Defamation Claim and the Employment-Related Practices Exclusion

 

January 5, 2015

 

The issue in this case was whether the insurer had a duty to defend and indemnify four doctors who are defendants in a third-party defamation claim. This case is Khatib v. Old Dominion Ins. Co., No. 1D13-4652, 2014 WL 6851418 (Fla. App. Dec. 5, 2014).

 

This case stems from a dispute between Ashchi and Khatib and others. Khatib and his associates wrested control of the First Coast Cardiovascular Institute (FCCI) from Ashchi. Ashchi sued Khatib and the others, alleging that Khatib and his associates made baseless allegations and published defamatory statements against Ashchi.

 

The insurance policy under which Khatib sought coverage for the lawsuit was issued by Old Dominion, and the policy insured FCCI and its executive officers and directors, but only with respect to their duties as officers and directors. When Khatib sought coverage, Old Dominion denied the coverage based on the employment-related practices exclusion found in one of the endorsements. That exclusion states that there is no coverage for any claim for damages for personal injury caused by an offense arising out of an insured's business where the personal injury also arises out of any employment-related practices such as defamation.

 

Khatib sued for coverage and the trial court ruled in favor of the insurer. This appeal followed.

 

The District Court of Appeal of Florida, First District, noted that a cursory consideration of the facts in this case shows that at least some of the wrongs alleged against Khatib and the others were performed by them with respect to their duties as officers and directors. Some of the wrongs alleged occurred while they were either discharging their obligation at a shareholders meeting or executing other official duties. The court also found that there was no indication in the complaint that the alleged defamatory statements were employment-related at all.

 

The ruling of the trial court was reversed. The appeals court found that Old Dominion owes a duty of defense to Khatib and his associates. As for the duty to indemnify, the court said that this would be dependent on further factual developments through discovery or at trial.

 

Editor's Note: The District Court of Appeal of Florida ruled that, in this instance, the employment-related practices exclusion did not preclude coverage under Coverage B of the general liability policy. The court said that a defamatory utterance might easily arise out of a company's business while not being employment-related. Case law from around the country cited by the court supported this conclusion.