A Florida district court recently held that an insurer wrongfully refused to defend a Miami-based strip club in a lawsuit filed by 17 models claiming that the club used their images to promote its business without their authorization. The insurer was required to defend the club for allegations of defamation under the policy’s personal and advertising coverage even though 16 of the 17 plaintiffs’ claims alleged conduct outside the covered policy period and no plaintiffs brought a cause of action for “defamation.” The decision highlights the broad duty to defend, in Florida and elsewhere, that policyholders should emphasize when pursuing coverage.
In AIX Specialty Insurance Co. v. Dginguerian, insurer AIX Specialty sought a declaration that it owed no coverage for claims against its insured, Porky’s Cabaret, by 17 models claiming that the club posted advertisements to Facebook and in other media containing images of them without seeking permission to do so. The models brought claims for violation of the Lanham Act, for “False Advertising” and “False Endorsement,” violations of Florida common law and statutory “Right of Publicity” and “Unauthorized Misappropriation of Name/Likeness,” conversion, and unjust enrichment.
The club tendered notice under its commercial general liability policy issued by AIX. The policy provided, among other things, “personal and advertising injury” coverage for injury arising out of, among other things, oral or written publication of material that slanders or libels a person’s goods, products, or services, violations of privacy, use of another’s idea in the insured’s advertisement, and copyright, trade dress, or slogan infringement. The policy included an intellectual property exclusion that barred coverage for damages arising from patent, trademark, trade secret infringement, and “other intellectual property rights.”
AIX refused to defend the club, arguing that 16 of the 17 models’ claims allege conduct outside the covered policy period and the remaining claims—filed by Sarah Underwood—are excluded under the policy’s IP exclusion. AIX brought suit against the club and the models and moved for summary judgment that it does not owe coverage for the claims. The club and the models responded, arguing that Ms. Underwood’s claims are not subject to the IP exclusion because “they may be construed as defamation claims,” which are covered under the policy. They also argued that the AIX policy was ambiguous and that any dispute must be resolved in favor of coverage.
The court rejected AIX’s position, denied the insurer’s summary judgment motion, and held that judgment would be entered in favor of the club and the models. Recognizing that Florida’s broad duty to defend, the court agreed with the club that despite Ms. Underwood not expressly alleging a cause of action for “defamation,” her claims “sound in defamation” because she alleged all the necessary elements of a defamation claim under Florida law. Given that the duty to defend turns on the “grounds for liability expressed by allegations of fact” in the complaint, the court found the fact that Ms. Underwood did not bring a specific cause of action for defamation “does not matter.” Because the underlying allegations were enough to create a “potential” for defamation liability, which “move[d] her claims within the ambit of the damages covered” by the policy, AIX was wrong to refuse to defend.
For the same reason, AIX was wrong to exclude coverage under the IP exclusion. Although AIX was correct that the “right of publicity” is a type of “intellectual property right” potentially subject the IP exclusion, the court found that AIX owed the club a defense because the complaint “still sets forth grounds, other than those triggering the IP exclusion, upon which [AIX] could be held liable.”
Finally, the fact that only a single model alleged claims covered under the relevant policy period did not limit AIX’s defense obligations because “it is well settled the duty to defend one claim against the insured compels an insurer to defend the entire case.” The court held that AIX has a duty to defend the club against all of the models’ claims as long as Ms. Underwood’s covered claims remain at issue in the case.
The Porky’s Cabaret decision highlights two important aspects of an insurer’s duty to defend. First, that it is the underlying allegations of fact, rather than labels attributed to the counts or causes of action, that ultimately determine whether the duty to defend is triggered. The insurer is obligated to defend if those facts even potentially bring the claims within the policy’s insuring agreement. Second, the decision underscores the fundamental rule that no matter the number of uncovered plaintiffs or causes of action, an insurer must defend the entire lawsuit so long as one claim creates a potential for coverage under policy. Policyholders remain mindful of these favorable standards when advocating for coverage for the defense of lawsuits.