Second Circuit Confirms Standard That Insurer Not Obligated To Defend And Indemnify In $96 Million Defamation Claim

First Advantage Litigation Consulting LLC v. American International Specialty Lines Insurance Co. et al.,
U.S. Court of Appeals for the Second Circuit

First Advantage Litigation Consulting LLC, (First Advantage) brought a declaratory judgment action against its insurers, American International Specialty Lines Insurance Co., Federal Insurance Co. and Zurich American Insurance Co. (collectively, insurers), seeking defense and indemnification in connection with a defamation action commenced by NuWave Investment Corp (NuWave). In 2006, NuWave sued First Advantage for $96 million in claimed damages stemming from allegedly defamatory statements contained in reports issued by First Advantage. A jury verdict was returned against First Advantage in May 2011.

In the declaratory judgment action, The United States District Court for the Southern District granted summary judgment in favor of the insurers, finding that there was no basis for the insurers to defend or indemnify First Advantage.

On appeal, the Second Circuit affirmed the District Court holding “for substantially the reasons” set forth by the district court. The Second Circuit found that the insurers did not have a duty to defend or indemnify First Advantage because the defamatory statements fell within the policies’ prior acts exclusion and prior publication exclusion. Specifically, the court noted that the defamatory statements fell within the exclusions of the respective insurance policies because they “were first published, in form or substance, on October 23, 2002, prior to the April 30, 2003 retroactive date of the AISLIC policy and the 2005-2006 policy period of the Zurich policy.”

The court also found that the insurers were relieved of the duty to defend First Advantage through the appeal in the defamation action as a matter of law. The court found that given the verdict in the defamation action, “there was no basis on which the insurers will be obligated to indemnify First Advantage.”

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