Allegedly Damaged Goodwill Does Not Trigger EPL Coverage

The Seventh Circuit, applying Indiana law, affirmed the district court’s ruling and found no coverage for the underlying lawsuit which alleged the plaintiff used DirecTV’s satellite television programming for its businesses without paying a higher commercial subscription rate.  The Seventh Circuit disagreed that the underlying lawsuit, which included allegations for damaged goodwill, involved “slander, invasion of privacy, defamation or humiliation.”  The Seventh Circuit noted that the underlying lawsuit did not even contain any allegations that plaintiff made any kind of statement, let alone a false or defamatory statement about DirecTV. 

Society Insurance (“Society”) insured Martinsville Corral, Inc. d/b/a Martinsville Texas Corral, Victor A. Spina, and William Spina (collectively “MCI”) under a business owners insurance policy with an “Employment-Related Practices Liability Endorsement.”  The Endorsement required Society to cover MCI for “damages resulting from a ‘wrongful act’ to which [the Policy] applies.”  The endorsement defined “wrongful act” to include “[l]ibel, slander, invasion of privacy, defamation or humiliation.”

DirecTV sued MCI for publicly displaying its programming in two restaurants without paying the commercial subscription rate.  DirecTV alleged that MCI violated the Cable Communications Policy Act of 1984 (“CCPA”) and alleged that its “goodwill and reputation [had] been usurped” as a result of MCI’s violation of the CCPA.  MCI tendered the DirecTV claim to Society for a defense and indemnification.  Society denied coverage.  MCI incurred over $75,000 in defense costs before DirecTV ultimately dismissed the suit.  MCI sued Society for breach of contract.  Society filed a counterclaim seeking a declaration that there was no coverage.  The district court granted summary judgment for Society.   MCI appealed.

On appeal, MCI argued that Society was required to cover its costs and expenses for the DirecTV action because DirecTV claimed damages that fell within the scope of the Endorsement’s coverage for libel, slander, or defamation claims.  The Seventh Circuit disagreed: “DirecTV’s complaint alleged that MCI damaged DirecTV’s goodwill by showing its programming without paying the correct subscription fee. In DirecTV’s complaints, there are no allegations that MCI made any false, defamatory statement about DirecTV.  DirecTV’s actions did not include allegations that MCI made any kind of statement at all.”  Martinsville Corral, Inc. v. Society Ins., No. 18-1945 (7th Cir. Dec. 13, 2018).