In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 12‐3478, 13‐1526
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH,
PA.,
Plaintiff/Counterclaim‐Defendant‐Appellee,
and
LEXINGTON INSURANCE COMPANY,
Counterclaim‐Defendant‐Appellee,
v.
MEAD JOHNSON & COMPANY LLC, et al.,
Defendants/Counterclaim‐Plaintiffs‐Appellants.
____________________
Appeals from the United States District Court for the
Southern District of Indiana, Evansville Division.
Nos. 3:11‐cv‐00015‐RLY‐WGH, 3:11‐cv‐00161‐RLY‐WGH —
Richard L. Young, Chief Judge.
____________________
ARGUED SEPTEMBER 24, 2013 — DECIDED OCTOBER 29, 2013
____________________
2 Nos. 12‐3478, 13‐1526
Before POSNER, TINDER, and HAMILTON, Circuit Judges.
POSNER, Circuit Judge. Before us are consolidated appeals
in a pair of diversity suits governed, the parties agree, by In‐
diana law. One suit pits two insurance companies, National
Union and Lexington (both subsidiaries of American Inter‐
national Group), against Mead Johnson, which purchased
liability coverage from them. The other suit is just between
National Union and Mead Johnson. We can ignore the pro‐
cedural tangle reflected in the caption.
Mead Johnson had purchased a primary Commercial
General Liability policy (a standard policy issued by many
insurance companies) from National Union. The policy has a
limit of $2 million for liability for what is called “personal
and advertising injury.” Mead also has an excess liability
policy from Lexington (a policy that kicks in when an in‐
sured’s liability exceeds the limit in his primary policy) that
has a limit of $25 million. The insurance companies sought
and obtained (on motions for summary judgment) declara‐
tory judgments that they have no duty to pay claims that
Mead Johnson filed with them regarding two tort suits
against it. So Mead has appealed.
A recent spinoff from Bristol‐Myers Squibb, Mead John‐
son is virtually a one‐product company. That product is the
upscale infant formula Enfamil. See “Enfamil,” Wikipedia,
http://en.wikipedia.org/wiki/Enfamil (visited Oct. 24, 2013).
It is sold worldwide, and is alleged to have accounted for 60
percent of Mead Johnson’s $2.88 billion earnings in 2008 on
the eve of the tort suits that have given rise to these appeals.
The tort suits are a reflection of Mead’s efforts to maintain its
dominance of the global baby‐formula market, efforts that
have resulted in repeated legal skirmishes with a major
Nos. 12‐3478, 13‐1526 3
competitor, PBM Products, LLC (part of a much larger com‐
pany, Perrigo). In two earlier suits, both settled, PBM had
sued Mead for false advertising. PBM Products, Inc. v. Mead
Johnson & Co., 03:01‐cv‐199 (E.D. Va. 2001); PBM Products,
Inc. v. Mead Johnson & Co., 03:02‐cv‐944 (E.D. Va. 2002). Turn‐
ing the tables on its opponent, Mead had sued PBM for trade
dress infringement. Mead Johnson & Co. v. PBM Nutritionals,
LLC, 1:06‐cv‐1246 (S.D. Ind. 2006). That case was settled too.
The insurance suits that the current appeals bring before
us arose out of PBM’s third lawsuit against Mead (again for
false advertising), plus a class action suit against Mead for
consumer fraud. PBM’s suit, filed in 2009, eventuated in a
jury award of $13.5 million, affirmed in PBM Products, LLC v.
Mead Johnson & Co., 639 F.3d 111, 128 (4th Cir. 2011). Mead
wants its insurers to pay that judgment, plus the $15 million
settlement that it made to resolve the class action suit.
PBM’s suit claimed that Mead had falsely asserted that
PBM’s less expensive infant formula (a “store brand”—that
is, a generic rather than a branded product, to which the re‐
tail outlet that sells it attaches its own brand name) lacked
two key fats that promote brain and eye development. Filed
in April 2009, the suit sought some $500 million in damages
for product disparagement, a tort that the insurance policies
that Mead Johnson had bought from National Union and
Lexington expressly cover as a form of “advertising injury.”
But Mead did not notify National Union or Lexington of the
suit until December 2009—by which time the trial in PBM’s
suit had ended in the $13.5 million verdict against Mead.
