Suit Against “Doe” Defendant is Not a “Claim”

Applying North Carolina law, the United States District Court for the Eastern District of North Carolina has held that an insurer did not breach its D&O policy by denying coverage for (i) a putative class action complaint that did not name the insured company; (ii) a subpoena duces tecum served on the insured in connection with the class action that did not satisfy the policy’s definition of “Claim;” (iii) a settlement that the insured was not required to participate in and to which the insurer did not consent; and (iv) a written indemnification demand implicating the policy’s contractual liability exclusion.  Trialcard Inc. v. Travelers Cas. & Surety Co. of Am., 2020 WL 1609483 (E.D.N.C. Apr. 1, 2020).  The court further held that any “Claim” asserted against the insured would otherwise be barred by the policy’s professional services exclusion.

The insured company was hired by a pharmaceutical company to design a launch campaign for a generic version of a drug.  The launch campaign included a fax advertisement to alert pharmacies regarding the drug’s co-pay program.  A putative class action lawsuit was later filed against the pharmaceutical company and Doe defendants 1-10 for conduct relating to the fax advertisements.  The pharmaceutical company gave the insured notice of the class action and demanded indemnification, but the carrier denied coverage.  The litigation subsequently settled.  The insured was not a party to the settlement, but it was named as a released party and an intended third-party beneficiary.

In the ensuing coverage litigation, the insured sought a declaratory judgment that the insurer had a duty to defend and indemnify it in response to the class action, and that the insurer breached the policy, as well as the implied duty of good faith and fair dealing, by denying coverage.  The court held that the insurer did not have a duty to defend or indemnify the insured under the D&O policy.

First, the court determined that class action did not constitute a “Claim” asserted against the insured.  The insured argued that the inclusion of Doe defendants, of which it allegedly was one, was sufficient to satisfy the policy’s definition of “Claim.”  The court disagreed, finding that where a suit has been initiated against a Doe defendant, a “Claim” has not been initiated against a specific party until the complaint is amended to identify the Doe defendant.

Second, the court determined that a subpoena received by the insured in connection with discovery in the class action was likewise not a “Claim” because it was not a “complaint or similar pleading” and was not otherwise “served upon such [an insured] person pursuant to a formal administrative or regulatory proceeding.”

Third, the settlement itself was not a “Claim” because the insured was not “obligated to participate” and did not obtain the insurer’s consent to participate.

Fourth, the pharmaceutical company’s written demand for indemnification fell within the terms of the policy’s contractual liability exclusion, which barred coverage for any claim of liability against the insured organization made under any express contract or agreement.  Specifically, the court found that the pharmaceutical company’s demand for indemnification was made pursuant to its master services agreement with the insured, thereby triggering the exclusion.  The insured did not allege that it received any written demand for monetary or non-monetary relief from the plaintiff arising from the class action.

Finally, the court determined that coverage for any “Claim” would be barred by the policy’s errors and omissions exclusion, which excluded coverage for wrongful acts in the rendering of professional services for others by the insured – which would include the professional services the insured provided in designing and marketing the co-pay program.

Accordingly, the court concluded the insured failed to plausibly allege that the insurer breached the D&O policy, improperly denied coverage, or breached the implied covenant of good faith and fair dealing and dismissed the declaratory judgment action in its entirety.