Opinion ID: 2978973
Heading Depth: 4
Heading Rank: 1

Heading: The Baum Litigation

Text: The Baum litigation was originally filed on July 11, 1998 in the Eastern District of Michigan alleging that Hillerich and several other defendants had engaged in antitrust violations, tortious interference with contract, and tortious interference with prospective advantage. Hillerich points to allegations related to the final claim in which Baum alleges that defendants engaged in a conspiracy to “misrepresent information . . . that related to the accuracy of the Baum Hitting Machine or the characteristics of the Baum Bat.” (Dist. Ct. Doc. No. 59, Ex. A, Baum Compl. ¶ 141). Upon a motion to dismiss filed by all defendants, the district court ruled on November 19, 1998 to dismiss the antitrust claims and to grant leave to amend to Baum regarding the remaining claims. Baum filed a motion for reconsideration on December 4, 1998 to which it attached as an exhibit “Plaintiff’s First Amended Complaint” containing amended versions of the tortious interference with prospective advantage claim and the dismissed antitrust claims. The judicial panel on multidistrict litigation transferred the Baum litigation to the District of Kansas on December 9, 1998 and that court denied Baum’s motion for reconsideration as to the antitrust claims on October 29, 1999. Baum then filed its First Amended Complaint containing only the tortious interference with prospective advantage claim on November 8, 1999. That claim included the following allegations: Case Nos. 09-5113/5136 Travelers Prop. Cas. Co., et al. v. Page 4 Hillerich & Bradsby Co., Inc. Recently Easton [another Defendant] . . . has embarked on a program to falsely disparage the effectiveness of the Baum Testing Machine in correspondence to college coaches and institutions . . . . These acts perpetuated the consequences caused by the conspiracy. .... Defendants . . . interfered with Baum’s business opportunity and expectancy and with Baum’s efforts to market the Baum Bat and license use of the Baum Hitting Machine by unethically, unlawfully, fraudulently, and with legal malice, intentionally committing the following acts: . . . . Easton falsely described the results of tests performed on the Baum Hitting Machine . . . and broadcast handwritten notes and typed materials containing false descriptions of these tests to the NCAA Baseball Rules Committee and to a large number of college and high school baseball coaches . . . . As a direct and proximate result of [Defendants’] interference with Baum Research’s business relationships and prospective economic advantage, through improper means including but not limited to fraudulent misrepresentations, Baum Research has been damaged . . . . (Dist. Co. Doc. No. 59, Ex. B, Baum First Am. Compl. ¶¶ 71, 78-79). The case was then transferred back to the Eastern District of Michigan. Baum sought and was granted leave to further amend its complaint and filed a Second Amended Complaint on January 9, 2001. This complaint included the language regarding the tortious interference claim alleging fraudulent misrepresentation of information, specifically using the words “falsely disparage” in reference to the defendants’ actions. (Dist. Ct. Doc. No. 58, Ex. A, Baum Second Am. Compl. ¶ 51). Ultimately the Baum litigation proceeded to trial, which continued into 2005. Settlement negotiations were ongoing throughout trial, and on March 18, 2005 the parties settled after the close of Baum’s case-in-chief. Hillerich’s portion of the settlement was $500,000. 2. The Relationship Between Travelers and Hillerich At all relevant times, Hillerich had insurance through Travelers under several Commercial General Liability policies. The claims in the Baum litigation potentially invoked coverage under Coverage B, Personal and Advertising Injury Liability. The policy covers personal injury “caused by an offense arising out of your business, excluding Case Nos. 09-5113/5136 Travelers Prop. Cas. Co., et al. v. Page 5 Hillerich & Bradsby Co., Inc. advertising, publishing, broadcasting or telecasting done by or for you” and advertising injury “caused by an offense committed in the course of advertising your goods, products or services.” (Dist. Ct. Doc. No. 58, Ex. C, Ins. Contract, 4). The covered offenses include “[o]ral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” (Id. at 9-10). The policy also has a falsity exclusion whereby such offenses done by the insured with the knowledge of the information’s falsity were not