickly sided with Godiva on the issue of whether the settlement qualified as a covered loss under the policies, giving a short, sweet statement that the defendants had to prove "some evidence or admission that the violation of law was knowing or willful," which they had not, and the policy language contemplated settlements as covered losses.
Regarding the policy exclusion for unfair trade practices, the court noted that the issue centered on whether consumer protection and false advertising violations fell under the umbrella of "unfair trade practices," which had not been defined. Though Endurance and National Union said the allegedly mislabeled products were of a deceptive nature "resulting in what Defendants characterize as 'ill-gotten gains,'" neither could produce any authoritative source that concluded "unfair trade practices [were] the equivalent of consumer fraud." The court again sided with Godiva.
The defendants also contended that the settlement was a "fine[] or penalt[y] imposed by law," both of which were explicitly excluded from the policy definition of a "Loss" that implicated coverage. Godiva asserted that the settlement was not a penalty based on the Delaware Supreme Court's decision in Delaware Bay Surgical Services, P.A. v. Swier, 900 A.2d 646 (Del. 2006). In that case, "penalty" meant "a sum inserted into a contract that serves as a punishment for default, rather than a measure of compensation for [a] breach." (G-New at 32-33, quoting Delaware Bay at 650). The settlement amount, according to Godiva, was meant to compensate the plaintiffs in that case, not punish Godiva. The court agreed and ruled that the exclusion did not apply.
Editor's Note: Part of the reason Godiva ultimately succeeded is that settlements are not adjudicated. The term "adjudicate," by definition, implies that two or more parties argued over who was right and who was wrong before a judge and, potentially, a jury of peers. Settlements, on the other hand, represent an agreement made between opposing parties that only requires a judge's final approval. For example, when you and your sibling agree to split the last cookie instead of asking a parent to flip a coin for the whole cookie, you are settling.