Blood, Money & the Duty to Defend

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In Peerless Indemnity Insurance Company v. Phillips, No. H-12-1145 (S.D. Tex. Apr. 17, 2013), the United States District Court for the Southern District of Texas granted in part and denied in part the insurer’s motion for summary judgment.  The court found that the insurer had no duty to defend a law firm and one of its partners for allegations of conversion and negligent defamation because the alleged injuries arose out of intentional statements made by the law firm partner with knowledge of their falsity.  The court, however, determined that the duty to indemnify was not ripe because the underlying lawsuit is still pending in state court.

In 2006, Michael Phillips of Phillips Akers Womac represented Dinesh Shah in a civil suit filed by Joan Johnson, an heiress to the Exxon fortune.  After Johnson won a substantial money judgment, Shah offered and Phillips accepted thousands of private documents that Shah had stolen from Johnson. Phillips ultimately used the stolen documents to write and publish a book entitled Monster in River Oaks, which describes Shah’s victimization of Johnson and her children (the Johnsons).  Consequently, the Johnsons filed suit against Phillips, his law firm, and the publishing company in Harris County, Texas.  The Johnsons alleged that Phillips intentionally converted the Johnsons’ property by depriving them of the stolen items, and published a multitude of defamatory statements causing injury.  The Johnsons further contended that Phillips’ defamatory statements were committed with gross negligence.

Phillips sought a defense from his insurer, Peerless Indemnity Insurance Company.  Peerless refused and filed a declaratory judgment action in which it moved for summary judgment on the grounds that the alleged property damage was not caused by an “occurrence” and the “knowledge of falsity” exemption excludes any damages resulting from “personal and advertising injury.”

Noting that the Peerless policy only covers property damage caused by an “occurrence,” which the Policy defines as an “accident,” the court found that the underlying petition did not support Phillips’ claim that he only used documents of public record to write the book.  Because the underlying petition alleged that Phillips intentionally deprived the Johnsons of their property, the court held that the property damage was not accidental and, therefore, not an “occurrence.”

In further analyzing whether the Peerless policy provided coverage for the Johnsons’ defamation claim, the court observed that, although the underlying petition may have stated a claim for negligence, the “knowledge of falsity” exemption applied because the petition made no factual contentions constituting negligent, careless, or reckless behavior.  Thus, Peerless had no duty to defend.

Nevertheless, the court denied Peerless’ motion as it related to the duty to indemnify.  The court explained that such a duty will turn on facts the Johnsons might actually prove in the underlying action.  Because the action is still pending, the court deferred resolution of the indemnity issues. 

 

Topics:  Conversion, Defamation, Duty to Defend, Indemnification, Insurers, Summary Judgment

Published In: Civil Procedure Updates, General Business Updates, Insurance Updates, Personal Injury Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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