In Owners Ins. Co. v. Clayton, No. 25986, 2005 WL 1211365 (S.C. May 23, 2005), the Supreme Court of South Carolina ruled that defamation against a former employee did not amount to an employment-related practice.

 

Janette Clayton was the manager of Lands Inn, a motel. She was fired for allegedly embezzling funds. After her termination, two individuals who called and asked for her were told that she had been fired for stealing funds. No criminal charges were pressed, and she filed suit against Lands Inn for malicious prosecution, slander, and negligence. A jury awarded her $1.25 million.

 

Lands Inn was covered by a CGL policy issued by Owners Insurance Company. Owners defended the action under a reservation of rights but filed a declaratory judgment suit stating that the allegations within the suits were excluded by the employment-related practices exclusion.

 

The court said that “in determining whether post-termination defamations such as the ones here fall within an ERP [employment-related practices] exclusion, courts generally inquire whether the statement was made in the context of employment, and whether the statement's content describes the employee's performance.”

 

The court noted that, while the substance of the statements regarding Clayton's termination were employment-related, the context was not. Lands Inn told the callers that Clayton had been fired and why, but the callers were not potential employers asking about her work performance, and the information was not told to other employees to explain Clayton's termination.

 

Thus, the court found that, because the employment context was not present, the employment-related practices exclusion did not apply. Owners was responsible for indemnifying Lands Inn.