Ruder & Finn Inc. v. Seaboard Sur. Co.

• Citation: 422 N.E.2d 518,439 N.Y.S.2d 858,52 N.Y.2d 663
• Court: New York Court of Appeals
• Decision Date: 12 May 1981
• Parties: , 422 N.E.2d 518, 7 Media L. Rep. 1833 RUDER & FINN INCORPORATED, Appellant-Respondent, v. SEABOARD SURETY COMPANY, Respondent-Appellant.

Page 858

439 N.Y.S.2d 858

52 N.Y.2d 663, 422 N.E.2d 518, 7

Media L. Rep. 1833

RUDER & FINN INCORPORATED, Appellant-Respondent, v. SEABOARD SURETY COMPANY, Respondent-Appellant.

Court of Appeals of New York.

May 12, 1981.

Stuart C. Sloame and Abraham J. Backenroth, New York City, for appellant-respondent

Robert M. Callagy, James F. Rittinger and George L. Mahoney, New York City, for respondent-appellant.

OPINION OF THE COURT

FUCHSBERG, Judge.

Plaintiff Ruder & Finn, a public relations firm and the insured under a so-called "Libel Policy", ¹ seeks to recover for the attorneys' fees and disbursements it incurred in the successful defense of two suits which its insurer, defendant Seaboard Surety Company, disclaiming coverage, refused to defend. The issue boils down to whether the allegations of fact or legal theory in each of the two actions brought the claims they asserted sufficiently within the embrace of "defamation" or "unfair competition", two of the kinds of claims against which the insuring agreement undertook to defend and, if necessary, indemnify. ² The carrier's agreement to defend, cast in language commonly employed in liability policies, called for a defense " 'even if such suit is groundless, false or fraudulent' " (see Goldberg v. Lumber Mut. Cas. Ins. Co. of N.Y., 297 N.Y. 148, 151, 77 N.E.2d 131).

This clause was first invoked by plaintiff when it was served with a summons and complaint issued out of the Federal District Court for the Southern District of New York at the behest of ATI, Inc. (Aerosol Technique), a manufacturer and packager of aerosol products. That complaint alleged that the insured had conspired with others to coerce ATI into retaining it to combat adverse publicity that the fluorocarbon propellants found in aerosol products endangered the earth's ozone layer. Most pointedly for our purposes, it went on to state that the publicity "unfavorably and falsely desparaged * * * ATI's aerosol products."

According to the pleader, the issuing source of the antiaerosol publicity was a codefendant, PIPR, Inc. (Public Interest Public Relations), presumably a nonprofit organization, founded by William Ruder, president of Ruder & Finn, to serve public interest groups and causes. ³ Ruder and two other individuals associated with both Ruder & Finn and PIPR completed the role of defendants ATI had joined. In this instance, PIPR is alleged to have entered the picture at the request of the Natural Resources Defense Council, an environmental organization. In essence, the coercion was said to derive from the dual relationship between Ruder & Finn's people and PIPR, most particularly William Ruder's concomitant ability to act as intermediary between the Defense Council and ATI.

Its carrier having rejected the demand that it assume responsibility for defending this litigation, Ruder & Finn, through engaged counsel of its own choice, subsequently obtained its dismissal for lack of subject matter jurisdiction. ⁴

Some three weeks later, ATI sued for a second time, thus providing a second occasion for Seaboard Surety's refusal to take over a defense under the policy. The venue for the new suit, against the identical defendants and obviously rooted in the same background, was laid in the New York Supreme Court, New York County. The complaint this time alleged, much as it had in the initial litigation, that the defendants had engaged in a conspiracy to disseminate antiaerosol publicity which, if successful, "would have the effect of ruining and destroying the aerosol business in general and driving out of business". It further set forth that the "adverse publicity" thus promulgated "did in fact have the intended effect of causing substantial injury to the aerosol industry in general and to in particular by inducing the general public to boycott aerosol products". In a second cause of action, ATI added that the conduct in furtherance of the conspiracy was "intentional and malicious and designed to intimidate and coerce plaintiff to its financial detriment by threatened interference with and destruction of plaintiff's business, business relations and contracts", all presumptively because of "plaintiff's failure to retain the services of * * * Ruder & Finn". But, after all this, notably absent was any repetition, directly or indirectly, of the allegation that the defendants "falsely disparaged" ATI's aerosol products.

