Insurance Coverage Issues in Defamation, Libel and Slander Cases

You are being sued for defamation for something you posted on the internet or told your neighbor. In many instances, the large cost of defending a libel suit need not become a burden for you. Homeowners or business advertising insurance often covers defending libel suits. In fact, Bill Cosby used his home owners’ insurance to pay for the cost of defending the many libel, slander and defamation suits brought against him when he denied abusing and raping women. Innocent consumers attacked for simply making a negative-comments on the internet or elsewhere also have this avenue to pay the legal fees and costs associated with defending themselves in a libel suit. Insurance companies offer this protection and the ethical and stable ones stand behind their insureds. We have worked with many carriers such a Chubb, Liberty Mutual and CNA who protect their insureds in their time of need. But not all carries honor their insurance agreements.

We have helped many of our clients in libel and defamation cases, and other tort suits navigate the difficult waters in ensuring that their insurance companies stand behind them and honor their obligation to defend suits brought against them such as libel and defamation claims. Consumers purchase insurance so that when they make mistakes or simply assert their First Amendment free speech rights that their insurer will protect them. We have found that in libel cases some insurers turn on their own insureds and blame them and then deny insurance forgetting that they advertise that insurance is there to protect their insureds even when they make stupid mistakes.

Insurance companies are in the business of collecting premiums and then sometimes when they face the prospect of paying high legal fees to defend their insureds of creating loopholes to deny coverage by exploiting contradictory language, they themselves drafted in the insurance policies. For instance, Farmers Insurance breached its duty to defend one of our clients in a case where he was falsely accused of libel as was apparent from a reading of the face of the meritless lawsuit brought against him. He posted a flyer at work and photoshopped onto it a photo of a former supervisor who he hadn’t gotten along with. While this was poor form and the type of mistake Farmers claims it provides coverage for, it didn’t rise to defamation as federal court quickly concluded at the very outset of the lawsuit.

Our client made a mistake which resulted in a meritless lawsuit being brought against him, but he didn’t bargain for his own insurance company turning on him in his time of need. After all, Farmers spends millions of dollars on all those television advertisements saying it stands behind insureds who make all kinds stupid mistakes that shouldn’t result in them shouldering the financial burden of their errors. They pay Farmers their hard-earned dollars to ensure that it protects them and doesn’t turn on them as Farmers did to our client, much to his surprise and chagrin.

Farmers didn’t deliver on the promise stated in its many television commercials. Our hard-working security officer client spent years dutifully paying his home owners insurance premiums only for Farmers to betray him. First, as soon as the meritless libel suit was filed against him, our firm outlined to Farmers a clear-cut and simple plan to defeat the suit based on a host of defenses, including that there was no libel and that workers have a First Amendment right to express strongly worded opinions that a supervisor is mistreating them and other workers as long as they state opinions and do not make false statements of material fact constituting libel per se.

Farmers told our firm to proceed with our plan to defeat the meritless libel suit but then delayed agreeing to pay us instead burdening our client with tens of thousands of dollars in legal fees Farmers should have paid. We then proceeded to obtain dismissal of the libel suit with the federal court concluding that there had been no libel and that the claims in the complaint asserting libel were meritless.

Right after the federal court conclusively determined that our client had not libeled the plaintiff, Farmers turned on its own insured and sued our client. It claimed that it didn’t have to pay for his successful defense even though the federal court had concluded that he hadn’t committed the tort of libel. Farmers claimed that it could refuse to pay for his successful defense asserting what we claimed were various “Catch 22s” to get out of honoring its obligation to pay for his successful defense.

After at first expressing bewilderment that his own insurance carrier would turn on him, our client with agreed to take Farmers on. After drawn out proceedings that ironically took years as opposed to the few months it took to obtain a complete victory in the libel suit, we proved to the Appellate Court, as we had told Farmers was the case from the outset, that Farmers was misinterpreting the contradictory and self-serving insurance policy language to come up with poor excuses not to pay for our client’s successful defense of the meritless libel suit.

