Opinion ID: 2827105
Heading Depth: 3
Heading Rank: 1

Heading: ACE’s Contractual Duty to Defend

Text: ACE argues that it has no duty to defend Abercrombie because the subject matter of the underlying class actions falls within two of the policy’s exclusions. The policy provides, in relevant part: We [ACE] shall not be liable for any damages or claims expenses directly or indirectly arising out of or in any way attributable to: .... (h) any liability assumed under any contract or agreement including any breach of express warranty or guarantee, except and to the extent you [Abercrombie] would have been liable in the absence of such contract or agreement, except this exclusion does not apply to liability assumed under contract in respect of a media communication; .... (o) coupons, prize discounts, prizes, awards, or any other valuable consideration given in excess of the total contracted or expected amount. (R. 4-1, Policy at 21–23.) We examine the applicability of each exclusion in turn.
ACE advances two arguments with respect to exclusion (h). First, it contends that the promotional gift cards are themselves contracts such that the policy excludes coverage for any cause of action arising from the cards. In support, ACE recites several online-dictionary -4- Case Nos. 14-4073/4074, ACE European Grp., Ltd. v. Abercrombie & Fitch Co., et al. definitions for “contract” and “agreement” before conclusorily asserting that the cards “fit well within the natural and commonly accepted meaning of both [words].” (ACE Br. at 41.) But, as the online definitions make clear, the word “contract” has legal import. Its meaning flows from the law of Ohio governing interpretation of this policy, not a dictionary. Under Ohio law, contracts are legally enforceable agreements consisting of—among other things—offer, acceptance, and consideration. Kostelnik v. Helper, 770 N.E.2d 58, 61 (Ohio 2002). Under this definition, we do not understand the promotional gift cards to be “contracts” within the meaning of exclusion (h). Rather, the cards are contract components; they form part of the consideration exchanged in the sales contracts entered during Abercrombie’s Christmas promotion. Abercrombie advertised—and each customer received—a promotional gift card in return for purchasing either $75- or $100-worth of goods. The class plaintiffs allege that Abercrombie breached the sales contract by failing to give them what they bargained for: an expiration-less gift card. Later in its briefing, ACE acknowledges that the cards formed part of the consideration for these sales, impliedly conceding that they do not constitute independent contracts. (ACE Br. at 42.) Thus, the fact that the class actions arise from a dispute over the cards does not trigger exclusion (h). Next, ACE argues that the exclusion applies because the class actions arise entirely out of Abercrombie’s alleged breach of these sales contracts. But Ohio precedent holds that “[o]nce an insurer must defend one claim within a complaint, it must defend the insured on all the other claims within the complaint, even if they bear no relation to the insurance-policy coverage.” City of Sharonville v. Am. Emp’rs Ins. Co., 846 N.E.2d 833, 837 (Ohio 2006). Thus, while the district court found that the breach-of-contract claims might have fallen within the exclusion, it -5- Case Nos. 14-4073/4074, ACE European Grp., Ltd. v. Abercrombie & Fitch Co., et al. nevertheless ruled that ACE must defend Abercrombie because in each action the class plaintiffs also allege consumer fraud—a claim covered by the policy. As the district court noted, the contract and consumer-fraud claims are legally distinct. In the contract claims, the class plaintiffs allege that their sales contracts with Abercrombie included an implied term that the promotional gift cards would not expire. In the consumerfraud claims, they seek to hold Abercrombie liable for alleged misrepresentations that the promotional gift cards had no expiration date. Although the two sets of claims arise out of the same nexus of operative facts, neither of the wrongful acts alleged caused the other. See Westfield Ins. Co. v. Factfinder Mktg. Research, Inc., 860 N.E.2d 145, 154 (Ohio Ct. App. 2006) (requiring a causal connection to find that one cause of action “aris[es] out of” another). In fact, certain theories of recovery are mutually exclusive. The class plaintiffs could prevail on their fraud claims by proving that Abercrombie misled them into believing the gift cards had no expiration date when they actually did. But in so doing, the plaintiffs would simultaneously disprove their contract claims, which depend on the cards having no expiration. Likewise, in seeking to prove the existence of an implied contractual term that the cards never expired, they would undermine their fraud claims, which require a misrepresentation to that effect. We therefore reject ACE’s argument that the consumer-fraud claims derive from the contract claims because the two do not rise and fall together. See Westfield, 860 N.E.2d at 154. And because each of the underlying class actions asserts a consumer-fraud claim covered by the policy, exclusion (h) does not absolve ACE of its duty to defend in any of them. See Sharonville, 846 N.E.2d at 837. -6- Case Nos. 14-4073/4074, ACE European Grp., Ltd. v. Abercrombie & Fitch Co., et al.
