Products Liability Consumer Class Action Claims: When Are They Covered by Insurance?
Finding Insurance Coverage
for Consumer Products
Class Action Complaints
by Jill B. Berkeley *
Neal, Gerber & Eisenberg LLP
Chicago, Illinois
FINDING INSURANCE COVERAGE FOR
CONSUMER PRODUCTS CLASS ACTION COMPLAINTS
Consumer class action claims are a familiar tool for addressing dissatisfaction with a defective product.
Given that one of the goals of a consumer class action claim is to recover damages for the claimants,
triggering insurance coverage for the defendant can be critical to a successful result. Likewise,
defendants are eager to have an insurance company fund their defense, contribute to settlements or pay
judgments. From the insurer perspective, due to the high potential damages, insurance companies take an
aggressive stand to avoid coverage. Given these strong conflicting interests, the courts have issued a
multitude of decisions with varying results. Similar to the developed body of law relating to coverage in
2
defective construction cases, consumer products class actions have triggered disputes regarding: whether
the complaint’s allegations meet the definition of an occurrence, property damage or bodily injury; when
did the damage or injury occur; is anything more than economic loss or injury alleged; is there advertising
injury or product disparagement, loss or injury alleged; and which product exclusions apply. This paper
will focus on the elements necessary to trigger a duty to defend and the hurdles to be overcome to secure
some funding for settlement or judgments.
General Principles Regarding Pleading
Courts have not created any bright-line test as to what facts must be alleged to trigger coverage. One
must consider not only factual allegations, but the entire complaint, including the damages suffered and
the requested relief, to determine whether any potentially provable loss falls within the policy’s coverage.
However, jurisdictions have ruled differently regarding whether courts should speculate on the facts
necessary to support potential coverage. The Seventh Circuit held in Amerisure Mutual Insurance Co. v.
Microplastics, Inc., 622 F.3d 806, 812 (7th Cir. (Ill.) 2010), that “the duty to defend applies only to facts
that are explicitly alleged,” as “it is the actual complaint, not some hypothetical version, that must be
considered.”1 Thus, the potentiality standard must be balanced against speculative theories of liability
and hypothetical damages.
Where There’s Smoke, There’s Fire
Starting with the most basic elements of the insuring agreement in a CGL policy, an insured products
liability case must allege an occurrence that results in property damage or bodily injury.2 Property
damage is defined in CGL policies as “physical injury to tangible property,” or “loss of use of tangible
property that is not physically injured.” The “possibility” standard for triggering a duty to defend plays a
considerable role here, as potential property damage may be alleged by references to individual class
members’ experiences. For example, in Omega Flex, Inc. v. Pacific Employers Insurance Co., 78 Mass.
App. Ct. 262, 937 N.E.2d 5265-66 (2010), which involved a consumer class action alleging that defective
stainless steel tubing was prone to combusting when lightning struck nearby, the lower court held that the
insured’s CGL carrier had no duty to defend because the complaint contained no specific allegation of fire
damage. The appellate court reversed, citing potential recovery for fire damage to some class members’
property as a result of the product combusting. The court based the reversal on the amended complaint,
which sought relief for some class members who had already suffered actual damage to their premises. It
was not necessary for the complaint to allege that specific damages had been suffered, as long as it was
within the realm of possibility that even one class member incurred property damage, to trigger the duty
to defend.
The tension between the goal of certifying the class versus triggering the elements of insurance coverage
is clear. On the one hand, certification requires common facts and injuries among the class members.
Once individual damages are alleged, it becomes more difficult to overcome objections to class
certification. (See Low v. Golden Eagle Insurance Co., 99 Cal.App.4th 109, 113-14, 120 Cal. Rptr. 2d
827 (2002) (no duty to defend where “the ... complaint is ... couched overwhelmingly in class action
terms, but the named plaintiff expressly disclaims any interest in seeking recovery of damages for [the
type of damages] ... required to trigger coverage and a related duty to defend under the policy”); see also
The Upper Deck Co. v. Federal Insurance Co., 358 F.3d 608, 616 (9th Cir. 2004) (“Upper Deck asked us
to remember that the underlying suit is a class action and that, even if the named plaintiffs did not suffer
1 For other cases dealing with unclear allegations that may trigger the duty to defend, see also Van Etten, Alan.
“Triggering the Duty to Defend for Inartful Pleadings,” CGL Reporter, Fall 2012, Section 135,
http://www.irmi.com/online/cgl/sc000050/triggering-the-duty-to-defend-for-inartful-pleadings.aspx.
2 Personal and Advertising Injury Liability is dealt with in the subsequent section below.
