Egg Producer to Front Its Conspiracy Trial Costs

CHICAGO (CN) - The second largest egg producer in the United States will have to defend itself against antitrust litigation without the benefit of coverage by its liability insurers, the 7th Circuit ruled.

Rose Acre Farms faces several class actions alleging a conspiracy to fix the price of eggs in violation of the Sherman Act. According to the complaints, Rose Acre belongs to United Egg Producers, a trade association that publishes husbandry guidelines and permits complying producers to market their eggs as "United Egg Producers Certified." This certification, the actions claim, is in fact a conspiracy by egg producers to set egg prices.

The cases were consolidated and transferred to federal court in Pennsylvania.

Rose Acre asked its liability insurers, Columbia Casualty Company and National Fire Insurance Company, for indemnification, claiming that the antitrust complaint seeks damages for "personal and advertising injury."

"The insurance policy defines 'personal and advertising injury' as '[injury] arising out of one or more of the following offenses,' and a list of torts follows that includes 'the use of another's advertising idea in your advertisement,'" according to court records.

A federal judge threw out the lawsuit Rose Acre filed when the insurers denied coverage.

In addition to regular eggs, Rose Acre sells eggs from "free-roaming" chickens that are given larger outdoor living areas and a vegetarian diet. According to Rose Acre, statements about "free-roaming" eggs on its website could be seen as intended to throw consumers suspicious of the high price of eggs off the scent by attributing the cost to humane living conditions for chickens, rather than a price-fixing conspiracy. This confusion over its advertising, Rose Acre argues, is the root of the antitrust suit.

The 7th Circuit called the logic "convoluted."

"The complaint doesn't mention Rose Acre's website," Judge Richard Posner wrote for a three-judge panel. "It says that 'Rose Acre has participated in and profited from... efforts to reduce supply and fix prices,' that 'Rose Acre has agreed to the conspiracy by selling UEP certified eggs.'"

"Antitrust liability, moreover, is a major business risk, especially for one of the largest companies in a major market," the Nov. 1 decision states. "It is hardly likely that parties to an insurance contract would seek to cover such a serious risk indirectly through an 'advertising injury' provision aimed at misappropriation and other intellectual-property torts."

The policy also does not apply to deliberate injury or injury arising form a criminal act, categorically preventing coverage when violations of federal antitrust law are alleged.

"We note finally that the Eleventh Circuit, in a case decided a week before the oral argument in this case, rejected an identical claim by a firm represented by Rose Acre's counsel in this case," Posner concluded.

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