On January 30, 2012, a Texas federal judge ordered that Chubb Custom Insurance Company (“Chubb”) had no duty to defend its insured because the claimants in the underlying class action did not allege any “bodily injury” as defined by the policy.
The underlying class action lawsuit involved a diet and nutritional product called Shape Up! that purported to change consumers’ behaviors to enable them to “take control” of their weight. In 2004, those consumers filed suit in the Superior Court of California against the insured, CSA Neutraceuticals GP LLC (collectively, “CSA”) and Dr. Philip C. McGraw (yeah, the Dr. Phil). The plaintiffs, who failed to achieve the desired weight loss, sought recovery for false advertising and deceptive practices pursuant to California’s Consumers Legal Remedies Act and Unfair Competition Law.
THE FOOD FIGHT
CSA requested a defense and indemnity from Chubb under a products-completed operations claims-made policy. Chubb denied coverage on the basis that the plaintiffs did not sustain “bodily injury” as a result of purchasing a diet product that allegedly failed to show results.
CSA proclaimed that the underlying lawsuits were fraudulent and groundless, but it settled the claims for over $10 million. Subsequent to the settlement, CSA continued to demand that Chubb reimburse it for defense costs and the settlement amount. In 2009, CSA sued Chubb for breach of contract and violation of the Texas Insurance Code.
CSA moved for partial summary judgment, arguing that the allegations in the underlying suit alleged “bodily injury” arising out of an “occurrence.” Chubb responded that coverage was not available because the alleged injuries involved solely economic losses. The policy defined “bodily injury” as:
physical injury, sickness or disease sustained by a person including resulting death, humiliation, mental anguish, mental injury or shock at any time.
The judge agreed with Chubb and held that there was no duty to defend. According to the court, even if the claimants alleged mental anguish, there was no associated physical injury, i.e. there was no effect on the physical structure of the claimants’ bodies.
One of the more complex issues emanating from a product-failure claim involves the important distinction between purely economic losses, which generally are not covered under a liability policy, and economic loss because of bodily injury. In rejecting CSA’s argument for coverage, the court emphasized the importance of establishing the basic requirements for coverage. Specifically, the court stated, “failing to achieve weight reduction means the body basically did not change. It does not mean that the body was injured.” Accordingly, the court upheld the policy’s threshold bodily injury requirement.