Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co.

• Decision Date: 07 November 1989
• Citation: 406 Mass. 7,545 N.E.2d 1156
• Parties: BOSTON SYMPHONY ORCHESTRA, INC. v. COMMERCIAL UNION INSURANCE COMPANY et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1156

545 N.E.2d 1156

406 Mass. 7

BOSTON SYMPHONY ORCHESTRA, INC. v. COMMERCIAL UNION INSURANCE COMPANY et al. ¹

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Oct. 2, 1989.

Decided Nov. 7, 1989.

Steven L. Schreckinger (Cassandra Warshowsky, Boston, with him), for plaintiff.

Richard L. Neumeier, Boston, for defendants.

Before LIACOS, C.J., and NOLAN, LYNCH and GREANEY, JJ. NOLAN, Justice.

The Boston Symphony Orchestra, Inc. (BSO), commenced this action against the defendants, Commercial Union Insurance Company and American Employers' Insurance Company (both are hereinafter referred to as "Commercial Union") in Superior Court. The BSO's complaint was divided into two counts. Count I alleged that Commercial Union wrongfully failed to defend the BSO in an action brought against the BSO by actress Vanessa Redgrave (Redgrave) and another. Count II alleged that Commercial Union engaged in unfair claims settlement practices in violation of G.L. c. 93A, and G.L. c. 176D, § 3(9) (1988 ed.). A judge of the Superior Court allowed the BSO's motion for summary judgment on Count I, and allowed Commercial Union's motion for summary judgment on Count II. The judge then reported the correctness of his orders to the Appeals Court. Mass.R.Civ.P. 64, 365 Mass. 831 (1974). We granted Commercial Union's request for direct appellate review.

In March, 1982, the BSO contracted with Vanessa Redgrave Enterprises, Ltd. (Enterprises), for Redgrave to appear as narrator in a series of performances of Igor Stravinsky's "Oedipus Rex." When the BSO began to receive messages of protest relating to its engagement of Redgrave, it cancelled the contract with Enterprises. On April 1, 1982, the BSO issued a statement announcing the cancellation of "Oedipus Rex." Shortly thereafter Redgrave's attorneys communicated with the BSO, demanding an apology and the restoration of Redgrave's engagement. Barring the BSO's acquiescence to their demands, Redgrave's attorneys threatened a lawsuit to vindicate their client's rights, including among others, her "right" to speak freely, her "right" to perform without fear of blacklisting or discrimination, and her "right" not to be subjected to public ridicule or embarrassment. The BSO forwarded this demand letter to its liability insurer, Commercial Union, together with a letter which enunciated the BSO's expectation that Redgrave's suit, when and if it came, would involve claims for damage to her personal and business reputation. Commercial Union requested more information from the BSO on Redgrave's anticipated lawsuit. The BSO supplied Commercial Union with a copy of the Redgrave contract, all correspondence it received regarding the matter, and other relevant materials.

On October 22, 1982, Redgrave and Enterprises filed suit against the BSO. The complaint alleged that the BSO had breached its contract with Redgrave and that the "BSO's repudiation and breach of contract ha[d] led others to refrain from hiring Ms. Redgrave for professional engagements." The BSO forwarded the complaint to Commercial Union. Four days after receiving the complaint, Commercial Union disclaimed coverage and declined to provide a defense for the BSO. ²

As Redgrave's lawsuit proceeded toward trial, the BSO provided Commercial Union with information regarding the lawsuit on two occasions. The gist of the information which the BSO forwarded to Commercial Union was that the nature of the damages sought by Redgrave was uncertain. Although denominated as consequential contract damages in the complaint, the damages Redgrave sought during the course of the litigation appeared as though they might flow from implications of the BSO's act of cancelling "Oedipus Rex." Commercial Union did not undertake the defense of the BSO.

The Commercial Union insurance policy issued to the BSO provides coverage for injuries "arising out of ... the publication or utterance of a libel or slander or of other defamatory [or] disparaging material." In addition, the policy obligates the insurer to defend any action brought against the insured seeking damages on account of a covered injury. ³ The Superior Court judge determined that there was a possibility that the damages sought by Redgrave would be covered under the policy. The judge concluded, therefore, that the insurer should have defended the BSO.

