(978) 979-1223

ccobb@silverlakelegal.com

Silver Lake Legal

Construction, Insurance & Business Attorney Boston

Sauce Maker’s Insurer Pays for Emails Badmouthing Competitor &/Or Its Sauces

Rass and Tulshian developed sauces and sold them to Trader Joes but did nothing to protect their trade secrets.  Rass decided to cut Tulshian out and told Trader Joes in an email, that Tulshian’s activities were “illegal” and “unethical”. This all led to an interesting case of insurance bad faith in Massachusetts.

Tulshian sued Rass on claims for trade secrets and defamation and Rass asked its General Liability insurer Travelers to pay for the defense and any judgment.  Travelers agreed to pay Rass’ chosen lawyer but reserved its rights to walk away from the judgment if it were based on acts (like the trade secrets claim) excluded from coverage under the policy.

With trial looming, the lawyer for Rass told Travelers of a 25% chance of a verdict against Rass for as much as $500,000. Rass’ lawyer recommended settlement of $150,000.  Travelers offered a small fraction but only if Rass agreed not to pursue Travelers afterwards.  Rass settled with its own money far below the exposure, to avoid the risk of trial, and then sued Travelers.

When the Insurer balks and the Insured settles, the Judge allocates the award among covered and excluded claims in a trial for insurance bad faith. Everyone agreed that the trade secrets claim was excluded from coverage, that the ‘trade libel’ product disparagement claims were covered (although some defenses were available).  Business defamation claims were covered, personal defamation claims were not, but it was not clear just who Rass was badmouthing in the email to Trader Joes – the person or the product or both.

The judge decided the settlement by Rass was reasonable, that only the email-based claims were covered, that the insurer had to pay the covered claims and reasonable attorney’s fees for defending the case, and had to pay for its bad faith insurance practices for offering a settlement far below the exposure and for conditioning its payment on release of claims by the insured against the insurer.

Lessons of the case:

Don’t email stupid insults about competitive products or their makers to customers

Hire the right lawyer if an insurer issues a “reservation of rights” letter and resist insurer demands that they be released in settlements where insurance bad faith issues remain

Get A Consult

Charles W. Cobb

Attorney at Law


ADDRESS

320 Nevada Street Ste 301,

Newton MA 02460

EMAIL

ccobb@silverlakelegal.com

PHONE NUMBER

(978) 979-1223

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