Wade Clark Mulcahy LLP

<p style="text-align: justify;">In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2020/07/National-Casualty-Company-v.-National-Strength-and-Conditioning-Association.pdf">National Casualty Company v. National Strength and Conditioning Association</a>,</em> the Southern District of California weighed in on the insurance coverage implications for sanctions arising out of alleged discovery misconduct.  In that decision, the court held that there could be no quick ruling regarding coverage for the sanctions pending the appeal for whether those sanctions were warranted.  The decision is notable for its analysis and restraint in waiting to resolve coverage obligations until there is a final judgment on the merits.</p>
<p style="text-align: justify;">The sanctions arose from an underlying lawsuit, in which CrossFit sued the National Strength and Conditioning Association (“NSCA”) in federal court in 2014, alleging it published and distributed a study containing false, misleading and deceptive statements about CrossFit's accreditation and injury rates. In May 2017 the court sanctioned the NSCA to pay $73,550 for violating discovery orders and lying under oath. Later, court levied an additional $3.9 million in sanctions against the NSCA for further discovery abuses, finding that the nonprofit had engaged in a pattern of concealment and destruction of evidence.</p>
<p style="text-align: justify;">National Casualty, NSCA’s insurer, sued the NSCA in the U.S. District Court for the Southern District of California, alleging the nonprofit's commercial general liability and excess policies do not cover the monetary sanctions. NSCA argues that National Casualty should not be able to deny coverage because it failed to provide NSCA with independent counsel in the underlying litigation.  Additionally, NSCA argues the insurer appointed a law firm that has close ties to National Casualty to defend it and the appointment created a conflict of interest. Both sides moved for summary judgment.</p>
<p style="text-align: justify;">The court denied the summary judgment motions on the basis that it could not cannot resolve coverage until a final judgment is issued on the merits of the sanctions orders. The court found that a final judgment on the sanctions will help resolve whether the NSCA made knowing or intentionally false statements. Such a finding is critical in determining whether National Casualty has a right to avoid covering the underlying litigation. The court also found that a final judgment also will inform the present coverage row by determining whether the NSCA can "shift any blame" for the sanctions to its allegedly conflicted defense counsel.</p>
Thanks to Andrew Debter for his contribution to this post. Please email <a href="mailto:gcoats@wcmlaw.com">Georgia Coats</a> with any questions.