The Ferrara Candy Company has to handle its own legal defense and reimburse Liberty Mutual after an appellate court found the insurer was not responsible for funding the confectioner;s defense in a lawsuit.
The underlying suit was filed by Promotion in Motion, another snack manufacturer. Promotion in Motion, or PIM, contracted Ferrara Candy Company predecessor Ferrara Pan to make some of its products, including Sour Jacks candy and Welch’s Fruit Snacks.
After Ferrara Pan merged with Farley’s & Sathers Candy Company to form the Ferrara Candy Company, PIM, concerned for its trade secrets, entered into a confidentiality agreement with the company. PIM later sued Ferrara, charging that the company used PIM’s trade secrets to manufacture a candy called Sour Buddies and fruit snacks sold under the Market Pantry and Black Forest labels.
Ferrara turned to Liberty Mutual, which had insured Ferrara Pan prior to its merger with Farley’s. Ferrara purchased commercial general liability insurance and umbrella liability insurance from Liberty Mutual. Both policies were canceled at Ferrara’s direction when the merger took place.
Liberty Mutual agreed to defend Ferrara but reserved the right to deny coverage or indemnification and the right to withdraw from the defense if it found it had no duty to defend.
As the lawsuit progressed, Liberty Mutual determined the claims of the lawsuit were not covered and it withdrew its defense. It also filed a declaratory judgment action seeking to recoup legal costs incurred as a result of the suit.
A Cook County Circuit Court judge granted Liberty Mutual’s motion for judgment, noting that for coverage to exist, PIM’s complaint must allege “bodily injury,” “property damage,” or “personal advertising injury” occurring during the time the policy was active. Since all of the claims in the PIM lawsuit are based on Ferrara’s actions after its merger with Farley’s – and therefore after its Liberty Mutual coverage had ended – the insurer is not responsible for coverage.
First District Appellate Court Justices Cynthia Y. Cobbs, Margaret S. McBride and Nathaniel Howse agreed with the circuit court, finding Liberty Mutual is not responsible for covering Ferrara in the lawsuit and is entitled to reimbursement for its legal costs.
Ferrara argued the circuit court “set the pleading bar too high” when it held that the insurance company’s duty to defend was not triggered by the PIM lawsuit. Illinois law, the confectioner argued, does not require the claim to fall within the active dates of the policy. If no date is specified, it said, “the potential for coverage exists and the insurers must defend.”
Though the complaint does not allege a specific date, the appeals justices said, it does clearly distinguish between Ferrara Pan, which was covered by Liberty Mutual, and Ferrara Candy Company, which was not.
“With respect to each asserted claim, PIM alleges that the violations stem from the conduct of Ferrara Candy, the post-merger entity,” Justice Cobbs wrote in the appellate order. “Having found that none of the allegations … occurred during the policy period, we find there is no coverage under the policies.”
The order was filed under Supreme Court Rule 23, which limits its use as precedent in future cases.