Insurer Had No Duty To Defend Or Indemnify Where Neither Facts Alleged Nor Damages Sought in Underlying Suit Fell Within Policy Coverage

In Cincinnati Ins. Co. v. Zaycon Foods LLC, 2018 WL 847247 (E.D. Wash. February 13, 2018) (ECF 54), the U.S. District Court ruled that a liability insurer had no duty to defend or indemnify where neither the underlying complaint nor extrinsic facts described a claim for damages that could be covered under the policy.

In the underlying suit, Zaycon was sued by its former CEO for alleged violations of state and federal securities laws, fraud, negligent misrepresentation, breach of fiduciary duty, and breach of contract relating to the former CEO’s ouster as CEO.  Cincinnati agreed to defend Zaycon under a reservation of rights.

Represented by Gary Sparling and Sarah Davenport of Soha & Lang, P.S., Cincinnati filed an action for declaratory relief, seeking a declaration that the claims in the underlying suit did not fall within the coverages provided in Cincinnati’s policies issued to Zaycon.  In response to Cincinnati’s summary judgment motion, Zaycon argued that certain allegations in the underlying complaint could be interpreted to describe defamation.  The Cincinnati policies provided coverage for, among other things, “personal and advertising injury” arising out of “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”  Zaycon argued that although the underlying suit did not formally state a cause of action for defamation, the allegations in the complaint and extrinsic facts nevertheless demonstrated that the underlying suit included claims for false statements that allegedly damaged the former CEO’s reputation.

The court disagreed, and held that the underlying complaint did not allege or imply that the alleged false statements by Zaycon’s members had damaged the former CEO’s reputation, nor did the complaint seek damages for such harm.  The court further held that the extrinsic facts failed to demonstrate that Zaycon faced potential liability for defamation in the underlying suit, when the complaint did not allege any claim for such damages.  Accordingly, the court granted summary judgment and ruled that Cincinnati had no duty to defend or indemnify, and that Cincinnati could immediately withdraw from any further defense in the underlying suit.


Disclaimer: The opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

Posted by Sarah Davenport