Juul’s half-billion dollar loss
Is Juul’s claim covered?
Kyle Langan
True or False? Juul Labs is protected by its Commercial General Liability for numerous states suing the company over its marketing practices.
Juul
Juul devices were originally 18+, then a 21+ age requirement was set, like alcohol. Any e-cigarette like Juul is obviously a health concern for minors, based on the practical understanding society has of nicotine addiction’s effects. Still, Juuls were making their way into minors’ hands in 2017, and perhaps even more. Consider the scenario of an 18 year old high school Senior purchasing a very inexpensive Juul device and offering it, or even profiting from the sale, to a 17-year old Junior. The Juul was and remains a great option for a baby boomer trying to quit a lifelong cigarette addiction. Sadly, Juuls had a vastly negative effect on boomers’ kids; it hooked teenagers on nicotine out of curiosity for the vape technology. Later, these young adults may have pivoted to cigarettes because they offer a better nicotine buzz! This is not a prediction or a guess. Anyone who was in high school or college in 2017 saw this with their own eyes. Killing tobacco use completely is chimeric. And that’s fine. But this pivot and broad re-engineering of nicotine addiction was an intentional tactic from nicotine corporations like Altria, which invested in Juul early on.
Leitmotif
Juul’s creators set a reasonable leitmotif for the company. Two former cigarette smokers, two scientists worked to improve the nicotine industry. Founder Adam Bowen “understands the physics and thermodynamics that govern vapor production, is an excellent experimentalist, and also has a deep understanding of user centered design. He is a fearless questioner of every assumption and seeks deep understanding. He already has invented some platform technologies which represented steps forward in innovation for the industry, and will continue to make significant scientific contributions to the field,” according to Gal Cohen, who worked with Adam at Juul Labs for 14 years. However, Juul allegedly misled consumers about the addictive nature of its liquid nicotine pods and marketed them to minors. MA, PA, and many other states agreed with this analysis of the marketing effort.
Demise
Juul’s problem and gradual demise was not the devices, but its target market. Juul marketed to underage users with launch parties, ads using young models, social media posts and free samples. Juul was also accused of using age verification techniques that it knew were ineffective. A settlement for nearly a half billion USD was the punishment dished as smoke and retribution for targeting minors on social media.
General Liability
The answer to the true/false question is FALSE. Juul receiving this suit would only be protected by a uniquely tailored insurance policy / Alternative Risk Transfer arrangement.
Advertising injury coverage, as a part of the Commercial General Liability policy is intended to cover claims arising from defamation, copyright infringement, or using another business’s advertising idea. Therefore, it’s important to consider what insurance coverages or other risk financing strategies will be triggered by certain events before a loss happens. Juul needed coverage for claims made directly against a corporation (the entity) for wrongful acts (and wrongful acts language in the policy needs to match the allegations at the time of the claim. D&O entity coverage addresses a variety of loss exposures related to communication and interaction with the public that businesses encounter. Additionally, stakeholders of Juul could sue the executives of company for the actions, inactions, or a breach of good faith – acting outside of the best interests of the company (fiduciary responsibility). The protection that is triggered from this part of the loss is provided through Coverage A of D&O, again making D&O a recommendation strategically. This would cover the directors and officers of Juul for their personal liability.
Conclusion
In response, Juul argued that its vaping products can provide a solution to the harmful health impacts from conventional combustible cigarettes. Juul Labs settled 5,000+ more lawsuits filed against it in Northern California. Roughly 10,000 plaintiffs’ settlement amounts were not disclosed, but Juul officials said they have secured an equity investment to fund the resolution. How would your company fund the response to a loss of this nature? The nearly $500MM severity might be impractical to consider a response strategy for, but the nature of it – a loss that does fit within the borderline of Commercial General Liability.