Insured’s Failure to Cooperate Dooms Judgment Creditor’s Claim against Insurer

Kings Sports, Inc., which advertised and sold golf clubs online, was sued by Roger Cleveland Golf Company, Inc., for allegedly violating Cleveland Golf’s trademarks by advertising and selling golf clubs that looked like clubs it manufactured but that actually were not manufactured by it or with its permission. State Farm Fire and Casualty Company, Kings Sports’ insurer, attempted to contact Kings Sports and its owner by phone, only to learn that its number was no longer in service. State Farm also sent numerous letters to Kings Sports requesting contact about the claim and advising that failure to communicate or cooperate could result in a denial of coverage. In addition, a claims representative visited Kings Sports’ business address, only to find the space vacant. State Farm made multiple phone calls to all known phone numbers, and sent email messages to Kings Sports, but had no success in reaching the company or its owner.

In the meantime, an employee of Kings Sports entered into a settlement agreement with Cleveland Golf, agreeing to a $1 million judgment, which he executed as the “owner” of Kings Sports. Cleveland Golf agreed not to pursue Kings Sports for the amount of the judgment but only to seek to collect from State Farm. 

State Farm filed a complaint seeking a declaratory judgment against Kings Sports and Cleveland Golf. Cleveland Golf counterclaimed, arguing that State Farm had breached its duty to defend Kings Sports with respect to Cleveland Golf’s suit. The district court ruled in favor of State Farm, and Cleveland Golf appealed.

The Eleventh Circuit affirmed. It found that “no fair minded jury” could conclude from the evidence that State Farm had acted other than diligently and in good faith in its effort to secure information from Kings Sports and its owner and to provide a defense of the lawsuit filed by Cleveland Golf. The circuit court then ruled that because Kings Sports and its owner had failed to cooperate in the defense of that lawsuit, notwithstanding State Farm’s efforts, recovery on the policy was foreclosed for Kings Sports, its owner, and, by extension, Cleveland Golf. Accordingly, the Eleventh Circuit upheld the district court’s decision to award summary judgment in favor of State Farm.

The case is State Farm Fire and Cas. Co. v. Kings Sports, Inc., No. 11-16169 (11th Cir. Sept. 4, 2012).

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