Malicious Prosecution: Coverage Under the CGL Policy.

Author:Newman, Thomas R.
Position:Commercial general liability

INSURANCE coverage for "malicious prosecution" has been available for over forty years. It was first included in the definition of "Personal Injury" in the Insurance Services Office's ("ISO's") Broad Form Endorsement (GL 00 04) to its 1973 Comprehensive General Liability Form ("CGL"; GL 00 02), as a covered "offense," as distinguished from the "occurrences" that could give rise to "bodily injury" and "property damage" liability. "Personal injury'" was defined to include, among other offenses, "false arrest, detention, imprisonment, or malicious prosecution." The additional coverage provided by that endorsement had to be purchased separately. In 1985, ISO's standard CGL form (renamed "Commercial General Liability Coverage Form"; CG 00 01 11 85), was revised to include coverage for "Bodily Injury and "Property Damage Liability" (Coverage A) and "Personal and Advertising Liability (Coverage B); at that time, the definition of "Personal injury" was amended and since then "False arrest, detention and imprisonment" have been separated from "malicious prosecution." (1) Despite its long existence, and the spate of coverage litigation during the past forty years, there are surprisingly few cases dealing with coverage for malicious prosecution; and, among those, a sharp difference of opinion is found as to whether potential coverage is nullified by exclusions. This article will look at and comment on those cases.

I. CGL Coverage B

The Insuring Agreement of Coverage B in the 2006 ISO Commercial General Liability Coverage Form (CG 00 01 12 07) provides coverage for "those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury' to which this insurance applies." "Personal and advertising injury" is defined as follows:

14. "Personal and advertising injury" means injury, including consequential "bodily injury", arising out of one or more of the following offenses: a. False arrest, detention or imprisonment; b. Malicious prosecution; c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor; d. Oral or written publication, in any manner, of material that slanders or libels a person of organization or disparages a person's or organization's goods, products or services; e. Oral or written publication, in any manner, of material that violates a person's right of privacy; f. The use of another's advertising idea in your "advertisement"; or g. Infringing upon another's copyright, trade dress or slogan in your "advertisement." The coverage provided by the Insuring Agreement is made subject to a number of exclusions, including:

2.a. Knowing Violation of Rights of Another "Personal and advertising injury" caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury." 2.b. "Material Published with Knowledge of Falsity" "Personal and advertising injury' arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of falsity. II. Malicious Prosecution Overlaps with Abuse of Process

"The torts of malicious prosecution and abuse of process were both created to remedy abusive litigation. Malicious prosecution blazed the trail, while abuse of process followed behind to fill in the gaps. By virtue of their histories, they are distinct torts, at least in a strictly legal sense,... In reality, however, the line between these torts is blurred..." (2)

The elements necessary for the successful maintenance of a malicious prosecution action are: "(1) the commencement and prosecution of a judicial proceeding against the plaintiff, (2) by or at the instance of the defendant, (3) without probable cause, (4) with malice, (5) which has terminated in favor of the plaintiff in the malicious prosecution (6) to his injury, and (7) where the proceeding complained of was civil in nature, it must also be shown that the plaintiff suffered interference from some provisional remedy." (3)

"Abuse of process differs from malicious prosecution in that the gist of the tort is not commencing an action or causing process to issue without justification, but misusing, or misapplying process justified in itself for an end other than that which it was designed to accomplish." (4) Abuse of process has three essential elements: (1) there must be a regularly issued process, either civil or criminal, compelling the performance or forbearance of some act, (2) an intent to do harm without an economic or social excuse or justification, and (3) use of the process to obtain a collateral advantage or corresponding detriment to the plaintiff which is outside the legitimate ends of the process. (5)

The two torts overlap in that each requires the defendant to have made use of legal process for an improper purpose, such as the commencement of an unjustified criminal prosecution or to enjoin the plaintiff from developing his real property. "Both torts are designed to offer redress to a plaintiff who has been made the subject of legal process improperly, where the action was wrongfully brought by a defendant merely for the purpose of vexing or injuring the plaintiff, and resulting in damage to his or her personal rights." (6) The New Mexico Supreme Court concluded that "the torts of malicious prosecution and abuse of process should be restated as a single tort known as malicious abuse of process." (7)

While knowingly instituting or maintaining a baseless action may give rise to a cause of action for malicious prosecution, "the mere filing or maintenance of a lawsuit--even if for an improper purpose--is not a proper basis for an abuse of process action." (8)

Since the CGL's definition of "personal injury" does not expressly include "abuse of process," some courts have found no coverage where the complaint does not contain a cause of action for malicious prosecution. (9) Thus, the Washington Court of Appeals found "[i]nsurance against malicious prosecution does not cover abuse of process," because there is "a clear distinction in Washington law between abuse of process and malicious prosecution. Hanson could have insured against abuse of process, but it did not. Presumably, the words of the policy have some meaning, purpose and limit." (10) However, a plaintiff "is not required to put labels on the allegations in the complaint in order to state a valid claim. It is the sufficiency of the facts alleged that control the determination of whether a claim for relief is properly plead." (11)

Other courts have held the undefined term "malicious prosecution" to be ambiguous and have construed the policy broadly to include abuse of process, (12) finding "the distinction between malicious prosecution and abuse of process is at best unclear." "A layperson could believe reasonably that the words 'malicious prosecution' only required a lawsuit or other legal proceeding to be brought maliciously or spitefully for an improper purpose... [and] that a counterclaim for abuse of process satisfied that requirement." (13)

"The theoretical legal distinction between 'malicious prosecution' and 'abuse of process' is not so clear that insurance coverage of one should exclude coverage of the other unless the exclusion is specifically stated in the policy." (14) The insurer "should bear the burden of any ambiguity. Had the insurer wished to exclude a tort so closely related to malicious prosecution, it should have done so expressly." (15)

The Ninth Circuit resolved the issue in favor of coverage, finding "People buy insurance to protect themselves from legal costs for defending claims of various kinds.[(16)] There is no reason, given the overlap between malicious prosecution and abuse of process (particularly in the eyes of those untrained in the law), why persons who purchase insurance covering the cost of defending against the one claim would not also expect the contract to cover the cost of defending against the other. The term as used in the policy is ambiguous." (17)

III. Exclusion for Material Published with Knowledge of Falsity

In Martin's Herend Imports, Inc. v. Twin City Fire Insurance Company, (18) a district court in Texas rejected the insurer's reliance on the "Oral or Written Publication of Material" exclusion to bar coverage for the offense of malicious prosecution, pointing out:

[the] argument, if taken to its logical conclusion, would be that, although the policy provides for "malicious prosecution" as a personal injury, it would exclude that coverage via the publication exclusion since Twin City argues that every claim for malicious prosecution involves a knowingly false oral or written publication. (19) Based upon that reasoning, the Court concluded that the exclusion for a knowing or false publication "is meant to parallel the two definitions of personal injury that contain publication language," (20) and does not apply to malicious prosecution. (21)


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