Cosby's Insurer Must Defend in Defamation Case
June 18, 2018
The United States Court of Appeals for the First Circuit has agreed with the district court and held that the insurer must defend Bill Cosby in actions where Cosby is accused of defamation, despite the sexual-misconduct exclusions in the policy. The case is AIG Prop. Cas. Co., v. Cosby, No. 17-1505, 2018 U.S. App. LEXIS 15389 (1st Cir. June 7, 2018).
Over the last decade, dozens of women have come forward and accused Bill Cosby of sexual assault. Between 2014 and 2015, nine victims (who are also defendants in the case at hand) filed three actions claiming that when Cosby publicly denied their accusations, he defamed them. Cosby had two relevant insurance policies through AIG, one homeowners policy and one personal excess liability policy (also known as an umbrella policy). Under each policy, AIG depicts its duty to “pay damages [Cosby] is legally obligated to pay [due to] personal injury or property damage caused by an occurrence covered [ ] by this policy anywhere in the world. . . .” Both policies “personal injury” sections are defined as including “defamation” and state that AIG is obligated to pay the cost of defending against suits seeking covered damages.
At the outset of the claims, Cosby notified AIG of the defamation suits. At that time AIG agreed to defend him, subject to a reservation of rights that permitted the company to bring the case at hand, seeking a declaration that the “sexual misconduct” exclusions barred coverage for Cosby's cases.
The exclusion in the homeowners policy bars coverage for liability or defense costs “arising out of any actual, alleged[,] or threatened. . . [s]exual molestation, misconduct or harassment[,] . . . or. . . [s]exual, physical or mental abuse.” The umbrella policy includes a similar exclusion of coverage for liability or defense costs “[a]rising out of any actual, alleged [,] or threatened. . . [s]exual misconduct, molestation or harassment [,]. . . or. . . [s]exual, physical or mental abuse.”
AIG argued that the defamation claims arose out of the alleged sexual assaults, and moved for summary judgment on its declaratory judgment claim. Cosby moved for dismissal of the claims, and if the court decided not to dismiss the claims, asked the court to provide judgment on the pleadings. The district court under Federal Rule of Civil Procedure 12 © and held that the sexual-misconduct exclusions were ambiguous, and granted Cosby's motion determining that AIG had a duty to defend.
Massachusetts law depicts that a court must construe an insurance policy under the general rules of contract interpretation, and that the actual language of the policies should be given its plain and ordinary meaning. As always, the insurer bears the burden of demonstrating that an exclusion precludes coverage. Any ambiguities in the exclusion provision are construed against the insurer. Massachusetts law does not have one single definition of “arising out of” as the Massachusetts Supreme Judicial Court has said that the term indicates a wider range of causation than the often used concept of proximate causation in tort law.
Here, AIG argued that since Cosby's allegedly defamatory denials were prompted by the sexual-assault allegations, the defamation injury and excluded conduct are “inextricably intertwined” so it must trigger the sexual-misconduct exclusions. Cosby responded by arguing that the source of the women's injuries is not any alleged sexual misconduct, but instead the allegedly defamatory denials that the sexual misconduct occurred.
The district court determined that because of the existence of the broader, sexual-misconduct exclusion in the umbrella policy, the scale was tipped in favor of finding ambiguity. The umbrella policy includes coverage for “Limited Charitable Board Directors and Trustees Liability” that is subject to an exclusion that applies to claims for damages “[a]rising out of, or in any way involving, directly or indirectly, any alleged sexual misconduct.”
Editor's Note:
Ambiguity exists when the policy language is susceptible to more than one meaning. In this case there were two policies in place, the homeowners policy and the umbrella policy, each with a different sexual misconduct exclusion. When AIG attempted to use the sexual misconduct exclusion to defeat the defamation claim, they failed because the exclusion in the umbrella policy was more clear. If both policies had language that excluded coverage for damages “[a]rising out of or in any way involving, directly or indirectly, any alleged sexual misconduct.” AIG would probably not have had to defend Cosby in this defamation suit and would have saved themselves the cost and trouble of providing this defense.
The court wanted to be clear, under Massachusetts law, the “arising out of” term is not inherently ambiguous and discrepancies in insurance provisions do not always give rise to ambiguity. This interpretation is based completely on the case at hand, where the ambiguity is close, and the other applicable sexual-misconduct exclusion is worded more broadly. The appeal is only charged with finding whether or not the insurer must provide defense to the policyholder. Coverage for damages that may be rewarded in the case that the defense is unsuccessful, could turn on facts beyond the ones analyzed in this case. If that occurs, independent analysis will likely be required.