Though it now was put through a longer course, the policyholder, once more compelled to retain its own counsel, again won a dismissal, this time for ATI's failure to state a good cause of action. On appeal, the ensuing order and judgment of the Supreme Court, 71 A.D.2d 216, 422 N.Y.S.2d 85 were affirmed by the Appellate Division and, finally, on appeal to this court, finding that ATI's contention that it had stated a valid cause of action for prima facie tort was without merit, we too affirmed (ATI, Inc. v. Ruder & Finn, 42 N.Y.2d 454, 398 N.Y.S.2d 864, 368 N.E.2d 1230). ⁵

With all this before it, on cross motions for summary judgment, Special Term held that the facts pleaded in neither the underlying Federal nor the State action came within the insurance policy's coverage, and that Seaboard, therefore, was within its rights in denying any duty to defend. But the Appellate Division, disagreeing in part, modified that determination by finding that Seaboard was required to defend the Federal action and thereupon, pursuant to CPLR 5713, granted each side leave to appeal, in the process certifying the following question for our review: "Was the order of this Court, which modified the order of the Supreme Court, properly made?" Because we believe it was, we now affirm. ⁶

It is a well-established legal principle that the duty of an insurer to defend is broader than its duty to pay (Goldberg v. Lumber Mut. Cas. Co. of N. Y., 297 N.Y. 148, 154, 77 N.E.2d 131, supra). The duty to defend arises whenever the allegations in the complaint fall within the risk covered by the policy. It therefore includes the defense of those actions in which alternative grounds are asserted, even if some are without the protection purchased. Further, a policy protects against poorly or incompletely pleaded cases as well as those artfully drafted. Thus the question is not whether the complaint can withstand a motion to dismiss for failure to state a cause of action. Nor is the insured's ultimate liability a consideration. If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be (International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 325, 361 N.Y.S.2d 873, 320 N.E.2d 614; Lionel Freedman, Inc. v. Glens Falls Ins. Co., 27 N.Y.2d 364, 368, 318 N.Y.S.2d 303, 267 N.E.2d 93; Goldberg v. Lumber Mut. Cas. Ins. Co. of N. Y., 297 N.Y. 148, 154, 77 N.E.2d 131, supra).

Before applying these standards to ATI's two complaints, some comments are in order on the nature of the torts--defamation and unfair competition--which, among those listed in the insuring clause, are the ones about which this coverage dispute revolves. For only with their scope in mind can we determine whether the pleadings set out claims which, whether pleaded well or clearly, on the one hand, or poorly or obscurely, on the other, can be said to sound in these civil wrongs.

We start with product defamation, whose delineation is relatively uncomplicated. Perhaps more properly known in this context as product disparagement, legal historians trace its ancestry to the common-law tort of slander of title. Fashioned originally to provide a remedy against one who cast oral aspersions upon the legitimacy of an owner's right to his land, as this tort evolved it was enlarged to cover written aspersions as well. Next it was extended to include title to property other than land and, eventually, to the disparagement of the quality of, as distinguished from title to, property (Prosser, Torts p 915 et seq.).

Now, although defamation and disparagement in the commercial context are allied in that the gravamen of both are falsehoods published to third parties, there is a distinction. Where a statement impugns the basic integrity or creditworthiness of a business, an action for defamation lies and injury is conclusively presumed. Where, however, the statement is confined to denigrating the quality of the business' goods or services, it could support an action for disparagement, but will do so only if malice and special damages are proven (see Drug Research Corp. v. Curtis Pub. Co., 7 N.Y.2d 435, 199 N.Y.S.2d 33, 166 N.E.2d 319; Marlin Fire Arms Co. v....