Duty to Defend Triggered Given “Possibility” of Wrongful Act

The United States District Court for the District of South Carolina, applying South Carolina law, has denied a professional liability insurer’s motion to dismiss, holding that the insured’s alleged conduct could fall within the policy’s definition of “Wrongful Act,” thus giving rise to a duty to defend.  Harriman v. Associated Indus. Ins. Co., 2019 WL 1670801 (D.S.C. Apr. 17, 2019).

The insurer issued a professional liability policy to a securities brokerage firm.  In 2015, a medical technology company sued one of the firm’s investment advisors.  The company alleged that the advisor engaged in a smear campaign, defaming the company after it repeatedly declined the advisor’s attempts to solicit business.

The advisor sought coverage from the insurer for two actions that involved allegations of disparagement and interference with business relations.  The insurer denied coverage on the ground that the alleged conduct did not constitute a “Wrongful Act,” which the Policy defined as “any actual or alleged negligent act, error, omission, misstatement, misrepresentation or breach of duty by an Insured . . . in rendering or in failing to render Professional Services.”  The advisor sued the insurer for breach of contract and bad faith.

In the coverage action, the court disagreed with the insurer’s reading of the underlying allegations and concluded that the advisor’s allegedly defamatory statements and tortious conduct could have occurred in the context of providing Professional Services.  The court referenced allegations in the underlying actions suggesting that the advisor made defamatory comments about the company to her clients while working within her role as an agent of the firm.  As a result, the court held that this possibility of coverage was sufficient to give rise to a duty to defend under South Carolina law.