United States: The Cosby Show: The Insurance Coverage Episode

On November 8, 2016, the District Court in the District of Massachusetts held that AIG has a duty to defend Bill Cosby against pending defamation claims under both Massachusetts and California law. The court rejected AIG's contention that the defamation claims fall within the exclusion for sexual misconduct since they were "arising out of" claimants' original allegations of sexual misconduct. Instead, the court found the exclusion was at least ambiguous in the context of these defamation claims and, therefore, a duty defend is owed.

It is generally well known that William H. Cosby, Jr., (known familiarly in his comedy and acting career as Bill Cosby), has been accused on a number of occasions of sexual misconduct many years ago. Cosby has denied the allegations in public statements issued personally and through representatives.

Based upon these denials, three defamation cases were filed against Cosby and others in the District Court of Massachusetts. Green v. Cosby, Case No. 14-cv-30211, Ruehli v. Cosby, Case No. 15-cv-13796, and McKee v. Cosby, Case No. 15-cv-30221. Cosby sought coverage for the defamation claims under a Massachusetts homeowners policy ("Homeowner's Policy") and a personal excess liability policy ("Excess Policy"), both purchased from AIG. The policies cover claims alleging personal injury, which is defined to include "[d]efamation, libel or slander" emotional distress. While the Homeowner's Policy includes a duty to pay defense costs, the Excess Policy includes a duty to defend. Both policies exclude actions "arising out of" sexual misconduct, harassment or abuse.

AIG filed a complaint seeking a declaration that it had no duty to defend because the defamation claims arose out of sexual misconduct. Cosby filed a motion to dismiss AIG's complaint in Massachusetts and for a judgment that the sexual misconduct exclusions do not unambiguously bar coverage for the defamation cases. AIG also moved for summary judgment that it has no duty to defend.

A similar issue was addressed in the Central District of California between Cosby and AIG. AIG had filed a similar complaint relating to a defamation case filed by Janice Dickinson in a California state court. AIG Prop. Cas. Co. v. Cosby, Case No. CV 15-04842 (C.D. Cal. June 26, 2015). Judge O'Connell held that AIG had a duty to defend Cosby in the defamation cases under California law because similar allegations were not unambiguously excluded. Id., 2015 WL 9700994 (C.D. Cal. Nov. 13, 2015).

Judge Mastroianni disagreed. First, the court was asked to address the issue of which state's law applied. Cosby contended that AIG had argued in the California litigation that there was no conflict between Massachusetts and California state law; however, following the ruling in the Central District of California, AIG was now arguing that the two states' laws were in conflict. Although the court concluded that the elements of judicial estoppel had been met, it declined to apply the doctrine, ultimately deciding the coverage issue under both California and Massachusetts law.

The court found that both California and Massachusetts interpret the phrase "arising out of" to require some degree of causation between the conduct and the injury, and deferred to the persuasive reasoning by J. O' Connell about the construction of California law. With respect to Massachusetts law, the court held that the exclusions were at least ambiguous as to whether these defamation claims were covered. Because ambiguous language must be construed against the drafter, the court found for Cosby. The source of the injuries, the court noted, were the defamatory statements, not the alleged sexual misconduct itself. The court did not resolve the issues of AIG's duty to indemnify Cosby for the defamation claims, because the underlying cases have not yet been resolved.

It is not unusual to see insurers deny claims that have any relationship to excluded conduct, even if the injuries alleged in the underlying action were not caused by the excluded conduct. Any policyholder facing litigation alleging injuries that may be related to excluded occurrences, but were not caused by them, should push back against insurer denials of coverage.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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