Civil Conspiracy Triggers Dishonesty Exclusion

The United States District Court for the Southern District of Ohio, applying Ohio and New York law, has held that a jury verdict determining that an insured participated in a civil conspiracy to make false statements about competitors incorporated a finding that the statements were intentional and “dishonest” within the meaning of a professional liability policy exclusion.  Evanston Ins. Co. v. Certified Steel Stud Ass’n, 2018 WL 1562016 (S.D. Ohio Mar. 31, 2018).

The insured trade association represented several steel stud manufacturers.  In 2013, the insured issued a publication that suggested that products manufactured by a competitor of its members did not comply with the International Building Code; the competitor sued.  A jury found the trade association liable for violations of the Ohio Deceptive Trade Practices Act (ODTPA), defamation, and civil conspiracy and awarded the competitor $49.5 million in damages.

The trade association’s insurer sought a declaratory judgment that the insured’s conduct fell within a policy exclusion for claims “based upon or arising out of any dishonest, deliberately fraudulent or criminal act, error, omission, personal injury or publishers’ liability committed by or at the direction of Insured.”  The court looked to Webster’s Dictionary and prior Ohio case law to determine that dishonesty involved conscious or intentional wrongdoing, “characterized by a lack of truth [or] honesty.”  The jury in the underlying action had been instructed that it could only find liability for civil conspiracy if it determined that the insured acted with malice, defined in part as acting “intentionally.”  The court held that the jury’s verdict was therefore inherently based on a finding that the publication was an “intentionally false and … misleading statement,” which was “dishonest” and therefore fell within the exclusion.

The court then considered the argument that coverage should be determined by analyzing each cause of action individually.  The ODTPA verdict, in isolation, did not require a finding of malice and, if covered, would exhaust the policy limits.  The court rejected this approach, noting that there was no independent cause of action for civil conspiracy under Ohio law, and therefore the jury must have found that the insured performed the acts underlying the other claims with malice, bringing them within the exclusion as well.