In Sletten & Brettin Orthodontics, LLC v. Continental Casualty Company, 2015 WL 1260024 (8th Cir. March 19, 2015), the US Court of Appeals for the Eighth Circuit, applying Minnesota law, held that a general liability insurer had no duty to defend its policyholder in a defamation suit alleging that the policyholder intended to injure the claimant’s reputation.
The insurance coverage dispute in Sletten arose from underlying litigation in which a Minnesota dentist sued the policyholder in Minnesota state court, claiming that the policyholder – a competing orthodontist – used his neighbor’s wireless network to post defamatory comments about the dentist to the Internet while posing as one of the dentist’s patients. Id. at *1. The underlying complaint alleged claims for defamation and libel, civil conspiracy, and unfair competition. Id. Each claim specifically alleged that the policyholder intended to injure the claimant’s reputation. Id.
The policyholder tendered the defense of the lawsuit to its insurer, but the insurer refused to defend and denied coverage. Id. The policyholder then sued the insurer in Minnesota state court seeking a declaration that the insurer must defend the policyholder in the underlying litigation. Id. After removing the case to federal district court, the insurer moved to dismiss the complaint. Id. The district court granted the insurer’s motion, holding that the insurance policy excluded coverage for acts done with the intent to injure and that because every claim in the underlying complaint alleged that the policyholder acted with the intent to injure the claimant’s reputation, the insurer had no duty to defend. Id.
The Eighth Circuit affirmed. On appeal, the policyholder argued that the policy was ambiguous because it specifically provided coverage for several claims based on intentional acts – including defamation – but at the same time precluded coverage for intentional acts by defining an “occurrence” as “an accident” and including an intent-to-injure exclusion. Id. at *3. The court disagreed, finding that the policy provided coverage for intentional acts but excluded coverage for acts committed with the intent to injure. Id. The court thus concluded that, although the policy provided coverage for defamation in general, it excluded coverage for defamation committed with the intent to injure. Id. The court recognized that “this exclusion makes sense because defamation is often committed without intending injury.” Id.
The policyholder also claimed that if the policy excluded coverage for acts done with the intent to injure, then the policy’s coverage for defamation was illusory because state law required proof of actual malice in a defamation case against a corporation or public figure. Id. at *4-5. The court disagreed, noting that defamation claims against private individuals – claims that could be covered under the policy – do not require intent to injure under state law. Id. at *5. The court found that, even if the policy excluded coverage for defamation against public figures and corporations, the policy’s defamation coverage was not illusory because “the policy provides coverage for many claims of defamation committed against private individuals.” Id.
The court also rejected the policyholder’s argument that the insurer had a duty to defend because it was possible the policyholder could be found liable under some other claim not excluded by the policy. The court recognized that, “[w]hether an insurer has a duty to defend is determined by looking to the allegations of the underlying complaint, not by considering hypothetical scenarios that could result in indemnity coverage.” Id. at *6. Because all of the claims in the underlying complaint specifically alleged that the policyholder intended to injure the claimant, the court held that the insurer had no duty to defend. Id.
The Eighth Circuit’s decision in Sletten reinforces the principle that a court should not read ambiguity into a policy where none exists. The opinion also emphasizes that courts should not find a duty to defend by “imagin[ing] allegations that . . . could have made merely because [the claimant’s] actual allegations went beyond the bare minimum of notice pleading.” Id. at *6.