In Massachusetts, an insurer’s duty to defend a claim is determined utilizing the so-called “four corners” approach; meaning that the insurer must compare its policy to the language within the “four corners” of the complaint and reach a decision based thereon. As a result, parties have taken to broad phrasing of claims in an effort to try to draw insurers into coverage obligations for claims typically outside the scope of their policies. In a recent example, the Massachusetts Appeals Court has held that under the particular circumstances of a harassment claim in which the claimant alleged an “invasion of privacy” by her supervisor, a duty to defend such claim existed on the part of the employer’s general liability insurer under the Personal and Advertising Injury coverage in the employer’s policy. The case is Norfolk & Dedham Mutual Life Insurance Company v. Cleary Consultants, Inc., et al.[i] This decision is under appeal. However, regardless of the ultimate ruling, this case presents a good example as to how the broad interpretation of open ended pleadings may result in a duty to defend what otherwise is intended to be an excluded claim.
The Relevant Facts
Rebecca Towers was employed as a recruiter by Cleary Consultants, Inc., from May 16, 2006, to March 9, 2007. Her immediate supervisor was Jonah D. Adelman. Towers alleged that from the start of and throughout her employment, Adelman made sexually explicit, inappropriate, and unwelcome comments to Towers, over her protestations. Towers complained to the company’s principal, Mary Cleary, about Adelman's behavior, but Clearly allegedly told Towers simply to ignore Adelman's behavior, stating that he made Cleary money, and that was why she continued to employ him.
For several days in the beginning of March, 2007, when her daughter was ill, Towers worked at home, communicating with Adelman periodically by telephone. After a conversation in which Adelman told Towers that she would need to repay at least one commission on placements that had fallen through, Towers complained to Adelman that his inappropriate conduct had caused her significant distress. Adelman then informed Towers that it was apparent that she could not give one hundred percent to the job because she was a single parent, and told her not to bother coming back. Towers considered herself terminated and did not return to work.
On December 31, 2007, Towers filed an administrative charge of discrimination at the Massachusetts Commission Against Discrimination (MCAD) against Cleary Consultants and Cleary and Adelman personally. Towers alleged that Adelman's inappropriate conduct was unwelcome, offensive, severe, and pervasive to the point that it created an abusive work environment, and that Cleary had failed to take any action upon being notified of such conditions. Towers claimed to have incurred financial loss and “significant emotional distress, including humiliation and loss of self-esteem” as a result.
During Tower’s employment, Cleary Consultants maintained a special business owners policy issued by Norfolk and Dedham Insurance Company (the “Policy”). Norfolk was notified of the Towers MCAD complaint in March, 2008. In a letter dated May 30, 2008, Norfolk disclaimed coverage, stating that none of the damages alleged by Towers constituted “bodily injury,” “property damage,” or “personal and advertising injury,” and that even if there were any bodily injury, the Policy contained an exclusion for bodily injury to an employee. On these grounds, Norfolk declined to defend and to indemnify the Cleary defendants.
Counsel for the Cleary defendants responded by requesting that Norfolk revisit its position. As grounds for such reconsideration, counsel noted that the Towers MCAD complaint included allegations which could constitute an invasion of privacy, which was covered under the “personal and advertising injury” coverage section of the Policy and was not subject to the employee exclusion cited by Norfolk. Counsel for the Cleary defendants also provided Norfolk with a rebuttal filed by Towers at the MCAD, which included a supporting affidavit from a former coworker of Towers, David Schlemann. That affidavit stated that Schlemann had witnessed Adelman harassing Towers “on many occasions.” Schlemann cited “[e]xamples of such harassment,” including “openly commenting on [Towers'] appearance” and “inquiring to Ms. Towers about her personal life.” Schlemann also averred that he witnessed Adelman make inappropriate and offensive comments about Towers.
After receiving the Schlemann affidavit, Norfolk and its outside counsel considered the issue of coverage for invasion of privacy and determined that the Policy did not cover the Towers claims. Norfolk took the position that the complaint clearly stated a claim for discrimination, and not a claim for invasion of privacy, in part because there was no allegation that Adelman had published his offensive comments about Towers to others, as required under the terms of the personal and advertising injury coverage of the policy. Norfolk nevertheless agreed to provide a defense to the Cleary defendants under a reservation of rights.
