In the breach of contract allegations, Hemisphere alleged that IMG had violated the exclusivity provisions of the agreements by entering into a partnership with another business that Hemisphere deemed to be a “competing business” under the terms of the agreements. Further, Hemisphere claimed that IMG had breached the exclusivity provisions of the agreements by trying to create its own competitive business in New York City in an area geographically near to a Hemisphere project. Hemisphere also alleged that IMG had breached the agreements by failing to promote Hemisphere's business with potential partners and by representing to those entities not only that IMG and Hemisphere were not pursuing business together, but also that IMG and Hemisphere were involved in a dispute over the agreements.

In the tortious interference claims, Hemisphere alleged that IMG had “knowingly and intentionally” interfered with Hemisphere's business relationship by, among other things, trying to open a competing business – the same conduct that Hemisphere claimed constituted a breach of the agreements. Hemisphere also claimed that IMG had knowingly and intentionally interfered with other business relationships by failing to promote Hemisphere's business with potential business partners, by stating that IMG and Hemisphere were not pursuing business together, and by revealing that IMG and Hemisphere were involved in a dispute concerning the agreements – again, the same conduct that Hemisphere claimed constituted a breach of the agreements.

As a result of IMG's conduct, Hemisphere claimed, it had lost the opportunity to develop a resort property in New Jersey. Finally, Hemisphere alleged that IMG had “knowingly and intentionally” represented that it intended to perform its obligations under the agreements when it did not, in fact, actually intend to do so.

In August 2012, IMG tendered the defense of the arbitration proceeding to Allied World National Assurance Company, Great Divide Insurance Company, and New York Marine and General Insurance Company, which had issued CGL insurance policies to IMG for consecutive annual policy periods from August 10, 2005 to August 10, 2012.

New York Marine disclaimed coverage, primarily relying on the personal and advertising injury exclusion in its policy for “material published prior to policy period.” It stated that “disputes arose between the parties on or about February 2011 and that IMG sent a demand letter about the claimed breaches on February 15, 2011” and, therefore, were alleged to have occurred before August 10, 2011 – the inception of the New York Marine policy. New York Marine also specifically reserved all of its rights to further limit or disclaim any obligation to defend IMG based upon all the terms, conditions, definitions, and exclusions of its policy.

Likewise, Great Divide disclaimed coverage for IMG's claim. First, Great Divide declined coverage “to the extent the breach-of-contract exclusion applies [because] Hemisphere's initiation of arbitration stems from IMG's alleged breach of the [agreements].” Second, Great Divide contended that “some” of IMG's alleged violations occurred after August 10, 2010, the expiration date of Great Divide's final policy. Great Divide's disclaimer also reserved the right to rely on any other terms or conditions of its policies.

Allied World initially disclaimed coverage for IMG because the policy excluded advertising and personal injury coverage arising out of breach of contract. Further, Allied World also reserved its right to disclaim coverage on any of the exclusions for advertising and personal injury coverage.

Allied World subsequently reconsidered its position and agreed to defend IMG under a reservation of rights.

IMG ultimately settled the dispute by paying Hemisphere $3,250,000 and waiving IMG's counterclaims. Between August and December 2014, Allied World reimbursed IMG for defense costs totaling $2,178,170.27 in connection with the arbitration proceeding.

Allied World then sued New York Marine and Great Divide, seeking a declaration that they were obliged to defend IMG in the arbitration proceeding because the demand for arbitration, by its claim that IMG had tortiously interfered with Hemisphere's business relationships, contained allegations that fit within the “personal and advertising injury” coverage of their respective policies.

Allied World further sought an order compelling New York Marine and Great Divide, under principles of equitable contribution, to reimburse Allied World for their equitable share of the $2,178,170.27 in defense costs that Allied World had paid in connection with its defense of IMG in the arbitration proceeding.

The parties moved for summary judgment and the trial court granted summary judgment in favor of New York Marine and Great Divide.

Allied World appealed.

The Great Divide and New York Marine Policies

The CGL policies issued by Great Divide and New York Marine obligated the insurers to defend any

suit

(including an arbitration proceeding) seeking damages for a

personal and advertising injury

, defined as injury arising out of, among other things, false arrest, malicious prosecution, publication of defamatory or disparaging material, publication of material constituting violation of the right to privacy, copyright or trade dress violations, and using another's intellectual property in an advertisement.

The policies excluded coverage for personal and advertising injury:

caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury”

The policies also excluded coverage for personal and advertising injury:

arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity

In addition, the policies excluded coverage for personal and advertising injury:

arising out of a breach of contract, except an implied contract to use another's advertising idea in your “advertisement”

The appellate court affirmed, ruling that, under applicable Ohio law, exclusions in Great Divide's and New York Marine's policies precluded coverage to IMG.

In its decision, the appellate court explained that the allegations of tortious interference on the part of IMG, whether through defamatory or disparaging statements, potentially or arguably stated an offense within the scope of coverage for personal and advertising injury liability. However, it continued, even if the arbitration demand implied defamation or disparagement, the exclusion for “knowledge of its falsity” still presented a bar to coverage, as the arbitration demand specifically alleged that IMG had acted “knowingly and intentionally.”

Indeed, the appellate court continued, Hemisphere's allegation that IMG had acted “knowingly and intentionally” was consistent with the requirements of Ohio law, which does not recognize a cause of action for negligent interference with contract or business relations but, instead, provides that tortious interference requires intentional conduct.

The appellate court added that, with respect to the breach of contract exclusion, the alleged conduct supporting the tortious interference claim was the same alleged conduct supporting Hemisphere's breach of contract claim. Thus, it said, when the arbitration demand was viewed in its entirety, the dispute between Hemisphere and IMG was a contractual dispute, as the “personal and advertising injury” Allied World claimed Hemisphere suffered as a result of IMG's actions arose out of a breach of contract. Coverage for the dispute, therefore, was excluded under Great Divide's and New York Marine's policies.

The case is Allied World National Assurance Co. v. Great Divide Ins. Co. (N.Y. App.Div. 1st Dep't May 5, 2016). Attorneys involved include: Shaub, Ahmuty, Citrin & Spratt LLP, New York (Steven J. Ahmuty, Jr. and Tiffany A. Miao of counsel), for appellant; Coughlin Duffy LLP, New York (Justin N. Kinney of counsel), for Great Divide Insurance Company, respondent; Finazzo Cossolini O'Leary Meola & Hager, LLC, Morristown, NJ (Robert F. Cossolini of the bar of the State of New Jersey, admitted pro hac vice, and New York (Patrick A. Florentino of counsel), for New York Marine and General Insurance Company, respondent.