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Defamation complaint not covered by insurance

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“Although the section of the complaint specifically discussing defamation did not use magic words like ‘wanton and willful,’ ‘malicious,’ ‘purposeful,’ or ‘intentional,’ … a fair reading of the complaint as a whole warrants the conclusion that the plaintiffs accuse Elliott of intentional defamation.”

Hon. Richard S. Brown Wisconsin Court of Appeals

"Negligent defamation" is not a contradiction in terms, the Wisconsin Court of Appeals held on July 20. Thus, a definition of "occurrence" in an insurance policy that excludes intentional conduct, while providing coverage for defamation, is not illusory.

Edward Baumann, the Chief of Police of the Village of Pewaukee, owns a security firm, Elite Protection Specialists, LLC. Matthew F. Elliott owns Security Arts Corporation, a competing business. Elliott is insured by Cincinnati Insurance Company.

Baumann brought suit against Elliot, stating three causes of action: (1) tortious interference with contracts and prospective contracts, (2) defamation, and (3) threats to injure or accuse of a crime. The complaint alleged that Elliott claimed that Baumann abused his office by having employees of Elite perform their duties while wearing police-issued uniforms.

The paragraphs pertaining to de-famation did not allege intentional wrongdoing. However, the first paragraph pertaining to defamation incorporated the paragraphs pertaining to tortious interference with contract, which did allege intentional conduct.

Also, the ad damnum clause sought punitive damages for Elliott’s "malicious, wanton and willful, defamation of Baumann."

What the court held

Case: Edward Baumann v. Matthew F. Elliott, No. 2004AP2177.

Issue: Where a complaint alleges intentional defamation, and the defendant’s insurance policy defines "occurrence" as an "accident" resulting in personal injury, does the defendant’s insurer have a duty to defend?

Holding: No. Under the policy’s definition, only negligent defamation is an "occurrence" that triggers coverage.

Counsel: Joseph J. Voelkner, Sheboygan; Jerry D. Zimmerman, Brookfield, for appellant; Stephanie L. Dykeman, Brookfield, for respondent.

Elliott’s insurance policy provided coverage for personal injury arising out of defamation. "Occurrence" was defined in the policy as "an accident, including continuous or repeated exposure to substantially the same general conditions, which results, during the policy period, in … ‘personal injury.’"

Cincinnati Insurance moved for summary judgment, arguing that it had no duty to indemnify or defend Elliot, because intentional defamation is not an "occurrence" under the policy. Waukesha County Circuit court Judge Jacqueline R. Erwin agreed. Elliott appealed, but the court of appeals affirmed in a decision by Judge Richard S. Brown.

The court conclude that the complaint alleged only intentional defamation. The court noted, "In setting forth its second cause of action, defamation, para. 19 of the complaint specifically incorporates the allegations related to its first cause of action, which alleges intentional interference with the EPS’ business relationships. Paragraph 19 is fatal to Elliott’s position that the complaint does not allege intent to defame because it makes clear that the first and second causes of action arise from the same set of facts (emphasis in original)."

Elliot argued that the prayer for relief is not a substantive part of the complaint and therefore, should not be considered, but the court disagreed: "the ad damnum clause’s characterization of Elliott’s defamation of EPS and Baumann as ‘malicious, wanton and willful’ is supported by factual allegations in the body of the complaint.

Although the section of the complaint specifically discussing defamation did not use magic words like ‘wanton and willful,’ ‘malicious,’ ‘purposeful,’ or ‘intentional,’ we have already explained why a fair reading of the complaint as a whole warrants the conclusion that the plaintiffs accuse Elliott of intentional defamation. We hold that we may rely on the ad damnum clause to clarify the allegations set forth in the remainder of the complaint."

The court also rejected Elliott’s argument that, if the policy does not cover intentional defamation, the defamation coverage is illusory.

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Case Analysis

The court concluded, "a plaintiff may sometimes recover from a defendant even when the defendant publishes a defamatory statement by failing to exercise due care, i
.e., negligently. Mere negligence usually will only justify compensatory damages (because only implied malice exists), whereas punitive damages require a showing of various types of ill will or corrupt motives that demonstrate malice in fact. Simple negligence, without more, may also satisfy the ‘malice in fact’ requirement of express malice in special situations, e.g., where the defendant asserts a conditional privilege."

Because the policy covered only negligent defamation, while the complaint alleged only intentional defamation, and such coverage is not illusory, the court affirmed.

Click here for Case Analysis.

David Ziemer can be reached by email.

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