By: Seth Kirby
This week a federal judge in California has ruled that a class-action lawsuit against Starbucks can proceed. The lawsuit alleges that the company has systematical cheated its customers by under filling its latte based beverages. The plaintiffs argue that Starbucks is deceiving its customers, and saving money in ingredient costs, by failing to fill its latte beverages to the brim with liquid. Specifically, they allege that a 16 ounce grande latte does not actually contain 16 ounces of liquid, but rather a lesser amount of liquid topped by foam. Of course, the class-plaintiffs claim that they and all customers who have purchased lattes have been damaged by this deception.
Putting aside commentary about the likely motivation for this type of this type of lawsuit (Hint - Fortune magazine recently reported that the Starbucks mobile app stores about $1.2 billion for their customer’s potential purchases, more than many banks have on deposit). The lawsuit shines a light on an important concept for insurance coverage analysis – are the damages alleged in the complaint potentially covered by the relevant insurance policy? The answer to this question will impact whether the suit is entitled to coverage under a liability policy issued to the insured defendant.
Using the Starbucks class action as a example, if the Plaintiffs were only seeking injunctive relief (i.e. a court order forbidding Starbucks from continuing the practice in the future), some liability policies might not provide coverage for the claim as it fails to seek “damages.” Continuing the analogy, what harm have the plaintiffs allegedly suffered? There is no allegation of bodily injury, but what about property damage? Many jurisdictions have held mere economic injury does not constitute property damage as the loss of money is not “physical injury to tangible property.” Bottom line, if the suit does not allege a covered loss, liability coverage may not be triggered. Evaluation of the damages alleged and the comparison of those allegations to the policy at issue is a must for proper coverage analysis.
Now, when will someone start a class action regarding the tendency of the baristas to place the lid on top of the cup’s seam? They leak every time, much to the delight of my dry cleaners. Maybe there is a conspiracy.