Eleventh Circuit Affirms Dismissal of Claim against Insurer for Indemnification or a Defense for a Privacy Claim under a Professional Liability Policy

by Wilson Elser
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On October 22, 2013, in The Zodiac Group, Inc. v. Axis Surplus Insurance Co., the United States Court of Appeals for the Eleventh Circuit affirmed the district court’s dismissal of The Zodiac Group’s (Zodiac’s) claim against its insurer for indemnification or a defense under a professional liability insurance policy (the Policy). The Eleventh Circuit explained that since the underlying privacy/publicity claim against Zodiac and David Felger and Daniel Felger (Felgers), who own and operate Zodiac, was not first made during the policy period (the claim related back to a claim that was asserted before the policy incepted), the condition precedent to coverage was not satisfied.

Background
Zodiac’s claim for coverage arises out of Linda Georgian’s (Georgian’s) commencement of a state court action and subsequent federal court action based on Zodiac’s purported improper use of Georgian’s name and likeness to promote Zodiac’s psychic services. In November 2001, Zodiac entered into an endorsement agreement with Georgian, a well-known psychic and co-host of the Psychic Friends Network®, that required Georgian to provide endorsement services to Zodiac for telephone psychic entertainment services. The endorsement agreement ended in March 2007.

In April 2008, Georgian commenced a state court action against Zodiac alleging that Zodiac, after the endorsement agreement ended, improperly used Georgian’s name and likeness to falsely imply she endorsed The Zodiac Group’s services. Georgian’s state court action was eventually dismissed without prejudice for lack of prosecution.

In January 2010, Georgian commenced suit in federal court against Zodiac and the Felgers based on claims substantially similar to those asserted by Georgian in her prior state court action solely against Zodiac. Those claims included, but were not limited to,

  • Misusing Georgian’s name and making false claims on The Zodiac Group’s website that Georgian endorsed its psychic services
  • Publishing and advertising listings falsely promoting The Zodiac Group’s telephone numbers as Georgian’s
  • Directing its psychic telephone workers to falsely inform callers that Georgian had a line with, was affiliated with or owned the telephone network
  • Directing its psychic telephone workers to falsely inform callers they were Georgian
  • Fostering a misbelief that Georgian endorsed or was affiliated with The Zodiac Group.

The federal complaint alleges that these acts continued through at least September 2009. The district court dismissed most of Georgian’s claims before the parties settled the remaining claims.

Decisions
After their insurer denied coverage for Georgian’s federal claim, Zodiac and the Felgers commenced suit against the insurer seeking declaratory relief and damages for breach of contract. The insurer moved to dismiss the action pursuant to Rule 12(b)(6) and the district court granted the insurer’s motion. Zodiac and the Felgers appealed the dismissal to the Eleventh Circuit, which affirmed the district court’s dismissal of the action.

Zodiac and the Felgers claimed coverage for the claim because the policy covered claims arising from “interference with rights or privacy or publicity, including… commercial appropriation of name or likeness.”  Relying on a condition precedent for coverage based on prior wrongful acts being “first made against an Insured during the Policy Period,” which was from October 2008 to October 2010, the Eleventh Circuit held that the insurer properly denied coverage. The Eleventh Circuit explained that under the Policy, “all Claims from the same Wrongful Act” are deemed to have been made on the same date. A “Wrongful Act” is “conduct or alleged conduct by an Insured.” As such, the Policy treats all wrongful actions “related by common facts, circumstances, transactions, events and/or decisions … as one Wrongful Act.”

Consequently, Georgian’s state and federal actions were found to be related by common facts, circumstances, transactions, events and/or decisions. The Felgers argued that since they had not been named in Georgian’s state court action, Georgian’s federal court action was a “new wrongful act” against them. The Eleventh Circuit disagreed, holding that the Policy did not limit this broad language to only those acts committed by a single action.

In addition, the Policy provided that “claims arising from the same Wrongful Act” were deemed to have been made the “earlier of” the date “the first of those claims [was] made against any Insured” or the “first date [the insurer] receive[d] the Insured’s written notice of the Wrongful Act.” Here, since Georgian filed her state claim in April 2008 before the Policy incepted on October 2008, the Eleventh Circuit found that Georgian’s federal complaint was not covered under the Policy and that the insurer did not owe indemnity or a defense.

Takeaway
When, as in Zodiac Group, a policy treats all wrongful actions “related by common circumstances, transactions, events and/or decisions” as “one wrongful act,” then even successive suits involving different insureds under the policy can be viewed as arising from the same wrongful act, when the record confirms that the second suit arises from the same facts and circumstances as the first.

 

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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