On October 31, 2008, Norfolk filed a declaratory judgment action, naming the Cleary defendants, Adelman, and Towers as defendants. In response, the Cleary defendants asserted counterclaims for breach of contract and violations of G.L. c. 93A and G.L. c. 176D. Moreover, on March 13, 2009, Towers filed an amended complaint at the MCAD. The amended complaint was identical to the original complaint except that it contained a few additional allegations, notably that Adelman “speculated about [her] sex life, which was witnessed and overheard by [her] co-workers”; “Adelman's inappropriate conduct deeply embarrassed [her]”; Adelman “invaded [her] right to privacy and slandered [her] reputation by circulating his humiliating, vulgar, false, and demeaning statements among co-workers”; and Adelman's conduct caused and continues to cause her “significant emotional distress, including humiliation, embarrassment, loss of privacy, damage to [her] reputation, and loss of self-esteem.”
The Trial Court Decision
The trial court ruled in favor of Norfolk, finding that it owed no duty to defend. Based upon the amended complaint in the MCAD, the judge concluded that the facts alleged by Towers were sufficient to put Norfolk on notice that she was claiming damages for invasion of privacy and defamation as described in the personal and advertising injury coverage of the policy. However, the judge also concluded that the actions of the Cleary defendants were otherwise excluded from coverage because Towers' claims were for 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,’ ” and asserted 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.” The judge reasoned that these exclusionary provisions came into play because Cleary had been informed about Adelman's conduct and comments, and a reasonable person in her position would have known that Adelman was violating Towers's rights.
The Appeals Court Decision
The Appeals Court addressed both of the trial court’s determinations leading to its determination. It noted that whether Norfolk could owe any duty to defend required it to consider whether the Towers complaint states or roughly sketches a claim for personal and advertising injury, meaning “damages because of” an “injury ... arising out of” either “oral or written publication, in any manner, of material that slanders” Towers, or “oral or written publication, in any manner, of material that violates [her] right of privacy.” If so, then it would be required to consider whether any exclusions to the Policy negated that obligation.
A. Coverage is Determined by the Damages Claims
In addressing the nature of the allegation, the Appeals Court first indicated that for the analysis of Norfolk's duty to defend it did not consider that Towers's allegations were made in a discrimination charge brought at the MCAD. Under the terms of the policy, Norfolk had the “right and duty to defend the insured against any ‘suit’ seeking . . . damages [because of, e.g.,] personal and advertising injury.” The term “suit” is broadly defined as “a civil proceeding in which damages because [of, e.g.,] ‘personal and advertising injury’ to which this insurance applies are alleged.” In other words, the policy does not limit its coverage to cases filed in court, and Norfolk does not so argue.
Second, the Appeals Court stated that it made no difference to its analysis that discrimination in the form of sexual harassment was the essential legal theory underpinning the Towers complaint. The court stated that legal theory of the case is not determinative of the duty to defend; rather that what matters is whether the allegations made are “reasonably susceptible of the interpretation that they state or roughly sketch a claim for damages because of injury arising out of one or more of the offenses specified as within the personal and advertising injury coverage…” The court noted that the phrase “arising out of” must be read expansively, and has a broad meaning.[ii] So coverage could be triggered as long as there was oral or written publication of material that slanders or libels a person or violates a person's right of privacy, even though that was not specifically plead as a cause of action and other factors may have contributed to those damages apart from conduct covered by the policy.
