Hold the Sauce: Insurer Must Indemnify Insured for Trade Disparagement and Defamation Claims Arising Out of Indian Sauce Recipe Dispute
Rass Corporation v. The Travelers Companies, Inc., No. 15-P-358, 2016 Mass. App. LEXIS 163 (Nov. 10, 2016), represents a continuation of Massachusetts law in the context of an insurer’s duty to defend, indemnify, and settle in good faith. Since the underlying settlement included covered and non-covered claims, the court concluded The Travelers Companies, Inc. and Travelers Property Casualty Companies of America were obligated to indemnify Rass Corporation for the amount the trial court allocated to covered claims.
As background, Ranbir Jaggi and Neera Tulshian met in the early 1990s and worked together to create Indian simmer sauces to be sold at grocery stores. Jaggi in 2004 formed Rass and over the next four years purchased over $5 million of simmer sauces from Tulshian’s company, IAM International, Inc., which Jaggi sold to Trader Joe’s. In 2007, Jaggi started a new bottling line in order to cut out Tulshian.
In December 2007, Jaggi emailed a Trader Joe’s buyer to explain the situation and claimed that he developed the product. Tulshian also contacted the buyer indicating she developed the product. On January 9, 2008, IAM filed suit in the Superior Court of New Jersey alleging misappropriation of trade secrets, tortious interference with present and prospective economic advantage, and trade libel. Emery Mishky agreed to defend the underlying lawsuit for $275/hour.
Rass notified its CGL insurer of the underlying lawsuit on March 6, 2008. The insurer agreed to defend the lawsuit subject to a reservation of rights to deny indemnification, “disclaimed coverage for any claim related to the trade secrets allegations, but acknowledged that the claims based on the e-mail to Trader Joe’s obligated [it] to defend,” and agreed to pay Mishky’s rate at $200/hour. Ultimately, Rass settled the underlying lawsuit for $175,000.
Subsequently, Rass filed this action alleging claims against the insurer for breach of contract and unfair or deceptive acts in violation of Mass. Gen. Laws ch. 93A, § 2. The court granted the insurer’s motion for summary judgment on its obligation to reimburse pre-tender defense costs. After a bench trial, the trial court concluded the insurer breached its contractual duties by failing to contribute $140,000 to the settlement. It also awarded Rass $25,000 in damages, finding Mishky’s hourly rate was reasonable. The court also awarded Rass some of its attorney fees in this action, finding that the insurer had violated Chapter 93A. The parties’ cross-appeals followed.
First, the Appeals Court affirmed the trial court’s conclusion that the insurer had no duty to reimburse Rass for pre-notice defense costs. Second, with respect to the insurer’s duty to indemnify, the court agreed that the settlement included covered and non-covered claims. Since the e-mail gave rise to covered claims for trade disparagement and defamation, the court declined to disturb the trial court’s underlying settlement allocation of $140,000 to covered claims and $35,000 to the non-covered trade secrets claim. Third, the court concluded numerous bases existed to affirm the trial court’s findings with respect to the insurer’s claim settlement practices under Chapter 93A although, it refused to find the insurer’s conduct to be willful or knowing. Fourth, the Appeals Court concluded the trial court did not abuse its discretion related to its substantial reduction of attorney fees requested by Rass.
While Rass stands among the many Massachusetts decisions addressing an insurer’s duty to defend, indemnify, and/or settle in good faith, it appears Rass is the first time the Appeals Court has addressed when an insurer’s obligation to fund a defense commences. Thus, the court aligned itself with the majority approach which holds an insurer is not liable for pre-notice defense costs.