Insurer’s Duty to Defend Held Triggered by Defamation Claim

Insurance against defamation claims is often found in policies providing coverage for liability arising from “personal and advertising injury.” In State Farm Fire and Casualty Co. v. Franklin Center for Government and Public Integrity, for example, the United States District Court for the Eastern District of Virginia examined a business liability insurance policy to determine whether State Farm was required to defend the insured in a lawsuit alleging claims for defamation and tortious interference. The court considered the plain language of the policy and its exclusions and ultimately held that State Farm had an obligation to defend its insured.

Franklin Center for Government and Public Integrity (“FCGPI”) operates the Watchdog.org website. GreenTech Automotive, Inc., filed a civil action against FCGPI alleging defamation and intentional interference with business and prospective business relations stemming from two articles posted on Watchdog.org. FCGPI was insured by a State Farm business liability policy, and State Farm brought a declaratory judgment action seeking a declaration of non-coverage based primarily on various policy exceptions.

The policy provided that State Farm would pay what FCGPI was legally obligated to pay as damages because of “personal and advertising injury.” The court first considered whether GreenTech’s alleged injuries fell within the policy definition of “personal and advertising injury,” which the policy itself defined to include injury arising out of “oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” The court found that GreenTech’s claims for both defamation and tortious interference fell squarely within the policy coverage for personal and advertising injury.

The court then examined whether any of the policy exclusions applied to GreenTech’s claims. The policy contained an exclusion for injury caused with knowledge that the act would violate another’s rights and inflict defense.jpgadvertising injury. GreenTech’s complaint alleged that FCGPI made statements in bad faith and with the intent to harm, but the court found that GreenTech did not necessarily have to prove “knowledge” in order to recover on its defamation claim. Noting that State Farm had a duty to defend FCGFI unless “it clearly appears from the initial pleading the insurer would not be liable under the policy contract for any judgment based upon the allegations,” the court held that State Farm had a duty to defend.

The policy also contained an exclusion for injury committed by an insured whose business is advertising, broadcasting, publishing or telecasting. The parties agreed that FCGPI was not in the business of advertising, broadcasting or telecasting, so the court only had examine whether FCGPI was an insured whose business was “publishing,” a term not defined by the policy. While recognizing that FCGFI “publishes” information on its website in the sense that it disseminates information to the public, the exception only applied to companies whose “business is…publishing,” and not everyone who puts information on the Internet can be regarded as being in the publishing business.

The court examined other provisions of the policy and concluded that within the context of the policy, more than one reasonable meaning of the phrase “an insured whose business is publishing” existed, at least one of which would not cover FCGPI’s business. Accordingly, the exclusion failed to give the insured fair notice as to when and under what circumstances the exclusion would apply to defamation or other claims. The court held that because the exclusion did not unambiguously or clearly apply, it could not be enforced to reduce coverage otherwise provided.

The court also examined exclusions relating to injury arising out of an electronic chat room or bulletin board and out of a criminal act and found them inapplicable. The court held that State Farm had a duty to defend FCGPI against the defamation and tortious interference claims but that indemnification issues would be determined following the conclusion of the litigation.

As of this writing, State Farm’s Motion for Reconsideration is set for oral argument on May 23, 2014.

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