(Why Mead Johnson didn’t notify its insurers about the PBM
suit until losing at the trial is the abiding mystery of this
case. At oral argument we asked Mead Johnson’s counsel
4 Nos. 12‐3478, 13‐1526
why, and he said he didn’t know. We find this hard to be‐
lieve, but are left in the dark.)
Both insurance policies required Mead to notify the in‐
surance companies “as soon as practicable.” The National
Union policy required notice of any occurrence or claim as
soon as practicable after the occurrence or claim. The Lexing‐
ton policy, being an excess policy, required notice only of a
claim or suit, and only if the claim or suit was “reasonably
likely” to trigger coverage on the “assumption that an In‐
sured is liable for the damages claimed,” namely damages of
more than $2 million, the limit of National Union’s policy.
These are important provisions. If a claim against an in‐
sured is covered by the insurance policy, the insurer has a
vital interest in supervising the defense against the claim, for
its money is riding on the outcome. And so the policies enti‐
tle the insurers to control the insured’s defense against a
covered claim and negotiate a settlement. But this is subject
to their fiduciary duty to the insured: the insurer is forbid‐
den to “sell out” an insured, for example by settling for the
policy limit without making a reasonable effort to reduce the
insured’s liability above that limit. Lockwood Int’l, B.V. v.
Volm Bag Co., 273 F.3d 741, 744–46 (7th Cir. 2001); see also
Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 518–19 (Ind.
1993); Economy Fire & Casualty Co. v. Collins, 643 N.E.2d 382,
385–86 (Ind. App. 1994); Schwartz v. Liberty Mutual Ins. Co.,
539 F.3d 135, 142 (2d Cir. 2008); Venn v. St. Paul Fire & Marine
Ins. Co., 99 F.3d 1058, 1064–65 (11th Cir. 1996).
National Union’s policy has separate notice provisions
for an occurrence, defined as “an accident” (“an unexpected
happening without an intention or design,” Auto‐Owners Ins.
Co. v. Harvey, 842 N.E.2d 1279, 1283 (Ind. 2006)) and for a
Nos. 12‐3478, 13‐1526 5
claim or suit against the insured. An amendment (called an
“endorsement”) to the policy provided that the insured
would not be deemed to have “knowledge” of an occurrence
until the insured’s “Director of Risk Management” received
notice of the occurrence, so only then would the clock start
running on notifying the insurer. Mead Johnson claims that
its Director of Risk Management did not learn of the $500
million suit by PBM until the trial ended, days before Mead
notified the insurers. We find this hard to believe. This was
the fourth recent suit between the companies. Even to a
company the size of Mead Johnson, $500 million is a lot of
money, though doubtless an extravagant estimate of PBM’s
actual damages; the jury’s award of damages to PBM was,
after all, only 2.7 percent of $500 million.
It is understandable why an insured would not want its
duty of notifying its insurers to kick in whenever there was
an occurrence, which might well be trivial (baby cried after
swallowing Enfamil; crack appeared in Enfamil container);
hence the amendment. But it would be absurd to allow a
company served with a summons and complaint or other
legal claim to obtain an indefinite extension of its duty of no‐
tice simply by hiding the claim from its Director of Risk
Management. Especially when the claim is as large as PBM’s
claim, filed by a competitor who had obtained more than $46
million from Mead in settlement of two previous suits both
quite similar to the one that Mead failed to notify its insurers
of in timely fashion. The fact that the notice provision relat‐
ing to a claim or suit was not amended to require notice to
the Director of Risk Management can’t be considered an
oversight, though oversight or not Mead would be bound by
the amendment’s unequivocal language.
6 Nos. 12‐3478, 13‐1526
Remarkably, in its opening brief on behalf of its client
Mead Johnson, the well‐known law firm of Cadwalader,
Wickersham & Taft argued that the amendment does apply
to claims and suits as well as to occurrences, because the
caption of the amendment is “Duties in the Event of Occur‐
rence, Offense, Claim or Suit.” That is a misrepresentation.
The caption is “Duties in the Event of Occurrence, Offense,
Claim or Suit, a. is hereby deleted and replaced with the fol‐
lowing,” the “following” being the passage relating to notice
to the risk manager of occurrences, not claims. The new pro‐
vision “a,” like the old one that it replaced, begins: “You
must see to it that we are notified as soon as practicable on
[sic] any ‘occurrence’ or an offense which may result in a
claim.” (“Offense” is not defined, but the policy contains a
list of covered “offenses,” such as copyright infringement—
and, as we’ll see when we come to the second suit by Mead
Johnson, product disparagement.) Claim and suit are men‐
tioned not in provision “a” but in provision “b,” which con‐
tains no reference to the Director of Risk Management. The
amendment changed only “a,” which pertains only to occur‐
rences.