When the trial court went along with Farmers’ long discredited arguments and misinterpretation of applicable law and insurance policy language construing the policy in favor of Farmers and not the insured in direct contradiction to Illinois law, we stood behind our client and took the matter to the Appellate Court. The Appellate Court agreed that Farmers hadn’t complied with its obligation to defend our client but to our disappointment disagreed with our claim that Farmers conduct rose to the level of bad faith denial of a defense. The Appellate Court held:

In the present case, the underlying complaint filed by Ms. Nebel alleged that Mr. Modory defamed her by altering a flyer titled “Problem Employees and the Games They Play” to include a photograph of her next to the title, and then posting the flyer in the patrol, sergeant and interview rooms. Comparing the allegations in the underlying complaint with the policy language in the homeowners’ policy, we note that the homeowners policy provided coverage to Mr. Modory for “personal injury resulting from an occurrence” and it defined “personal injury” as an injury arising from “libel, slander, defamation of character.” However, the homeowners policy defined “occurrence” as “an accident including exposure to conditions which results during the policy period in bodily injury or property damage.” (Emphasis added.) In short, the homeowners policy was internally inconsistent, because on the one hand it purported to provide coverage for personal injury (including defamation) resulting from an occurrence, but on the other hand it defined “occurrence” as only including accidents resulting in bodily injury or property damage (not personal injury). Well-established case law holds that the internal inconsistency must be resolved against the insurer and in favor of coverage for the insured. See e.g., Illinois Farmers Insurance Co. v. Keyser, 2011 IL App (3d) 090484 and Cincinnati Insurance Co. v. American Hardware Manufacturers Ass’n, 387 Ill. App. 3d 85 (2008) (where a policy provided coverage for certain torts under the definition of “personal injury” but then removed them under the meaning of “occurrence,” the resulting inconsistency/ambiguity was resolved in favor of coverage for the insureds).

The Appellate Court also rejected Farmers’ self-serving efforts to misuse the exclusionary clauses it had inserted into its form insurance contracts. First, the Appellate Court rejected Farmers’ argument that simply because the alleged libel occurred at it work, the policies’ business activity exclusions applied. It agreed that the allegations in the libel lawsuit against our client could fairly be read as claiming that he had acted outside the scope of his employment and for personal non-work-related motivations when he responded to what he claimed was mistreatment by a former supervisor by posting a flyer with her photograph photo shopped onto it.

The Appellate Court also made short shrift of Farmers’ claim that an intentional acts exclusion in the form insurance policies also allowed it to deny our client a defense. The Appellate Court noted that libel, as to non-public figures by its very nature is a tort involving either intentional malice or mere negligence (i.e. simply making a stupid mistake) and that the lawsuit against our client had alleged he had acted “recklessly” thus defeating Farmers’ use of the intentional acts exclusion to avoid paying his legal fees and costs – fees and costs generated in obtaining dismissal of the libel suit which never had the least merit. The Appellate Court held: “the allegations of recklessness and maliciousness were sufficient to bring the defamation claim within the potential coverage of a policy that covers defamation but excludes knowing or intentional falsehoods.”

The Appellate Court thus recognized that our client had paid Farmers to defend him for conduct which amounted to a one-time error but not the tort of libel, and that Farmers had breached it duty to defend him -- exactly what Farmers claims on television it will do but did not deliver for our client. We ensured that Farmers was forced to stand behind its insurance contract and will pay every penny our client expended in defeating the meritless libel suit brought against him.

You can review the full Appellate Court decision finding that Farmers breached its duty to pay for our client’s successful libel defense here.

You can also review the federal court decision finding that our client did not defame his supervisor here.

We are committed to fighting for our clients’ rights in the courtroom and at the negotiating table and taking their cases to Appellate Court or Supreme Court, if necessary to protect a trial court victory or to overturn a trial court decision, that as here, got the law wrong and misinterpreted the contract language at issue by construing it in favor of Farmers as opposed to the insured which is contrary to long standing Illinois law. We have fought for many of clients to obtain use of their insurance policies in defending a wide variety of lawsuits including defamation cases and other business torts or class actions.

Conveniently located in Chicago and Elmhurst, Illinois, we have obtained victories for our clients prosecuting or defending defamation, internet defamation, and cyber smear cases for clients from all over the country in courtrooms throughout Illinois and the Chicago area. To schedule a consultation with one of our Chicago defamation, libel or slander attorneys, you can contact us online or give us a call at 630-333-0333.