Defamation Claim Against Property Insurer Dismissed

COMMERCIAL PROPERTY – ARSON – DEFAMATION – COMMON INTEREST QUALIFIED PRIVILEGE – GENERAL BUSINESS LAW § 349
Farm Fresh Gourmet Salads, LLC v. Sentinel Ins. Co.
(Sup.Ct., NY Co., decided 1/10/2014)

It has been my observation that the assertion of defamation causes of action against property insurers has become more common over the past few years, especially in claims investigated or denied for possible fraudulent or intentional conduct.  I guess that's why I developed a training presentation on this topic nearly four years ago.  I've also blogged about a number of New York cases before, which you can review here.

In this case, Sentinel investigated its insured's fire loss and denied coverage based, in part, on its conclusion that the insured caused or procured the fire.  The disclaimer letter sent to the insured and copied to the insured's attorney, public adjuster and insurance agent stated: "Sentinel's investigation has determined that the fire was the result of an intentional act caused or procured by the insured, or someone acting on its behalf."

A summons and complaint followed, with the complaint unsurprising alleging a breach of contract cause of action.  Presumably in an effort to recover plaintiffs' attorneys' fees in the event they prevailed, also somewhat unsurprisingly the complaint alleged a violation of New York General Business Law § 349, New York's deceptive business acts and practices act.

But what caught my eye when I read this decision was its mention of the defamation causes of action against the insurer AND its adjuster who had signed the disclaimer letter.  Is it possible to deny coverage based on the insurer's conclusion that its insured intentionally caused or procured the loss, or breached the policy's fraud/misrepresentation condition, without incurring defamation liability?  As this case illustrates, the answer is yes, of course it is.

Defendants made a motion for partial summary judgment to dismiss the complaint's two defamation causes of action.  In GRANTING that motion, New York County Supreme Court Justice Eileen Rakower agreed that the common interest qualified privilege applied to preclude defamation liability:

Defamation arises from "the making of false statement which tends to expose the plaintiff to public contempt, ridicule, aversion or disgrace, or induce an evil opinion of him in the minds of right-thinking persons, and to deprive then of their friendly intercourse in society." Foster v. Churchill, 87 N.Y.2d 744 (1996)(citations omitted).

The elements of defamation "are a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and, it must either cause special harm or constitute defamation per se." Dillon v. City of New York, 261 A.D.2d 34, 38 [1st Dept 1999]. "Truth provides a complete defense to defamation claim." (Id.).

"Slander per se" "consist of statements (I) charging plaintiff with a serious crime; (ii) that tend to injure another in his or her trade, business or profession; (iii) that plaintiff has a loathsome disease; or (iv) imputing unchastity to a woman." Liberman v. Gelstein, 80 N.Y.2d 429, 435 (1992).

"Even though a statement is defamatory, there exists a qualified privilege where the communication is made to persons who have some common interest in the subject matter." (Id. at 751). "A privileged communication is one which, but for the occasion on which it is uttered, would be defamatory and actionable." (Id.). "The defense of qualified privilege will be defeated by demonstrating a defendant spoke with malice. Moreover, the conditional or qualified privilege is inapplicable where the motivation for making such statements was spite or ill will (common law malice) or where the statements [were] made with [a] high degree of awareness of their probable falsity (constitutional malice)." (Id.) (citations omitted).

Here, Defendants have established prima facie evidence of entitlement to summary judgment on the defamation/libel claims by establishing that the alleged defamatory statement was made to persons who share a common interest in the subject matter and therefore was subject to qualified privilege. The only persons that the allegedly defamatory statement was published to were Plaintiffs' lawyer, and Plaintiffs' agents handling their insurance affairs (Plaintiffs' public adjuster and insurance agent). In additionally, Plaintiffs have presented no evidence of malice to defeat this privilege.

It is important to understand that the court did not conclude that the statement contained in Sentinel's disclaimer letter was defamatory.  It concluded that even if it were, the common interest qualified privilege, undefeated by any showing of malice, applied to preclude defamation liability.

Defendants also moved for summary judgment to dismiss plaintiffs' GBL § 349 cause of action, arguing that plaintiffs had not sufficiently alleged the type of consumer-oriented deceptive practices that this statute was intended to eradicate.  Because plaintiffs did not oppose that aspect of defendants' motion, the court granted summary judgment on and dismissed that cause of action, as well.