(Article from Insurance Law Alert, October 2019)
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Reversing an Ohio district court, the Sixth Circuit ruled that a dishonesty exclusion did not preclude coverage for claims alleging civil conspiracy, unfair competition, defamation, disparagement and violation of the Ohio Deceptive Trade Practices Act (“ODTPA”). Evanston Insurance Co. v. Certified Steel Stud Assoc., Inc., 2019 WL 4674072 (6th Cir. Sept. 25, 2019).
ClarkDietrich, a steel product manufacturer, sued CSSA, a trade association comprised of ClarkDietrich’s competitors. The suit alleged unfair competition, defamation, disparagement, violation of the ODTPA and civil conspiracy. A jury returned a verdict against CSSA on all counts. Evanston, CSSA’s insurer, sought a declaration that it had no duty to indemnify CSSA. Evanston argued that a dishonesty exclusion barred coverage and that the claims were uninsurable as a matter of law, among other things.
The district court ruled in Evanston’s favor. The court held that the dishonesty act exclusion, which excludes coverage for “any claim based upon or arising out of any dishonest, deliberately fraudulent or criminal act . . . committed by or at the direction of the Insured,” barred coverage. The court reasoned that because that the jury found that CSSA committed unlawful acts in furtherance of a conspiracy, “the jury necessarily found that ‘CSSA’s publication was intentionally false’ and involved a dishonest act.”
The Sixth Circuit reversed, finding that the unlawful acts did not necessarily involve dishonesty. The court reasoned that the jury did not have to find that CSSA acted dishonestly when it violated ODTPA or defamed and disparaged ClarkDietrich because intent is not a required element of ODTPA violations, and the jury “could have held CSSA liable for defamation and disparagement by concluding that CSSA entertained serious doubts as to the truth of its statements.”
The Sixth Circuit also ruled that the civil conspiracy verdict did not necessarily implicate the dishonesty exclusion. The court acknowledged that the conspiracy claim required a finding of intent, but reasoned that the intent could have related to the intent to publish statements that happened to be false, rather than an intent to make false statements. The court stated: “A finding that CSSA intentionally published statements that happened to be false is not equivalent to a finding that CSSA acted dishonestly.”
Finally, the court rejected Evanston’s argument that the claims, based on intentional conduct, were uninsurable as a matter of law. Although Ohio law prohibits liability insurance from covering damages caused by intentional acts, that prohibition applies to acts “undertaken with intent to injure.” The court concluded that the evidence did not support a finding that CSSA acted with intent to injure when it committed the unlawful acts at issue.