Seaboard Surety Co. v. The Gillette Company, 64 N.Y.2d 304 (1984)
An insurer’s duty to defend is broader than its duty to indemnify and arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer, even if some claims are excluded.
Summary
Seaboard Surety Company sought a declaratory judgment that it had no duty to defend The Gillette Company and J. Walter Thompson Company in a suit brought by Alberto-Culver Company. Alberto sued Gillette and Thompson for unfair competition, deceptive trade practices, and libel based on a television commercial. Seaboard refused to defend, citing exclusions in the “Libel Policy.” The New York Court of Appeals held that Seaboard had a duty to defend because the complaint contained allegations that potentially fell within the policy’s coverage, and the exclusions did not unambiguously negate the duty to defend all claims.
Facts
In 1974, Gillette ran a television commercial prepared by Thompson that unfavorably compared an Alberto-Culver product to Gillette’s. Alberto sued Gillette and Thompson in federal court, alleging unfair competition, deceptive trade practices, consumer fraud, and common-law libel. Alberto claimed the commercial “falsely implie[d]” deficiencies in its product and “falsely” disparaged its business, reputation, and products. Alberto also alleged unauthorized use of its trademark. Gillette and Thompson requested Seaboard to defend them under their insurance policies, but Seaboard disclaimed coverage. The Alberto action was eventually settled by Gillette and Thompson.
Procedural History
Seaboard filed a declaratory judgment action seeking a ruling that it had no duty to defend or indemnify Gillette and Thompson. The trial court initially dismissed the action against Gillette. The trial court granted Thompson’s motion for partial summary judgment, holding Seaboard had a duty to defend. The Appellate Division affirmed. The Appellate Division reversed the dismissal against Gillette. The trial court then granted Gillette’s motion for partial summary judgment on Seaboard’s duty to defend and ordered a trial on the defense cost claims. The Appellate Division affirmed, and Seaboard appealed to the New York Court of Appeals.
Issue(s)
Whether the exclusions from liability coverage contained in the insurance policies negate the insurer’s duty to defend Gillette and Thompson in the Alberto action.
Holding
Yes, because the allegations in Alberto’s complaint triggered Seaboard’s duty to defend since some claims fell within the policy’s general coverage and were not unambiguously excluded. A declaration that there is no obligation to defend could be properly made only if it could be concluded as a matter of law that there is no possible factual or legal basis on which the insurer might eventually be held to be obligated to indemnify the insured under any provision of the insurance policy.
Court’s Reasoning
The court stated that an insurer’s duty to defend is broader than its duty to indemnify. The duty to defend arises when the allegations in the complaint fall within the scope of the risks undertaken by the insurer, regardless of the truthfulness of the allegations. The court emphasized that the duty to defend is triggered if the complaint alleges any facts or grounds that bring the action within the protection purchased. Citing International Paper Co. v Continental Cas. Co., the court noted that such coverage is, in fact, ‘litigation insurance’ as well. The court also stated, “So long as the claims [asserted against the insured] may rationally be said to fall within policy coverage, whatever may later prove to be the limits of the insurer’s responsibility to pay, there is no doubt that it is obligated to defend.”
The court further stated that exclusions from coverage must be “clear and unmistakable” and are to be strictly and narrowly construed. The insurer bears the burden of establishing that the exclusions apply and are subject to no other reasonable interpretation.
In this case, the court found that Alberto’s complaint included allegations that were not explicitly listed in the exclusions. Alberto’s claims of product disparagement and misuse of trademark fell within the scope of the policy’s general inclusions and did not “solely and entirely” fall within the relied-upon exclusory provisions. The court concluded that Seaboard failed to demonstrate that the allegations necessarily fell within the policies’ exclusions. Because there was a possible factual or legal basis on which Seaboard might eventually be obligated to indemnify Gillette and Thompson, Seaboard had a duty to defend.