Cadwalader’s frivolous interpretation, though exposed in
the insurance companies’ brief, is repeated in Mead John‐
son’s reply brief and was defended by Cadwalader’s lawyer
for Mead at the oral argument. That a major law firm would
engage in such shenanigans distresses us. The firm’s argu‐
ment regarding the amendment to the National Union in‐
surance policy is censurable, and we hereby censure it.
The Lexington policy contains no reference to notice to a
Director of Risk Management or equivalent official. But
Mead argues that PBM’s lawsuit could not be said to be
Nos. 12‐3478, 13‐1526 7
“reasonably likely” to trigger Mead’s excess coverage under
the Lexington policy until the jury returned the $13.5 million
verdict. Yet well before then Mead must have realized that a
judgment in excess of $2 million, a judgment that would
trigger its excess coverage under the Lexington policy, was
“reasonably likely” in view of the outcome of PBM’s previ‐
ous suits.
Although Mead Johnson thus failed inexcusably to com‐
ply with the notice provisions in its liability insurance poli‐
cies, such a failure allows an insurer to disclaim coverage
only if the insurer is harmed (“prejudiced,” in law‐speak) by
the late notice. Late notice does create a presumption of
harm, thereby shifting to the insured the burden of produc‐
ing “some evidence,” Miller v. Dilts, 463 N.E.2d 257, 265 (Ind.
1984); see also Tri‐Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d
997, 1004–06 (Ind. 2009); Republic‐Franklin Ins. Co. v. Silcox, 92
F.3d 602, 604–05 (7th Cir. 1996) (Indiana law), but probably
does not shift the burden of persuasion. 13 Lee R. Russ &
Thomas F. Segalla, Couch on Insurance § 193:41, pp. 193–62 to
193–65 (3d ed. 1999); see also Jennings v. Horace Mann Mutual
Ins. Co., 549 F.2d 1364, 1368 (10th Cir. 1977); Alcazar v. Hayes,
982 S.W.2d 845, 856 (Tenn. 1998).
National Union is unlikely to have incurred any harm
from the late notice. Its policy limit was only $2 million, and
we are hard pressed to understand how, had it conducted
the defense of PBM’s suit, it could have obtained either a ju‐
ry verdict or a settlement of less than $2 million. Not only
did the jury award PBM damages of $13.5 million; Mead
Johnson used the same law firm, and the same lawyer in that
firm, to defend itself that National Union had retained to de‐
fend Mead in PBM’s previous lawsuits. How could National
8 Nos. 12‐3478, 13‐1526
Union, using the same lawyer, expect to have obtained an
outcome almost seven times as favorable to Mead as Mead
obtained? What would it have told the lawyer to do differ‐
ently? It doesn’t say. Would it have found a better lawyer? It
doesn’t say.
It’s true that had it defended Mead, National Union
would have had to pay not only $2 million toward the
judgment (although there is a dispute among the parties,
unnecessary for us to resolve, over whether the $2 million
would just have been a loan to Mead) but also the law firm’s
fee, and related expenses, for handling the defense. But Na‐
tional Union does not argue that it would have paid the law
firm less than Mead Johnson paid it. And had it skimped on
legal expenses the jury’s verdict might have been higher and
Mead might have challenged the adequacy of the defense
and sought damages from National Union for breach of its
fiduciary duty (noted earlier in this opinion) to its insured.
See Lozier v. Auto Owners Ins. Co., 951 F.2d 251, 255 (9th Cir.
1991).
We are tempted not only to reverse the judgment in favor
of National Union (regarding the PBM suit—we take up the
class action suit later), but to direct the entry of judgment for
Mead. We are reluctant to do so, however, as there has been
no factual development in the district court concerning the
issue of harm. It’s true that at the oral argument we pressed
National Union’s counsel on whether it could show harm
from Mead’s very late notice of PBM’s suit and that she es‐
sentially conceded that she could not. But we hesitate to base
a decision on a concession made in the heat of oral argument
under a barrage by the judges.
Nos. 12‐3478, 13‐1526 9
Lexington’s situation is different from National Union’s.
