A federal judge recently ruled that because an underlying complaint filed against an insured included allegations of negligent and reckless defamation under New York law, an insurer had a duty to defend its insured. (Council for Responsible Nutrition et al., v. Hartford Casualty Insurance Co., No. 06-1590, D. D.C.; 2007 U.S. Dist. LEXIS 49963).

I. Defamation Claim

The Council for Responsible Nutrition (CRN) is a trade association for ingredient suppliers and manufacturers in the dietary supplement industry. ConsumerLab, a competitor, filed a complaint in the New York County Supreme Court, alleging eight causes of action - defamation, injurious falsehoods, trade libel, infliction of intentional harm, unfair trade practices, unfair competition, tortious interference with contracts, and tortious interference with prospective contractual relationships.

The Supreme Court dismissed all of ConsumerLab's counts except the count alleging defamation. The court noted that the underlying complaint sufficiently alleged that CRN made false statements about ConsumerLab. The underlying complaint eventually settled and was dismissed.

CRN tendered the underlying complaint to Hartford Casualty and requested coverage. Hartford denied coverage pursuant to the policy's exclusion for advertising injury that was expected or intended by the insured. CRN sued Hartford in the U.S. District Court for the District of Columbia, seeking coverage for an underlying defamation suit filed by ConsumerLab. The parties then filed motions for summary judgment.

II. Advertising Injury Claims and Negligent Actions

The DC circuit court noted that while the underlying complaint alleged that CRN acted intentionally, it also alleged that CRN acted negligently by publishing defamatory statements "without due consideration for the standards of information gathering and dissemination ordinarily followed by responsible parties." The court explained that New York law must be applied to the underlying complaint because it was filed in New York. The court then held that, "Because a plaintiff can recover for negligent and reckless defamation under New York law and the tort is not dependent upon intentional conduct, the Underlying Complaint stated an actionable claim based on negligent and reckless behavior that was not excluded under the Policy.”

In sum, the court ruled that because the underlying complaint alleged negligent and reckless defamation, and the policy covered advertising injury, such as defamation, which was not expected by the insured, the insurer had a duty to defend CRN.