Massachusetts Court Holds Upholds Exclusion Applicable to Personal and Advertising Injury

In its recent decision in National Union Fire Ins. Co. v. Town of Norwood, 2017 U.S. Dist. LEXIS 116638 (D. Mass. July 26, 2017), the United States District Court for the District of Massachusetts had occasion to consider the scope of an exclusion in a general liability policy applicable to knowing violations of another’s rights.

National Union insured the Town of Norwood, which was sued by Boston Executive Helicopters (“BEH”) arising out of a permitting dispute regarding BEH’s attempts to expand its helicopter operations business.  Norwood had determined it would not consider BEH’s permit application, allegedly as a result of a complaint BEH had made to the FAA regarding Norwood’s alleged mismanagement of an airport.  BEH subsequently filed suit against Norwood, alleging that Norwood colluded with BEH’s competitors to stifle competition.  While the suit originally contained several causes of action, it was later pared down to a single cause of action alleging that Norwood retaliated against BEH in violation of the First Amendment.

National Union initially agreed to provide Norwood with a defense under a reservation of rights, but subsequently sought a declaration that it had no continuing defense obligation when the suit was amended to a single cause of action for retaliation.  National Union contended that the retaliation claim fell within an exclusion in its policies applicable to acts committed by the insured with the knowledge that such act would violate the rights of another and would inflict personal and advertising injury.

In considering the coverage dispute, the court acknowledged that under Massachusetts law, an insurer is obligated to defend an entire lawsuit so long as a single cause of action is potentially covered.  The court further observed, however, that under Massachusetts law, “the insurer is permitted to withdraw the defense” when the claimant can no longer establish a claim that would fall within the policy’s coverage.

With this in mind, the court considered the application of the knowing violations exclusion.  Norwood argued that for the exclusion to apply, National Union had to demonstrate that not only did Norwood intend the retaliatory act, but that it also intended the resulting harm to BEH.  The court agreed that knowing violations exclusions are construed in such a manner under Massachusetts law.  The court nevertheless reasoned that for a retaliation claim, the intent to cause harm is necessarily part of the cause of action since retaliatory acts are necessarily undertaken with the purpose of punishing a party.  As the court explained, “[b]ecause the conduct covered by a First Amendment retaliation claim is inherently willful, it requires intentionality and the deliberate infliction of injury.”  As such, the court concluded that the retaliation claim necessarily came within the scope of the exclusion and that National Union had no continuing duty to defend.