Traub Lieberman Straus & Shrewsberry LLP congratulates Mike S. Knippen, James M. Eastham and Natalie M. Mesplou on their recent victory on motion for summary judgment in the civil action captioned Audit Bureau of Circulations v. Axis Specialty Insurance Co.
November 04, 2009

CHICAGO, ILLINOIS TRAUB LIEBERMAN STRAUS & SHREWSBERRY LLP congratulates Mike S. Knippen, James M. Eastham and Natalie M. Mesplou on their recent victory on motion for summary judgment in the civil action captioned Audit Bureau of Circulations v. Axis Specialty Insurance Co., in the United States District Court for the Northern District of Illinois, case number 08 CV 3089.

Plaintiff, Audit Bureau of Circulations (“ABOC”), filed a declaratory judgment action seeking coverage under an errors and omissions liability policy issued by Axis Specialty Insurance Co. (“Axis”) in connection with several underlying lawsuits filed in New York alleging that ABOC aided and abetted a fraud to inflate magazine circulation figures and advertising rates. The Axis Insuring Agreement provided coverage for “wrongful acts,” defined as negligent acts, errors or omissions and Axis denied coverage on the basis that the underlying lawsuits alleged only intentional conduct on the part of ABOC. Illinois law was applied to the coverage action and TLS&S moved for summary judgment under Illinois’ four corners duty to defend standard. In response, ABOC argued that grossly negligent conduct could support a claim for fraud under New York law (the law applied in the underlying suits) and, correspondingly, the possibility of coverage existed despite the solely intent-based allegations. ABOC further attempted to invoke Illinois’ “true but unpled facts doctrine” and argued that AXIS should have defended the underlying lawsuits based on its coverage decisions in other unrelated claims and based on its knowledge of ABOC’s business. In response to ABOC’s arguments, TLS&S cited numerous New York decisions for the proposition that a claim for aiding and abetting fraud necessarily entails actual knowledge and intentional conduct. TLS&S further argued that the “true but unpled facts doctrine” was irrelevant to the matter and, therefore, the extrinsic evidence cited to by ABOC had no relevance to the coverage determination.

The Honorable Robert W. Gettleman entered an Order granting Axis’ Motion for Summary Judgment, finding that the underlying lawsuits did not allege covered negligent acts. Judge Gettleman also refused to consider any extrinsic evidence outside the four corners of the complaints, which unambiguously alleged intentional conduct of aiding and abetting fraud by ABOC. Correspondingly, the Judge found that the underlying lawsuits did not fall with the coverage of the Axis policy and held that Axis owed no duty to defend ABOC.