1. Duty to defend. It is axiomatic that an insurance company's duty to defend is broader than its duty to indemnify. An insurer must indemnify its insured when a judgment within the policy coverage is rendered against that insured. The duty to defend, however, is antecedent to, and independent of, the duty to indemnify. See Magoun v. Liberty Mut. Ins. Co., 346 Mass. 677, 681-682, 195 N.E.2d 514 (1964). The obligation of an insurer to defend is not, and cannot be, determined by reference to the facts proven at trial. Rather, the duty to defend is based on the facts alleged in the complaint and those facts which are known by the insurer. Desrosiers v. Royal Ins. Co., 393 Mass. 37, 40, 468 N.E.2d 625 (1984).

Commercial Union knew from Redgrave's complaint that she sought consequential damages for the BSO's alleged breach and repudiation of its contract with her. The factual basis for Redgrave's claim was her allegation that the BSO's breach "led others to refrain from hiring [her] for professional engagements." This language could be, as the insurer argues, simply an allegation that a number of specific engagements that would normally have been offered to Redgrave were not in fact offered to her as a result of the BSO's breach of contract. Alternatively, however, the language is fairly susceptible to another interpretation. Redgrave may have been alleging that the BSO's cancellation of "Oedipus Rex," in the circumstances, was a statement about Redgrave which damaged her reputation and caused others not to hire her. ⁴

Prior to receiving Redgrave's complaint, Commercial Union knew that the BSO had made a public cancellation of "Oedipus Rex." Commercial Union also knew that Redgrave thought that the cancellation subjected her to public ridicule and embarrassment. Redgrave's attorney said as much in his demand letter to the BSO. With this background, we think that the complaint is all the more susceptible to the interpretation that Redgrave's reputation was damaged and that because of that, others would not hire her. The question then becomes whether the allegations of the complaint "state or adumbrate a claim covered by the policy terms." Continental Casualty Co. v. Gilbane Bldg. Co., 391 Mass. 143, 146, 461 N.E.2d 209 (1984). We turn to that question.

The policy issued to the BSO by Commercial Union covers personal injury "arising out of ... the publication or utterance of a libel or slander or of other defamatory [or] disparaging material." When Commercial Union issued this policy it undertook the obligation of defending the BSO against more than claims for just libel or slander. It expressly undertook the obligation of defending against claims for injury arising out of the publication of "other defamatory [or] disparaging material" (emphasis added). This language extends the coverage of the policy beyond actions for libel or slander. If it did not, the language would be meaningless. See Sherman v. Employers Liab. Assurance Corp., Ltd., 343 Mass. 354, 357, 178 N.E.2d 864 (1961).

"[O]ther defamatory or disparaging material" is not defined in the policy. Commercial Union contends that this language refers to the torts of product disparagement and disparagement of property. The BSO contends that the term disparage should be given its ordinary meaning. Disparage means, among other things, "to lower in rank and estimation by actions or words," or "to speak slightingly of." Webster's New International Dictionary of the English Language 750 (2d ed.1959). "Where the language permits more than one rational interpretation, that most favorable to the insured is to be taken." Palmer v. Pawtucket Mut. Ins. Co., 352 Mass. 304, 306, 225 N.E.2d 331 (1967). The essence of Redgrave's claim, as discussed above, was that the BSO's breach of contract somehow spoke slightingly about her and damaged her reputation. If the ambiguous language of the policy is construed against the insurer, Redgrave's complaint was "reasonably susceptible" of stating a claim that would fall within the zone of covered injuries. Vappi & Co. v. Aetna Casualty & Sur. Co., 348 Mass. 427, 431, 204 N.E.2d 273 (1965).

Commercial Union argues that Redgrave, even if her reputation was injured within the meaning of the policy, did not state a claim for damages arising out of such injury. The fact that Redgrave's claim was denominated as a contract claim is not controlling. See Gilbane, supra 391 Mass. at 146-147, 461 N.E.2d 209. 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." Id., quoting Sterilite Corp. v. Continental Casualty Co., 17 Mass.App.Ct. 316, 318, 458 N.E.2d 338 (1983). The merits of the claim are, likewise, not a ground upon which an insurer can refuse to defend its insured. As the policy itself states, the right to a defense inures "even if any of the allegations of the suit are groundless, false or fraudulent." Redgrave's claim, regardless of its truth or soundness, was one which was reasonably within the broad coverage provided by Commercial Union's policy.

Commercial Union contends that the holding in this case will require personal injury insurers to defend contract actions...