Third, the court stated that it made no difference to its analysis that the MCAD did not have jurisdiction to hear a claim of slander or invasion of privacy. Towers’ alleged injuries, humiliation, embarrassment, loss of privacy, damage to reputation, and loss of self-esteem, are all types of injuries that are regularly awarded as part of MCAD proceedings as part of claims for emotional distress.[iii] Since the Towers complaint alleged those damages, the fact that they were presented in an “improper forum” would not affect Norfolk's duty to defend. The court explained that “an insurer's obligation to defend is not limited to valid claims; it extends even to claims potentially dismissible for lack of subject matter jurisdiction.”[iv]
B. Assessing the Allegations
Having determined that the nature of the claims dictate the obligation to provide coverage, the Appeals Court then considered whether the allegations as set forth in the Towers Complaint constituted claims of defamation and/or invasion of privacy. There was no question that within the Towers amended complaint she alleged both that her right to privacy had been invaded and her reputation slandered when her supervisor circulated “humiliating, vulgar, false, and demeaning statements among co-workers.” Norfolk argued that the references to invasion of privacy and slander were simply an attempt to “re-brand” Towers' claim to invoke coverage after its declaratory judgment action had been filed. However, the Appeals Court disagreed.
Ultimately, it is the factual allegations in a complaint, rather than labels asserting a legal theory, which form the basis for assessing potential coverage.[v] However, where the labels are not at odds with the factual allegations they need not be disregarded. Applied to this case, the Appeals Court went so far as to indicate that even Towers' original complaint, when considered in light of subsequent pleadings, alleged facts “consistent with and sufficient to state or roughly sketch a claim for damages arising out of” slander or invasion or privacy. Specifically, Towers alleged that Adelman repeatedly made offensive sexual comments about her appearance and her relationships. He questioned her about her sex life during her marriage and after her divorce, and he ridiculed her choice of boyfriend by using an offensive, derogatory term to question the boyfriend's sexuality and Towers' attraction to him. Notwithstanding how they were characterized in the pleadings, the Appeals Court asserted that Norfolk should have understood them as raising a claim for invasion of privacy.[vi]
The significance of this decision is not its result (as that is based on specific facts and an atypical insurance policy, and is also under appeal), but rather the analysis which the Appeals Court suggests an insurer must undertake when assessing coverage for such claims. Looking at a discrimination complaint brought before an agency tasked solely with addressing discrimination, Norfolk reasonably believed that there was no coverage under its policy based on an exclusion for discrimination claims. However, the Appeals Court decision suggests that insurers may have an obligation to look beyond the mere language of the pleadings, not only to determine what claims are actually being expressly alleged, but also what claims might be inferred based on the asserted facts. According to the Appeals Court, this obligation exists even when such other claims can’t be brought in the forum in which the claim is filed.
Depending on the extent of the potential claims which the courts ultimately determine an insurer should see in a generally drafted pleading, insurers may be forced to defend their insureds against a new class of vaguely drafted complaints. Ultimately, it may become necessary for insurers to seek to force claimants to file more definite pleadings to provide sufficient facts to allow the insurer to perform such an analysis.
[i] 81 Mass.App.Ct. 40 (2011).
[ii] American Home Assur. Co. v. First Specialty Ins. Corp., 73 Mass.App.Ct. 1, 5, 894 N.E.2d 1167 (2008), citing Bagley v. Monticello Ins. Co., 430 Mass. 454, 457, 720 N.E.2d 813 (1999).
[iii] Massachusetts Commn. Against Discrimination, 400 Mass. 156, 162 & 169, 508 N.E.2d 587 (1987); Stonehill College v. Massachusetts Commn. Against Discrimination, 441 Mass. 549, 573–574, 808 N.E.2d 205 (2004).
[iv] One issue significant to the facts of this case alone is tat that unlike other commercial liability insurance policies, the Norfolk policy did not exclude personal and advertising injury associated with discrimination against or harassment of an employee.
[v] Bagley v. Monticello Ins. Co., 430 Mass. at 458, 720 N.E.2d 813, citing First Wyo. Bank v. Continental Ins. Co., 860 P.2d 1094, 1099 (Wyo.1993). See also Terrio v. McDonough, 16 Mass.App.Ct. 163, 168–169, 450 N.E.2d 190 (1983).
[vi] The Appeals Court proceeded to address and reject Norfolk’s argument that no coverage was afforded based on its exclusion for conduct which is “[c]aused 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 basis of this decision was that while such exclusion applied to the individual making the statements in questions (Adelman), under a separation of insureds provision it did not apply to his supervisor or the corporate employer.