Confronting an issue of "first impression" in Massachusetts and the First Circuit, the Supreme Judicial Court joined with the majority position taken by the 8th and 3rd Circuit Courts of Appeal and courts elsewhere in holding that a malicious prosecution tort "occurs" for purposes of triggering the duty to defend when the underlying litigation is first filed, not when it is dismissed. Billings v. Commerce Ins. Co., 458 Mass. 194 (Nov. 4, 2010).
Defendant Commerce Insurance Company ("Commerce") insured plaintiff George H. Billings ("Billings") under a personal umbrella liability policy (the "Policy") that afforded coverage for "personal injury" caused by "an 'occurrence' to which this policy applies." "Personal injury" included "malicious prosecution, libel, slander or defamation of character."
In 1998, before Commerce insured Billings, Billings and others filed a lawsuit against the trustees of the Peterson 1990 Real Estate Trust, seeking to annul a decision of the Falmouth zoning board of appeals regarding issuance of a building permit on one lot, enjoin construction on other lots, and enjoin the building commissioner from issuing building permits for other lots. In April 2000, while Billings was insured by Commerce, this action was dismissed after the parties reported the action settled but failed to file the settlement agreement with the court. In December 2000, Scott and Eric Peterson, individually and as trustees, sued the plaintiffs in the 1998 action, including Billings, alleging malicious prosecution and intentional infliction of emotional distress.
Billings sent Commerce the 2000 complaint and requested a defense. Commerce declined coverage on the basis that "there is no allegation in the [c]omplaint of an offense which was committed during the coverage period." Billings retained defense counsel at his own expense, and a jury returned a verdict in favor of Billings. Billings filed a declaratory judgment action seeking a declaration that Commerce breached its duty to defend him in the 2000 action. He also sought actual and punitive damages under G.L. c. 93A, alleging unfair insurance practices in violation of G.L. c. 176D § 3(9). The trial court judge granted Commerce summary judgment and denied Billings' motion for summary judgment. The Supreme Judicial Court transferred Billings' appeal on its own motion.
On appeal, the SJC considered two issues: (1) when a civil action against a policyholder alleges a claim of malicious prosecution, and coverage under the liability policy is based on the date of the "occurrence" rather than the date of the claim, is the "occurrence" when the underlying, allegedly malicious action is filed or when the action is terminated?; and (2) is the allegation that Billings and other defendants were "spreading rumors that the [Petersons] would fill the wetlands and build [sixteen] houses in the marsh" "reasonably susceptible of an interpretation that states or roughly sketches a claim for damages because of 'personal injury' arising from 'libel, slander or defamation of character,'" and if so, did the claim occur within the policy period?
On the first issue, the Court concluded that "occurrence" is the filing of the malicious action, not its termination. Noting that the occurrence is the time when the complaining party was injured, not the time the wrongful act was committed, the SJC noted that the majority of jurisdictions having addressed this issue have concluded that the "occurrence" causing personal injury is the filing of the underlying malicious suit, not its termination. Only two courts – the Illinois Court of Appeals and the U.S. District Court for the Middle District of Florida – have separated the definition of "occurrence" under the policy from the damage caused by the conduct, concluding that the time of "occurrence" of a malicious prosecution is when the final element of the tort is satisfied.
In rejecting this view in favor of the majority position, the Court concluded that the "plaintiff suffers actual damages from a malicious prosecution on the filing of the underlying compliant, which at a minimum triggers the need to invest the time, money, and effort to prepare a defense. While the termination of the underlying action is a required element and a necessary condition precedent before the malicious prosecution claim accrues for purposes of the statute of limitations, it is not an event that causes harm to the plaintiff and therefore not an 'occurrence' within the meaning of the policy."
The Court also rejected Billings' contention that malicious prosecution should be considered a continuing tort throughout the duration of the underlying litigation. The Court reasoned that it is not difficult to determine when the injury occurs and "any reasonable person recognizes that the injury occurs on the filing." Consequently, Commerce did not owe Billings defense coverage because its policy took effect in March 2000, and the "occurrence" took place in 1998 when the underlying malicious prosecution action was filed.
On the second issue, regarding the duty to defend against allegedly defamatory allegations, the Court acknowledged that the 2000 complaint did not include an express claim for defamation, libel, or slander, but explained that this was not determinative in deciding whether the allegations about spreading rumors were reasonably susceptible of an interpretation that states or roughly sketches a claim for damages because of "personal injury" arising from "libel, slander or defamation of character." "The process is not one of looking at the legal theory enunciated by the pleader but of 'envisaging what kinds of losses may be proved as lying within the range of the allegations of the complaint, and then seeing whether any such loss fits the expectation of protective insurance reasonably generated by the terms of the policy.'"
In determining an insurer's duty to defend, Massachusetts courts examine the allegations in the complaint, information known to the insurer that may assist in interpreting the allegations, and information "readily knowable" by the insurer. The "content of publicly available court records in the underlying case and related cases is readily knowable by an insurer and, where that information is relevant to the duty to defend, may be considered in deciding whether the insurer had a duty to defend. A policyholder is not entitled to a defense where court records in the case where the policyholder was a party demonstrate that the insurer has no duty to defend." While evidence outside the complaint can generally be considered only to give rise to, instead of deny, a defense, the SJC noted that the "Appeals Court has recognized a 'rare' exception to this rule where there exists 'an indisputed extrinsic fact that takes the case outside the coverage and that will not be litigated at the trial of the underlying action'." Farm Family Mut. Ins. Co. v. Whelpley, 54 Mass. App. Ct. 743, 747 (2002).
Applying these standards, the Court concluded that the allegation that Billings spread rumors, while plead in support of a claim of intentional infliction of emotional distress, was "reasonably susceptible of an interpretation that roughly sketched a claim of libel, slander, or defamation, whose defense is covered under the terms of the policy." In making this determination, the Court noted that Commerce's representative agreed in a deposition that the allegation regarding the rumors "constituted an offense under the terms of the policy that, had it happened within the coverage period, would have triggered a duty to defend." While cautioning that the representative's statements cannot establish as a matter of law that the allegations are reasonably susceptible of an interpretation that state a claim under the policy, the Court will consider an admission in determining whether the allegations are reasonably susceptible of such an interpretation. While the rumor allegations were sufficient to state a potentially covered defamation claim, Commerce's duty to defend was not triggered because the rumors were not spread during the policy period.