The limit in its excess policy was $25 million. Conceivably if
placed in control of the defense it could have bargained to a
settlement of less than $13.5 million or, failing that, have
presented evidence or argument that would have convinced
the jury to award PBM less. The problem is that the insurers’
joint brief says almost nothing about Lexington, treating it
rather as the tail to National Union’s kite. (Maybe this is be‐
cause the companies are siblings, both being subsidiaries of
AIG, as we noted.) The brief implicitly assumes that Lexing‐
ton, if in control of the defense, would (like National Union)
have retained the same law firm that Mead Johnson did, and
that the law firm would have employed the same litigation
(including settlement negotiations) tactics.
So the insurers have thus far been unable to show what
difference it would have made had they rather than Mead
Johnson hired the (same) law firm to handle Mead’s defense
against PBM. But by the same token Mead Johnson has yet
to present evidence, beyond the bare facts that the same law
firm would have represented it had the insurers provided
the defense and that $13.5 million is less than $41.5 million
(the amount of one of the previous settlements by Mead
with PBM), to rebut the presumption of harm from untimely
notice.
There would be no need for an evidentiary hearing on
the issue of the harm done to the insurers by Mead Johnson‘s
untimely notice of PBM’s suit had the district judge been
correct in ruling that when untimely notice is given to insur‐
er (in this case insurers) by an insured after the trial in the
underlying suit, the presumption of harm becomes irrebut‐
table—in other words, that when notice is that late the insur‐
10 Nos. 12‐3478, 13‐1526
er is off the hook. Period. (This assumes that there is no ex‐
cuse for the late notice, such as a failure of mail delivery, as
noted in such cases as McCarty v. Astrue, 528 F.3d 541, 544
(7th Cir. 2008); Prizevoits v. Indiana Bell Telephone Co., 76 F.3d
132, 133–34 (7th Cir. 1996), and Ramseur v. Beyer, 921 F.2d
504, 506–07 (3d Cir. 1990), though none is an insurance case.
There was no such excuse in this case.) The Indiana Supreme
Court has never so ruled. It has always described the pre‐
sumption as rebuttable. Delay could be forever, yet the in‐
sured be unharmed.
The judge was misled by two decisions of Indiana’s in‐
termediate appellate court that treat the presumption of
harm from late notice as unrebuttable if notice isn’t given
until after the suit against the insured has been tried. Allstate
Ins. Co. v. Kepchar, 592 N.E.2d 694, 699 (Ind. App. 1992); Mil‐
waukee Guardian Ins., Inc. v. Reichhart, 479 N.E.2d 1340, 1343
(Ind. App. 1985). They do so on the ground that the loss of
the insurer’s opportunity to make decisions on the conduct
of the trial, a loss that is irrevocable once the trial takes place,
deprives the insurer of a valuable right. But that deprivation
is not a tangible injury—a loss for which damages can be
awarded—nor, if the insurer could have done no better in
managing the defense at trial than the insured did, even a
cause of injury. The two decisions we just cited thus are in‐
consistent with Miller, and so we would not expect the Indi‐
ana Supreme Court to approve them. See also Erie Ins. Ex‐
change v. Stephenson, 674 N.E.2d 607, 611–13 (Ind. App. 1996);
Mechanics Laundry & Supply, Inc. of Indiana Shareholders Liqui‐
dating Trust v. American Casualty Co. of Reading, PA, 1:04‐CV‐
1122 DFH‐TAB, 2007 WL 1021452, at *5–8 (S.D. Ind. Mar. 30,
2007). There is no indication that the Indiana Supreme Court
will retreat from its position that the presumption of harm to
Nos. 12‐3478, 13‐1526 11
an insurer from untimely notice is rebuttable. Maybe it
should; indeed, maybe a flat rule that untimely notice, un‐
less there is a good excuse for it, cancels coverage would be
superior to existing law, given the inherent uncertainty in‐
volved in calculating the injury to an insurer of being de‐
prived of control over the insured’s defense to the tort suit
that gave rise to the liability that he wants the insurer to re‐
imburse him for. But that is an issue for Indiana, not for us.
Indiana law, as stated in the Miller case, holds to the princi‐
ple that if an insured inflicted no cost on his insurer by un‐
timely notice, with the result that the insurer lost nothing by
virtue of the untimeliness, then to allow the insurer to reject
the insured’s claim would confer a windfall on the insurer.
In effect the insurer would be awarded damages equal to the
insured’s claim even though the insurer had not been in‐
jured at all.
