In Sletten & Brettin Orthodontics, LLC v. Continental Casualty Co., No. 13-2918 (8th Cir., Mar. 19, 2015), the United States Court of Appeals for the Eighth Circuit considered and rejected the insured’s argument that its commercial general liability policy’s coverage provisions pertaining to defamation claims were ambiguous and/or illusory. As background, the underlying complaint alleged that one of the underlying defendants posted defamatory messages about a competing orthodontic practice on a Yahoo! Review site while pretending to be the claimants’ aggrieved patients. The underlying complaint alleged defamation and libel, civil conspiracy, and unfair competition. It was specifically pleaded that the underlying defendant acted with intent to injure the claimant. Accordingly, the Eight Circuit found that Continental Casualty had no duty to defend.
Sletten & Brettin Orthodontics (“S&B”) tendered its defense to Continental Casualty, which denied coverage, and subsequently sued for defense costs and reformation of the insurance policy. The United States District Court for the District of Minnesota ruled in favor of Continental Casualty. S&B appealed to the Eighth Circuit. Applying Minnesota law, the Eight Circuit reiterated the rule that the duty to defend is determined by comparing the insurance policy’s terms to the allegations of the underlying complaint against the insured. Since the underlying complaint alleged that S&B acted with intent to injure the claimant, the Eighth Circuit affirmed the district court.
S&B argued that the policy was ambiguous because it specifically states that there is coverage for defamation, an intentional act under Minnesota law, but only if caused by an “occurrence” – which is defined, in part, as an accident – and excluding injury expected or intended by the insured. In other words, S&B argued that by enumerating defamation while excluding coverage for intent-to-injure claims, the policy created an ambiguity that should be resolved in its favor. The court disagreed and interpreted the policy as providing coverage for defamation, in general, just not defamation that was specifically intended to injure the claimant. The court offered examples of the type of defamation claims that would be covered, such as a claim where the defendant attempted to conceal the claimant’s name from its defamatory statements or one where the defendant had a good faith belief that the defamatory statement was true.
S&B also argued that the policy’s defamation coverage was illusory because a defamation claim against a corporation or public figure requires “actual malice.” The court disagreed because defamation claims asserted by private individuals, which could potentially be covered under the policy, do not require a showing of actual malice.
Finally, S&B argued that Continental Casualty had a duty to defend because a Minnesota defamation claim does not require proof of intent to injure and, therefore, it was possible that S&B would be held liable on a theory that would not be excluded by the policy. The Court rejected this argument because the underlying complaint specifically alleged intent to injure. Even though this showing was not required of the claimant, the court’s interpretation was nevertheless subject to the pleadings as they were made.
This case has significant implications where all claims in an underlying action include allegations that trigger insurance policy exclusions. Even though the duty to defend in Minnesota appears to be broad in that it is based on the allegations of the underlying complaint, this decision serves as a reminder that courts may not find a duty to defend by “imagin[ing] allegations that [the claimant] could have made merely because [the] actual allegations went beyond the bare minimum of notice pleading.”