ACE also contends that the consumer-fraud claims fall within exclusion (o) for claims “arising out of . . . coupons, prize discounts, prizes, awards, or any other valuable consideration given in excess of the total contracted or expected amount.” (See R. 4-1, Policy at 21–23.) Specifically, it characterizes the promotional gift cards at issue as “coupons,” again relying on various online-dictionary definitions to arrive at the word’s plain meaning. But ACE cannot shoehorn the promotional gift cards into any of the offered definitions. ACE first cites the final definition of “coupon” listed in Merriam-Webster’s online dictionary: “a part of a printed advertisement to be cut off to use as an order blank or inquiry form or to obtain a discount on merchandise or services.” Coupon, Merriam-Webster, http://www.merriam-webster.com/dictionary/coupon (last visited July 8, 2015). Defining a coupon by its presence in an advertisement suggests that a retailer sends coupons to consumers before they transact business with it.2 The retailer unilaterally gives consumers a coupon to entice them into the store in the first place. This is a poor description of the promotional gift cards, which Abercrombie distributed only to customers who had already purchased goods and only for use in future transactions. ACE’s other definition comes from Oxford’s online dictionary, which defines “coupon” as “a voucher entitling the holder to a discount for a particular product.” Coupon, Oxford Dictionaries, http://www.oxforddictionaries.com/us/definition/american_english/coupon (last visited July 20, 2015). This, too, inaccurately describes the cards. Abercrombie did not limit the promotional gift cards to use on any “particular product.” Instead, the cards operated as a form of tender good for use on any item that Abercrombie sells. Unlike a coupon, customers kept the 2 In its brief, ACE omits the beginning of this definition—the part referring to “a printed advertisement.” (ACE Br. at 28.) We quote the missing portion because we find it instructive. -7- Case Nos. 14-4073/4074, ACE European Grp., Ltd. v. Abercrombie & Fitch Co., et al. unused value on the card for a future purchase—at least until the expiration date. Furthermore, the cards offered more than a “discount” to customers who purchased an item under $25 or who presented multiple gift cards to obtain an item of greater value for free. ACE urges the court to read “coupon” broadly, pointing to the more expansive construction some courts and agencies give the word when interpreting regulations or statutes. See, e.g., Redman v. RadioShack Corp., 768 F.3d 622, 636 (7th Cir. 2014) (subjecting a proposed settlement to the limitations in CAFA’s “Coupon Settlement” provisions because members would receive a $10 “voucher” good for any purchase at the defendant’s stores), cert. denied sub nom. Nicaj v. Shoe Carnival, Inc., 135 S. Ct. 1429 (2015). But the comparison is inapposite. Statutory construction looks to legislative intent while contract construction looks to the intent of the parties and resolves ambiguities against the drafting party. See Hunter, 948 N.E.2d at 935; Galatis, 797 N.E.2d at 1261; Cline v. Ohio Bureau of Motor Vehicles, 573 N.E.2d 77, 80 (Ohio 1991). A court, therefore, could easily reconcile a finding that the promotional gift cards are not coupons for purposes of the insurance policy with a finding that they qualify as coupons within the meaning of a class-action or consumer-protection statute. ACE neither shows that the plain and ordinary meaning of “coupon” embraces the promotional gift cards nor justifies looking beyond the policy’s plain language. Thus, exclusion (o) does not relieve ACE of its duty to defend.