To be consistent with Indiana law, the district judge
should have said that the later the notice the harder it is for
the insured to rebut the presumption that the insurer was
harmed by being deprived of the opportunity to control the
defense. It’s because that’s a rough row for the insured to
hoe that a trial is necessary to determine whether the late‐
ness of the notice in this case was indeed harmless, as it ap‐
pears to have been on the present, limited record.
The second question presented by these appeals is
whether National Union was entitled to decline coverage of
Mead Johnson’s coverage claims resulting from the consum‐
er class action against it. Lexington is not a party to this suit;
we haven’t been told why. The suit was settled two years
ago for approximately $15 million.
12 Nos. 12‐3478, 13‐1526
The issue is not notice to the insurer, which was timely,
but whether the claim in the class action is within National
Union’s coverage of liability for advertising injury, defined
in the policy to include “oral or written publication, in any
manner, of material that … disparages a person’s or organi‐
zation’s goods, products or services.” We have said that in
contrast to a defamer, a “product disparager gets sales un‐
fairly from a competitor by making the consuming public
think that the competitor’s product is of lower quality than
the disparager’s—implying … that the disparager’s product
or service is of higher quality than it is.” Curtis‐Universal, Inc.
v. Sheboygan Emergency Medical Services, Inc., 43 F.3d 1119,
1124 (7th Cir. 1994); see also Aetna Casualty & Surety Co. v.
Centennial Ins. Co., 838 F.2d 346, 351 (9th Cir. 1988). National
Union’s policy requires “pay[ment to the insured of] those
sums that the insured becomes legally obligated to pay as
damages because of … advertising injury,“ defined in the
policy as including product disparagement.
The members of the class are consumers who bought
Enfamil in preference to cheaper brands of infant formula on
the basis of the same false representations by Mead Johnson
that underlay PBM’s suit. That is a claim of consumer fraud
rather than of product disparagement. Consumers do not
sell infant formula and so no product sold by any member of
the class was disparaged. Rather, Mead Johnson’s dispar‐
agement of PBM’s product induced consumers to buy
Enfamil, a more expensive product than they would have
bought had it not been for that disparagement. In short, the
class action involves no claim of product disparagement.
But Mead argues that National Union’s policy covers any
tortious injury that can be traced to product disparagement,
Nos. 12‐3478, 13‐1526 13
rather than covering just claims of product disparagement. Its
reason is that the policy covers damages for an injury “aris‐
ing out of” disparaging material. But that is imprecise. The
policy says that the damages must arise out of the “offense,”
in this case the offense of product disparagement. Must in
other words arise from a “claim for” product disparagement,
rather than just “having its origin in” product disparage‐
ment. The offense in this case is not product disparagement
but consumer fraud, which the policy doesn’t cover.
Mead Johnson’s brief attenuates “arising out of” by
equating it to “flowing from,” “having its origin in,” and, in
short, having merely some “causal link,” even if the link is
indirect. Such a chain of equations can’t be taken literally, for
that would imply that the claims in the class ”arise out of”
the invention of infant formula. Usually the next step of at‐
tenuation of causality beyond proximate cause is “but for”
cause, as in but for the evolution of man from ape PBM’s in‐
fant formula would not have been invented and so could not
have been disparaged. Legal liability rarely reaches back to
the first, a very early, link of a causal chain.
The most common meaning of “cause” when the word
appears in a judicial opinion is “proximate cause”—the
meaning of which remains opaque after two centuries of in‐
cessant invocation. See, e.g., United States v. Laraneta, 700
F.3d 983, 990–91 (7th Cir. 2012); CDX Liquidating Trust v.
Venrock Associates, 640 F.3d 209, 214–15 (7th Cir. 2011); BCS
Services, Inc. v. Heartwood 88, LLC, 637 F.3d 750, 754–55 (7th
Cir. 2011). All that’s clear is that it does not mean but‐for
cause and so does not sanctify the absurd hypotheticals in
the preceding paragraph.
