Why it matters

A Virginia federal district court sided with an insured for a second time, affirming its ruling that an insurer was required to pay for the insured’s defense in a defamation suit seeking $85 million in damages. A watchdog group, the insured was faced with the underlying litigation based upon allegations related to investigatory articles on its website. Balking at defense coverage, the insurer argued that an exemption for insureds “whose business is publishing” was applicable. Although the court noted the insured did publish content on its website, such postings were incidental to its main purpose as a watchdog group. The ruling emphasized that the watchdog group was like “any other organization” that posts content on its website to promote its work. However, because the court (while denying the insurer’s motion to reconsider its decision) certified the ruling as final, the insurer may appeal the decision to the Fourth U.S. Circuit Court of Appeals.

Detailed Discussion

The Franklin Center for Government and Public Integrity (FCGPI) is a government watchdog group based in Washington, D.C. The group uses “citizen journalists” to highlight issues at the federal and state levels and posts content on its website, Watchdog.org.

In April 2013, the site featured two articles about GreenTech Automotive, Inc. GreenTech responded by filing a complaint in Mississippi federal court against FCGPI alleging defamation and intentional interference with business relations. The suit requested $85 million in damages.

FCGPI turned to insurer State Farm for defense coverage. State Farm objected, arguing that the complaint did not trigger coverage under the “personal and advertising injury” section and even if it did, one or more of five different exclusions applied.

Finding that the complaint “squarely [fell]” within the coverage for “personal and advertising injury,” the court turned to the exclusions put forth by State Farm.

U.S. District Court Judge Anthony J. Trenga focused the decision on Paragraph 17(b)(1), which excluded from coverage personal advertising injury “[c]ommitted by an insured whose business is: advertising, broadcasting, publishing or telecasting.” The parties disputed whether or not FCGPI was an insured “whose business is publishing.”

According to State Farm, FCGPI was primarily involved in the production of original news content and used most of its resources to generate and publish news stories on its website. The insured conceded that the publishing of news stories was one of its activities but argued that the postings were merely incidental to its actual “business” of exposing governmental fraud, waste, and abuse through investigative reporting.

With the insurance policy lacking a definition of the term “publishing,” Judge Trenga considered what a reasonable insured would have understood the term to mean, consulting multiple dictionaries. “[T]he traditional ‘business of publishing’ implies a commercial enterprise engaged in the production and sale of hard copy information texts,” he wrote, a different model than FCGPI’s business.

The court acknowledged that the nature of the content posted on FCGPI’s website “may have greater potential for generating defamation claims, and more claims under the Policy, than other organizations; but the content of its postings does not relate to whether its business ‘is’ publishing.”

“FCGPI’s ‘publishing’ activities would appear to be no different than that of any organization that posts informational content on a website it maintains to promote or accomplish its underlying organizational purposes or objectives,” the court concluded.

The court found further support for its decision in other sub-parts of the exclusion that specifically dealt with when an insured’s connection to a website would result in the exclusion of coverage. The broad coverage of defamation claims arising from personal or advertising injury from “oral or written publication, in any manner” also suggested that the policy contemplated insureds whose businesses engage in acts of publishing that do not trigger the Paragraph 17(k) exclusion, Judge Trenga said.

Finding more than one reasonable meaning of the phrase “an insured whose business is publishing,” the court said State Farm’s exclusion failed “to place an insured on fair notice as to when and under what circumstances the exclusion applies to defamation or other claims that are otherwise covered, but which arise out of an insured’s postings on its website.”

The judge made quick work of State Farm’s other proffered exclusions for intentional acts, criminal acts, and claims arising out of an electronic chat room, ordering the insurer to defend FCGPI.

State Farm responded to the ruling with a motion for reconsideration or, alternatively, certification under Federal Rule of Civil Procedure 54(b) so that the insurer could seek appellate review.

Judge Trenga said the insurer had not established a basis for reconsideration and affirmed his earlier ruling. But he did certify the decision as a final judgment, giving State Farm the green light to appeal his ruling.

To read the decision in State Farm Fire and Casualty Co. v. Franklin Center for Government and Public Integrity, click here.

To read the order denying the insurer’s motion for reconsideration, click here.