THE NINTH CIRCUIT COURT OF APPEALS DETERMINED THAT NATIONAL UNION OWED A DUTY TO DEFEND CLIENTS OF ADLESON, HESS & KELLY SUED FOR DISPARAGEMENT

Randy Hess and Duane Shewaga successfully represented directors and officers of a major wealth management company in Southern California in the recent appeal of Primiani v. Federal Ins. Co., 2006 U.S. App. LEXIS 27403 (9th Cir. November 3, 2006).  National Union Fire Insurance Company of Pittsburgh, PA, insured the officers’ and directors’ former employer MyCFO, Inc.  The former officers and directors of MyCFO (appellants) were sued by a third party for disparagement.  The officers and directors sought coverage under MyCFO's umbrella insurer, National Union.

National Union contended it owed no duty to defend, because the officers and directors were not citing for the benefit of the named insured corporation when the alleged disparagement took place.  National Union also contended that the umbrella policy was excess to any duty to defend owed by the underlying general liability insurer.  The District Court entered judgment in favor of the insurer National Union. 

The Ninth Circuit reversed, holding that National Union owed appellants a duty to defend.  The Ninth Circuit Court of Appeals held that the alleged disparagement arose in the course and conduct of the officers and directors' duties for their employer, as the officers and directors followed statutory and fiduciary obligations in disclosing information to their employer's clients, for which they were later sued.

The Ninth Circuit further found that National Union's contention that it owed no duty to defend until the underlying insurance was exhausted to be "without merit."  As National Union's policy explicitly covered disparaging acts, and the underlying general liability policy issued by Federal Insurance covered only defamation, but not disparagement, National Union was required to drop down and provide a defense.

National Union’s subsequent petition for rehearing was denied.