Under New York law an insurer’s duty to defend is much broader than the duty to indemnify.  Many times pleadings will contain allegations of both intentional and negligent conduct, and the insurer will be obligated to defend its insured until a determination is made (generally not until the underlying case is decided on the merits) as to whether the conduct falls within the intentional conduct exclusion. In some instances, however, the allegations in the complaint are so clearly based upon the insured’s intentional conduct that the insurer will be able to deny any obligation to defend or indemnify the insured.

This is exactly what happened in the case of AmGuard Insurance Co. v. Country Plaza Assoc. The underlying action in that case related to claims that the insured — a bar and restaurant — failed to disclose the claimant’s overtime hours in order to avoid paying him overtime. The claimant alleged that after asserting these wage and hour claims, he was removed from weekend shifts and then ultimately terminated. He also claimed that the after he was offered a comparable position at a competing restaurant, the defendant telephoned the prospective employer and advised them not to hire the plaintiff. As a result, his employment offer was rescinded. He then sued the insured asserting violations of the Fair Labor Standard Act and the New York Labor Law and also alleged a claim for a prima facie tort based upon the telephone call.

The insurer disclaimed coverage, citing to the employment-related practices exclusion in the policy and the intentional acts exclusion. The court determined that all the claims, including the statements made by the insured to the prospective employer which were the sole basis of the prima facie tort claim, were “incident to” and had “some causal connection to the excluded employment-related practices. As a result the insured was not obligated defend because all of the claims in the underlying action arose out of the plaintiff’s employment and the insured’s employment-related practices.

With respect to the prima facie tort claim, the court noted that the claimant alleged only intentional conduct and alleged that the former employer called the prospective employer to dissuade them from hiring him. Thus, the court determined, the injury that resulted from the insured’s acts — the rescission of the job offer to the claimant — was inherent in the insured’s intentional act because it was the direct and natural consequence of the act. As a result, the intentional acts exclusion similarly relieved the insurer from any obligation to defend or indemnify its insured for the underlying action.

Thanks to Jorgelina Foglietta for her contribution to this post.  For more information, please write to Mike Bono.