In Zurich American Insurance Co. v. Don Buchwald & Associates, Inc., 2018 N.Y. Slip. Op. 33325(U) (Sup. Ct. N.Y. County, Dec. 21, 2017), the Supreme Court of New York held that Zurich was obligated to defend a talent and literary agency against claims brought by Hulk Hogan alleging that the agency aided and abetted one of its agents—Tony Burton—in publishing racist and sexual footage of Hulk Hogan online. The decision also gives ammunition to policyholders seeking to recover their fees incurred while litigating against an insurer’s improper denial of coverage. The court found that the insureds had “been cast in a defensive posture” due to the insurer’s claims seeking a declaratory judgment, and that this justified a fee-shifting award.
Zurich had refused to defend the agency against Hulk Hogan’s lawsuit and sued the agency in New York state court, seeking a declaration of no coverage. Zurich argued that it did not owe a defense because the claims against the agency alleged intentional acts that did not qualify as an occurrence and were excluded under the policy. Conversely, the agency sought a declaration that Zurich did owe a duty to defend the agency.
The New York Supreme Court agreed with the agency and concluded that Zurich owed defense coverage. The court held that the “intentional acts” exclusions did not apply because the harm could have been “unexpected, unusual and unforeseeable,” even if that harm resulted from deliberate acts of the agency. Furthermore, the court emphasized that Hulk Hogan’s causes of action against the agency for the negligent retention of Tony Burton and for intentional infliction of emotional distress each did not require proof of intent to harm. The court explained that the negligent retention claim would not require proof that the agency actually knew that Burton would commit wrongs, and the intentional infliction of emotional distress claim could succeed based on proof of recklessness.
In addition, the court rejected the insurer’s argument that the complaint did not allege a personal and advertising injury because the agency itself did not “publish” the footage. The court held that the complaint alleged that the agency “aided and abetted its publication,” and that was sufficient to trigger personal and advertising injury coverage.
Zurich American Insurance Co. v. Don Buchwald & Associates, Inc. represents another rejection of the argument—often advanced by insurers—that general liability policies do not provide coverage for deliberate acts. As the New York Supreme Court recognized, claims alleging deliberate acts may still be covered if the resulting harm was unintended, unexpected, unusual, or unforeseeable. Additionally, the ruling presents a clear illustration of the sort of insurer conduct that will justify an award of attorneys’ fees under settled New York law. See, e.g., U.S. Underwriters Ins. Co. v City Club Hotel, LLC, 3 N.Y.3d 592, 597-598 (2004) and Mighty Midgets, Inc. v Centennial Ins. Co., 47 N.Y.2d 12, 21 (1979). The court found that the insureds had “been cast in a defensive posture” by the insurer’s declaratory judgment action, which met the criteria necessary to support the fee-shifting award.