Judgment Eliminating Defamation Coverage Defeats Coverage

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Although the duty to defend is exceedingly broad the obligation of an insurer to defend and insured is not unlimited. In University Of Louisville v. Kentucky School Boards Insurance Trust And Cyril William Helm, No. 2021-CA-1066-MR, Court of Appeals of Kentucky (August 19, 2022).

KSBIT is a domestic insurer that issued a general liability insurance policy to the University, which was renewed for several years. 

The underlying matter began with a suit for a declaratory judgment by KSBIT , in January 2021 related to the policy.

FACTS

Dr. Helm’s dispute began after his colleagues had alleged he had committed plagiarism or other misconduct in his research. 

Because Dr. Helm’s claims for back pay and attorney fees did not arise from a personal injury as defined in the policy, there was no longer any factual or legal basis under the policy requiring it to defend or indemnify the University in Dr. Helm’s underlying suit. 

The circuit court rejeced the University’s arguments and held that KSBIT was not required to provide a continuing defense to the University.

ANALYSIS

In Kentucky, as in all jurisdictions, an insurer has a duty to defend if there is an allegation which might come within the coverage terms of the insurance policy, but this duty ends once the insurer establishes that the liability is in fact not covered by the policy. 

The circuit court noted that KSBIT had provided a defense in Dr. Helm’s action and won, meaning that there was no need to prosecute an appeal on the University’s behalf. There was no continuing duty for KSBIT to provide coverage to the University in Dr. Helm’s action.

ZALMA OPINION

This case clearly established that the broad duty to defend is not an unlimited duty. Before an insurer is obligated to defend an insured there must be an action for a tort that the insurer agreed to defend and/or indemnify the insured. KSBIT defended the University successfully and obtained a favorable judgment eliminating all charges of “Personal Injury” leaving only contract damages for back pay. The University did not appreciate the win and tried to get defense for the remaining allegations, for injuries and claims not covered by a liability insurance policy.

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Barry Zalma, Esq., CFE, is available at http://www.zalma.com and [email protected].

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