A recent federal district court decision demonstrates how the expansive duty to defend can even include unstated causes of action arising out of minimally alleged facts. U.S. District Judge Jon S. Tigar of the Northern District of California ruled that Federal Insurance Company had a duty to defend MedeAnalytics, a healthcare data analytics provider, against a breach of contract complaint by former business partners under the personal injury coverage of MedeAnalytics commercial liability policies—even though the complaint did not assert a cause of action for personal injury. Instead, the complaint alleged that MedeAnalytics made disparaging comments about its former business partners to their employees to lure away the employees. Federal refused to defend MedeAnalytics, which subsequently settled the underlying lawsuit.
The Court granted MedeAnalytics' motion for partial summary judgment and held that the underlying complaint, although short of detail, sufficed to give rise to potentially covered liability for a libel or slander claim because it alleged publication to third persons and alleged disparaging content. These allegations, the Court explained, are sufficient to trigger the duty to defend under California law, which does not require additional detail in the complaint. The court also rejected the insurer's contention that the complaint needed to allege that the disparaging statements were false. Even though the underlying complaint did not state a cause of action for libel or slander, the duty to defend nevertheless arose where, under the facts alleged, the complaint could be amended to state a potentially covered claim.
The Court also rejected the insurer's argument that a breach of contract exclusion eliminated the potential for coverage. Instead, the exclusion for "personal injury arising out of breach of contract" applied only to actual breaches of contract rather than alleged breaches of contract. Other provisions in the policy that included "actual or alleged" language demonstrated that the parties had known how to exclude alleged breaches of contract if that had been their intent. The exclusion did not eliminate the potential for coverage because Federal failed to advance conclusive evidence of an actual breach of contract.
This decision affirms the expansive scope of the duty to defend and illustrates that policyholders should not dismiss out of hand the possibility of coverage where a complaint does not expressly assert a covered cause of action.
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