14 Nos. 12‐3478, 13‐1526
Here is a less fanciful example of where Mead’s capa‐
cious conception of “arising out of” could lead. Suppose that
a mother who has been feeding her baby a store‐brand infant
formula made by PBM reads Mead Johnson’s ad which
states that “mothers who buy store brand infant formula to
save baby expenses are cutting back on nutrition compared
to Enfamil,” PBM Products, LLC v. Mead Johnson & Co., supra,
639 F.3d at 118, or, worse, sees Mead’s visual‐acuity ad, re‐
produced below, that tells mom that if fed Enfamil her baby
will see an adorable rubber ducky with butterflies, while if
fed a store brand, baby will be able to make out only a blurry
yellow monster chased by bats. Mom, fearing that she has
done irrevocable harm to her precious child, has a nervous
breakdown precipitated by Mead’s false, alarmist advertis‐
ing. If she sues Mead Johnson for infliction of emotional dis‐
tress, can Mead require National Union to defend and in‐
demnify it on the ground that the mother’s nervous break‐
down arose from product disparagement? An affirmative
answer—the answer implied by Mead Johnson’s argu‐
ment—would, by expanding coverage to remote conse‐
quences, make it very difficult for an insurer to estimate lia‐
bility and thus fix a premium for injuries caused by product
disparagement.
Nos. 12‐3478, 13‐1526 15
Mead cites four cases that it claims interpreted “arising
out of” very broadly. One, E.R. Squibb & Sons, Inc. v. Lloydʹs
& Cos., 241 F.3d 154, 170–71 (2d Cir. 2001) (per curiam),
didn’t involve causation. The other three interpreted “arising
out of” in exclusions from coverage, such as an exclusion of
“any claim which ‘arises wholly or in part out of’ an illegal
act.” Bagley v. Monticello Ins. Co., 720 N.E.2d 813, 816 (Mass.
1999); see also Continental Casualty Co. v. City of Richmond,
763 F.2d 1076, 1080–81 (9th Cir. 1985); Underwriters at Lloydʹs
of London v. Cordova Airlines, Inc., 283 F.2d 659, 664–65 (9th
Cir. 1960). That’s the opposite of interpreting “arising out of”
broadly in order to expand coverage, which would make it
difficult for an insurance company to fix a premium based
on a reasonable estimate of potential liability—there would
be no basis for rational estimation if “arising out of” has an
indefinite extension. The Indiana courts agree. See Indiana
Lumbermens Mutual Ins. Co. v. Statesman Ins. Co., 291 N.E.2d
897, 898–99 (Ind. 1973); Westfield Ins. Co. v. Herbert, 110 F.3d
24, 26–27 (7th Cir. 1997) (Indiana law).
This is not to say that the complaint in the underlying
tort suit must use the words “product disparagement” for
coverage to be triggered. A claim that fits the legal definition
16 Nos. 12‐3478, 13‐1526
of product disparagement will trigger coverage even if the
magic words are missing. Del Monte Fresh Produce N.A., Inc.
v. Transportation Ins. Co., 500 F.3d 640, 643–44 (7th Cir. 2007);
Cincinnati Ins. Co. v. Eastern Atlantic Ins. Co., 260 F.3d 742,
745 (7th Cir. 2001); Federal Ins. Co. v. Stroh Brewing Co., 127
F.3d 563, 566 (7th Cir. 1997) (Indiana law). But a consequence
is not a claim. Mead is trying to shoehorn one tort—product
disparagement, which the insurance policy covers—into an‐
other—fraud, which isn’t covered. That’s a sleight‐of‐hand
we rejected in the virtually identical case of BASF AG v.
Great American Assurance Co., 522 F.3d 813, 820 (7th Cir.
2008); cf. Rose Acre Farms, Inc. v. Columbia Casualty Co., 662
F.3d 765, 768 (7th Cir. 2011). Mead Johnson tries to distin‐
guish BASF on the ground that the tort claim giving rise to
the insurance claim in that case was not fraud but instead a
violation of antitrust law. Insurance companies generally re‐
fuse to cover antitrust liability because of the moral hazard
problem (deliberate and often profitable wrongdoing, such
as conspiring to fix prices, a core antitrust violation, would
be encouraged if the conspirators were insured against dam‐
ages for their misconduct) and the difficulty of estimating
the likelihood and magnitude of the insured event. The same
is true in this case, however. The consumer fraud of which
Mead Johnson was accused is a form of intentional wrong‐
doing, and will be encouraged if the standard Commercial
General Liability policy insures Mead against liability for
such antics.
To summarize, the grant of summary judgment in favor
of the insurers in the suit relating to the PBM litigation is re‐
versed and that case remanded for further proceedings con‐
sistent with this opinion, while the judgment in favor of Na‐
Nos. 12‐3478, 13‐1526 17
tional Union in the suit arising from the class action against
Mead Johnson is affirmed.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.