No Duty to Defend Intentional Acts

Post 4981

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Malicious Prosecution, Defamation, Intentional Acts, Knowing Violation of a Person’s Rights Excluded From Insurer’s Duty to Defend

American Insurance Company (“AIC”) appealed from a summary judgment entered in favor of Red Apple Enterprises Limited Partnership; United Resorts, Inc.; and Richard H. Upton (collectively “Red Apple”). The circuit court found as a matter of law AIC had a duty to defend Red Apple as its insured in a lawsuit filed by Windsong Enterprises, Inc. (“Windsong”). AIC argued that the circuit court erred (1) in finding that it owed a duty of defense to Red Apple and (2) in awarding damages, statutory penalties, and judgment interest to Red Apple.

In American Insurance Company v. Red Apple Enterprises Limited Partnership; United Resorts, Inc.; And Richard H. Upton, 2025 Ark.App. 11, No. CV-22-11, Court of Appeals of Arkansas (January 15, 2025) resolved the dispute.

THE POLICY

To trigger a duty to defend on the part of AIC, Windsong’s lawsuit had to allege facts that would come within the coverage of the policy. Under the policy’s coverage part for commercial general liability, AIC was obligated to defend Red Apple as its insured (1) against any suit seeking damages for “property damage” to which the insurance applied and (2) against any suit seeking damages for “personal and advertising injury” to which the insurance applied.

In the case of “loss of use” damages, coverage is barred for damage “expected or intended from the standpoint of the insured.” As to “personal injury” damages, the policy in pertinent part excludes coverage (1) for injury caused by an insured’s knowing violation of another’s rights and (2) for injury caused by an insured’s publication of knowingly false material.

The nature of Windsong’s action is evident-it sought damages for Red Apple’s intentional wrongful conduct. That being the case, AIC had no duty to defend Red Apple in light of the coverage exclusions.

The policy excluded coverage for: “Loss of use” damages if the damage was expected or intended by the insured and “Personal injury” damages caused by the insured’s knowing violation of another’s rights or publication of knowingly false material.

Malicious Prosecution

Windsong alleged that Red Apple manipulated Eden Isle Corporation into filing a legal action against Windsong in 2003. Since the insurance policy period began on September 1, 2006, and the alleged malicious prosecution occurred well before this period, the claim did not fall under the policy’s coverage for “personal injury” damages.

Damage to Reputation

Windsong’s claim for damage to business and personal reputation was assumed to be defamation and thus potentially covered as “personal injury” damages. However, since the damage was alleged to be intentionally inflicted by Red Apple, the policy exclusions applied.

Conclusion

AIC had no duty to defend Red Apple in the Windsong litigation due to the intentional nature of Red Apple’s actions. As a result, the circuit court’s finding that AIC had a duty to defend was reversed.

Liability insurance is designed to protect the insured from suits claiming property damage, bodily injury, personal injury (defamation and other offenses) but not acts intentionally performed to harm the third party or damages and knowing violation of a person’s rights. The court concluded that there was no duty to defend because of the intentional conduct of the insured.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.