Duty to Defend Against Claim for Defamation
In American Econ. Ins. Co. v. Haley Mansion, Inc., Mansion and Bussean filed a complaint against their former employee, Molburg. Mansion and Bussean alleged that Molburg, who was hired as the general manager, told other employees that Bussean installed hidden surveillance cameras and was secretly taping employees and female guests undressing in the bridal suite of the Mansion. Molburg also allegedly told employees that Bussean repeatedly made sexually graphic and vile statements to Molburg about each of them. As a result of Molburg’s statements, the employees quit. In response, Molburg filed a counterclaim where she alleged defamation per se, defamation per quod, and false light against the Mansion and Bussean. She also alleged sexual harassment, retaliatory discharge, retaliation, and a violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act. In Molburg’s counterclaim, she alleged that Bussean consistently made lewd comments about women’s physical features, breasts, and bodies; would become enraged if women in his employ rejected him; installed a camera in the private bridal suite that sent a live feed to his office; and did not want married women to be hired, instead preferring single, attractive women. According to Molburg’s counterclaim, on July 31, 2010, employees at the Mansion advised Molburg that the Joliet Police Department wanted to search the premises. Molburg met with the two detectives and told them that she did not have the authority to permit their request. Bussean then terminated her employment on July 31, 2010; and after that date, Bussean told others that Molburg was “mentally unstable,” “incompetent,” “untrustworthy,” a “cunt,” “engaged in criminal activity,” and a “dishonorable woman.” Molburg alleged, in part, that Bussean either knew the statements against her were false or acted with reckless disregard as to the falsity of the statements. On March 21, 2011, American Economy filed a complaint for declaratory judgment in the case. It sought a declaration that American Economy had no duty to defend its insureds, the Mansion, Bussean, and Bussean Catering, with regard to Molburg’s counterclaim.
According to American Economy’s second amended complaint, the insureds were covered under a commercial general liability policy from September 1, 2009, to September 1, 2010, and from September 1, 2010, to September 1, 2011. The policy stated that American Economy had a duty to defend its insureds against any lawsuit seeking damages for a “personal and advertising injury.” The policy defined personal and advertising injury to include any oral or written publication that slandered or libeled a person’s goods, products, or services, or violated a person’s right to privacy. However, the policy also included multiple exclusions to this coverage. The first exclusion involved “Employment-Related Practices” and excluded coverage for claims of any person that arose out of (1) termination of the person’s employment or (2) employment related practices, policies or acts or omission, like coercion, demotion, evaluation reassignment, discipline, defamation, harassment, humiliation, discrimination, or malicious prosecution directed at that person. The second exclusion involved “Knowing Violation of Rights of Another” and excluded coverage for claims of any person that arose out of personal and advertising injury caused by the insured with knowledge that the act would violate the rights of another and would inflict personal and advertising injury. The third exclusion in the policy involved “Material Published with Knowledge of Falsity” and excluded coverage for claims based on “personal and advertising injury” that arose out of oral or written publication of material if done by, or at the direction of, the insured with knowledge of its falsity.
The court addressed the question of whether the policy exclusions apply. America Economy contended that an employer’s alleged defamatory statements need not be related to the employee’s performance for the exclusion to apply. American Economy suggested that when an employer shares no other relationship with the employee outside the workplace, an alleged defamatory remark by the employer should be automatically considered to arise out of the employment relationship, and the defamation is therefore employment-related. The court disagreed because the plain language of the exclusion specifically excluded coverage of any claims of a person that arose out of ” employment-related practices, policies, acts or omissions, such as…defamation…directed at that person.” Thus, with regard to the act of defamation, the exclusion applies if the statement relates to the employment of the alleged defamed person. The court, therefore, focused on the content of the statement, not the nature of the relationship, between the parties to determine if the exclusions applied to Bussean’s actions. The court concluded the policy, by its own terms, is clear that the exclusion applied to any employment-related statement by Bussean that gives rise to a defamation claim.
The court in analyzing the other two exclusions, “Knowing Violation of Rights of Another” and “Material Published with Knowledge of Falsity,” determined based on the plain language of the policy, that in order for these exclusions to apply, the insured had to cause injury, in this case, defamation, with knowledge of its falsity. The case law provided that the allegations of recklessness may bring a defamation claim within the potential coverage of a policy which covers defamation but excluded knowing falsehoods. Thus, the court found that these two policy exclusions do not apply.
The court held that the insurance company had a duty to defend it insureds, because not all of the defamatory statements alleged were employment-related and the additional two policy exclusions did not apply.
American Econ. Ins. Co. v. Haley Mansion Inc., 2013 WL 1760600 (Ill.App. 3 Dist.)). (This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1)).
