Cincinnati Ins. Co. v. American Hardware Mfrs. Ass'n, 898 N.E.2d 216 (Ill. App. Ct. (1st Dist.) 2008)
The suit initiated by Cincinnati sought a declaration that it had no duty to defend American Hardware Manufacturers Association (“AHMA”) and its executive officers. Following the initiation of suit, AHMA and its executive officers assigned their rights under the Cincinnati policies to defendant-counterclaimant Federal Insurance Company, which had agreed to fully defend their claims.
The court addressed a number of challenges by Cincinnati to Federal’s ability to act in that capacity, finding that the assignment agreement was supported by consideration, was not a prohibited partial assignment, did not run afoul of Cincinnati’s anti-assignment clause, nor violate public policy.
Applying Illinois law, the court rejected the applicability of the fortuity doctrine to offense-based coverage, reasoning, at 236-37:
Cincinnati contends that the defamation and libel counts alleged in the counterclaims do not allege any fortuitous loss and, therefore, no duty to defend was triggered. . . .
Federal responds that Cincinnati has conflated intentional acts with intentionally caused injuries. Federal argues that the assertion of intentional acts does not run afoul of the fortuity requirement. Federal notes that none of the cases cited by Cincinnati involve the personal and advertising injury coverage at issue here. Federal asserts that, to expressly grant coverage for intrinsically intentional conduct and at the same time disclaim a duty to defend because the underlying allegations assert intentional conduct suggests that the Cincinnati policies either provide virtually non-existent coverage or contain a fatal ambiguity. Federal contends that, if Cincinnati's reasoning is correct – that personal and advertising injury coverage does not apply to the intentional acts of the insured – the coverage would be illusory.
. . . .
“Allegations of recklessness may bring a defamation claim within the potential coverage of a policy which covers defamation but excludes knowing falsehoods.”
The court expressly rejected the argument that case law in Illinois made the fortuitous losses “a requirement in every insurance liability policy” and the court noted that Cincinnati cited no authority extending the “fortuitous loss” concept as articulated by it from this context. Id. at 237.
Addressing the illusory contract prohibition, in light of the “occurrence” predicate to defamation coverage which would render it illusory if interpreted narrowly as Cincinnati urged, the court reasoned:
[T]he Cincinnati policies purport to provide coverage for defamation and libel, but the 2003 to 2006 policy and the definition of “occurrence” provide coverage only for unintentional conduct. Accordingly, as in [Hurst-Rosche Engineers, Inc. v. Commercial Union Ins. Co., 51 F.3d 1336 (7th Cir. 1995)], the Cincinnati policies contain internal inconsistencies because, “on the one hand Cincinnati purports to provide coverage for intentional tort claims, and on the other hand Cincinnati denies coverage for those same claims.” Hurst-Rosche, 51 F.3d at 1345. Based on the well-reasoned decisions in [Tews Funeral Home, Inc. v. Ohio Cas. Ins. Co., 832 F.2d 1037 (9th Cir. 1987)] and Hurst-Rosche, we find that the ambiguity in the Cincinnati policies must be resolved in favor of the insureds or, in this case, the assignee of the insureds, Federal.
Id. at 240.
The court also independently determined that the occurrence language did not preclude coverage for the underlying counterclaim for defamation and libel as the Hurst-Rosche court also found under its fact scenario, 51 F.3d at 1546.
[A]lleged deliberate misconduct does not always bring a claim within an intentional conduct exclusion:
“[I]t is important to this case that the exclusion is not of intentional torts as such (nor is defamation an intentional tort in any simple sense), but of tortious conduct in which there is an intent to injure or an expectation of injuring. And in the case of defamation, at least, the exclusion does not track the tort. * * * [D]efamation is often not intended or expected to injure anyone.” Cincinnati Insurance Co. v. Eastern Atlantic Insurance Co., 260 F.3d 742, 746 (7th Cir.2001).
Id. at 240.
Neither an “intent to injure” nor an “expectation of injury” is an element of the tort of defamation. Moreover, since allegations of recklessness “may bring a defamation claim within the potential coverage of the policy which covers defamation but excludes knowing falsehoods,” Cincinnati’s duty to defend was triggered. Id. at 241.
Equitable contribution rights arose between the insurers. While equitable contribution does not apply to primary/excess insurance issues because they cover different risks by their very definitions, that both primary insurers issued coverage to the same insureds with different policy triggers did not make a difference, i.e., they need not both be occurrence-based and should permit contribution. Here, claims-made policies issued by Cincinnati were implicated as were occurrence-based policies by Federal, and contribution rights arose.
The court emphasized that the “other insurance” provisions in each of the subject policies reinforce the conclusion that Cincinnati and Federal provide coverage on the same basis. It reasoned,
Notably, Cincinnati's policies state that, “[i]f all of the other insurance permits contribution by equal shares, we will follow this method also.” Federal's “other insurance” provision states, “[i]f Loss arising from a Claim made against any Insured is insured under any other valid policy, prior or current, then this policy shall cover such Loss * * * only to the extent that the amount of such Loss is in excess of the amount of payment from such other insurance,” whether primary or excess.
Id. at 242.
Equally critical here is that Federal, which narrowly covers defamation in its standard form policies, elected to seek contribution, as the carrier offering narrower coverage may well and often does. So understood, Federal’s articulated grounds for coverage, which the court repeated although it did not analyze under the facts herein, evidence why potential coverage for “false advertising” claims may arise in a number of fact scenarios under standard form ISO policies.
Federal also asserted that, the numerous allegations by Reed that AHMA deceptively advertised its 2004 trade show by suggesting that it was the continuation of the trade show to which Reed claimed exclusive rights, separately implicated the covered offenses of “[m]isappropriation of advertising ideas or style of doing business” and “use of another's advertising idea in your ‘advertisement’ ” under both Cincinnati policies. In addition, Federal asserted that, under Illinois law, the policies' personal and advertising injury offenses encompassed Reed's count for alleged trademark infringement.
Id. at 226.
Critically, the alleged false advertising did not involve direct “wrongful taking” of the advertising idea of another, but rather its misuse to promote AHMA’s association with the 2004 trade show as a continuation of a prior trade show to which the claimant asserted exclusive rights.
This is analogous to the Ohio Cas. Ins. Co. v. Albers Medical, Inc., No. 03-1037-CV-W-ODS, 2005 WL 2319820 (W.D. Mo. Sept. 22, 2005) case, where a pharmaceutical company urged that its product was Lipitor when it was not its originator, but Pfizer, who sued it, was. The court readily found that this fact allegation fell within the “use of another’s advertising idea in your ‘advertisement’ ” offense where there was a misstatement of the defendant insured’s rights to promote a particular product, allegedly misleading consumers as to its proprietary rights connected with that product as well as its capacity to advertise itself as associated with it.