covered. Travelers initially notified Hillerich that it was declining coverage based on its review of the original Baum Litigation complaint due to a lack of a specific enumerated offense and a lack of any claimed personal or advertising injury. This notification was on September 7, 2000 though Hillerich had notified Travelers of the litigation on March 19, 1999 by providing the December 4, 1998 draft First Amended Complaint. Hillerich did not tender the First Amended Complaint, which was filed on November 8, 1999, to Travelers until December 22, 2000. The record does not reveal when Travelers learned of the Second Amended Complaint. However, upon review of the second amended complaint, Travelers notified Hillerich on May 21, 2001 that it would fund Hillerich’s defense from January 9, 2001 (the filing date of the Second Amended Complaint), noting that this version of the complaint used the term “disparage.” Travelers noted that it was still reviewing whether the litigation involved a covered claim, stating in its letter that Hillerich’s defenses costs would be funded “until such time that the availability of coverage could be more definitively determined.” (Dist. Ct. Doc. No. 42, Ex. B, 1-2, 19). In a September 21, 2001 letter, Travelers reiterated its position that it reserves any and all rights to contest coverage at a later date and expressly does not waive coverage defenses, whether set forth herein, in the insurance contract or otherwise. Should the situation arise where Travelers elects to invoke these rights, it would not be seeking reimbursement for defense costs that it had previously paid. (Id., Ex. C, Letter from Pl., 2) (emphasis added). Throughout the trial and settlement negotiations, Travelers objected to the billing structure of Hillerich’s defense counsel and repeatedly told Hillerich that it would only reimburse reasonable defense costs. Hillerich retained its chosen defense counsel though Travelers was paying the defense costs. Case Nos. 09-5113/5136 Travelers Prop. Cas. Co., et al. v. Page 6 Hillerich & Bradsby Co., Inc. Travelers informed Hillerich that it would only fund settlement costs while reserving a right to seek reimbursement for any contribution found to be funding noncovered claims. One such communication including the following: Travelers is willing to contribute $250,000 to the underlying settlement while reserving all available coverage defenses for defense and indemnity exposures. [Hillerich] would similarly preserve its coverage claims. . . . [Hillerich] informed [Travelers] that, even if Travelers were willing to contribute to the underlying settlement and waive any right of reimbursement should coverage be found to be lacking, [Hillerich] would not be willing to similarly waive its right to “pre-acceptance” fees. . . . If [Hillerich] is able to reach a settlement . . . in excess of $250,000, that is nonetheless reasonable, the ultimate allocation of the settlement between [Hillerich] and Travelers could be preserved for future litigation or other resolution. (Id., Ex. K, Email from Pl.). Hillerich refused this condition on settlement funds, arguing that Travelers had waived its right to reimbursement of defense costs and that coverage extended to both defense and settlement costs anyway. Travelers continued to request that Hillerich identify the allocation of any settlement costs into covered and non-covered claims, and notified Hillerich that it was unlikely any indemnity or defense coverage would be afforded as the litigation developed. Hillerich acknowledged Travelers’ claim of a right to seek reimbursement but expressly objected to this right, instead arguing that the claims at issue in the Baum litigation should be covered by Travelers. Hillerich demanded that Travelers settle the case while still refusing to recognize a right to reimbursement, which Travelers again invoked as a condition for funding settlement. Hillerich threatened to sue Travelers for bad faith for defending under a reservation of rights if Travelers did not settle the underlying litigation. Travelers again invoked its reservation of rights to seek reimbursement for noncovered claims included in the settlement while it funded the settlement on March 18, 2005. Travelers initiated the instant case in district court on April 18, 2005. After a series of orders, a final judgment was entered by the district court on December 19, 2008. This timely appeal followed. Case Nos. 09-5113/5136 Travelers Prop. Cas. Co., et al. v. Page 7 Hillerich & Bradsby Co., Inc.