Opinion ID: 456245
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Heading Rank: 1

Heading: Insurer's Duty to Defend

Text: 6 In a lawsuit by an insured against its insurer following the insurer's refusal to defend its insured, a court must decide whether the insurer's initial refusal to defend breached the insurance contract. Maneikis v. St. Paul Insurance Co., 655 F.2d 818, 822 (7th Cir.1981). 1 A court's primary concern in interpreting an insurance policy is to effectuate the intent of the parties as expressed in the insurance contract. State Farm Fire and Casualty Co. v. Moore, 103 Ill.App.3d 250, 255, 58 Ill.Dec. 609, 614, 430 N.E.2d 641, 646 (1981). If the particular policy language at issue in a case is unambiguous, the court will give effect to the plain, ordinary, and popular meaning of the language. Canadian Radium and Uranium Corp. v. Indemnity Insurance Co. of North America, 411 Ill. 325, 332, 104 N.E.2d 250, 254 (1952); State Farm v. Moore, 103 Ill.App.3d at 255, 58 Ill.Dec. at 614, 430 N.E.2d at 646; State Farm Mutual Automobile Insurance Co. v. Childers, 50 Ill.App.3d 453, 456, 8 Ill.Dec. 52, 54, 365 N.E.2d 290, 292 (1977). However, if the policy language is ambiguous, a court will construe such ambiguity in favor of the insured since the insurer drafted the policy. State Farm v. Moore, 103 Ill.App.3d at 255, 58 Ill.Dec. at 614, 430 N.E.2d at 646; Great Central Insurance Co. v. Bennett, 40 Ill.App.3d 165, 171, 351 N.E.2d 582, 588 (1976). This rule of strictly construing ambiguous provisions against the insurer is most rigorously applied in the case of ambiguous exclusionary provisions in which the insurer seeks to limit its liability. State Farm v. Moore, 103 Ill.App.3d at 255, 58 Ill.Dec. at 614, 430 N.E.2d at 646; Dawe's Laboratories v. Commercial Insurance Co., 19 Ill.App.3d 1039, 1049, 313 N.E.2d 218, 225 (1974). Thus, exclusionary provisions are applied to deny the insured coverage only where their terms are clear, definite, and explicit. State Farm v. Moore, 103 Ill.App.3d at 256, 58 Ill.Dec. at 614, 430 N.E.2d at 646. 7 The issue before us is whether the eleven letters sent out by Kabler to advertisers and advertising agencies referring to Penthouse's failure to meet its circulation guarantees constitute a publication or utterance in the course of or related to advertising, broadcasting or telecasting activities conducted by or on behalf of the Named Insured under the policy's exclusionary provision. We conclude that the exclusionary provision is ambiguous and thus must be construed in favor of Playboy. 2 8 The term advertising has been defined as follows: the action of calling something (as a commodity for sale, a service offered or desired) to the attention of the public especially by means of printed or broadcast paid announcements. Webster's Third New International Dictionary of the English Language Unabridged 31 (1963). This definition requires that the presentation of the item to be sold or approved be made in a medium directed to the public at large. The district court similarly concluded that the term advertising as used in the exclusionary provision referred to promotional material directed to the public at large, especially since the term is used in conjunction with two other terms that connote widespread public dissemination, broadcasting and telecasting. 9 This interpretation of the term advertising to mean public or widespread distribution was adopted by the Minnesota Supreme Court in Fox Chemical Co. v. Great American Insurance Co., 264 N.W.2d 385, 386 (Minn.1978). In Fox Chemical, the court held that an alleged defamatory pamphlet prepared by Fox Chemical, the insured, for distribution to its personnel did not constitute advertising within the provision of an insurance policy, which, like the present exclusionary provision, excluded publications or utterances in the course of or related to advertising activities conducted by or on behalf of the insured. Id. In that case, Fox Chemical directed the printing of four hundred copies of a pamphlet to be circulated to the company's distributors to aid them in educating the salespersons employed to solicit purchase orders for the company's new synthetic oil product. Id. Only seventy-four of the four hundred pamphlets were ultimately delivered to distributors, and the pamphlet was never sent out in Fox Chemical's mail advertising campaign to potential customers. Id. One of Fox Chemical's competitors, Amzoil, obtained a copy of the pamphlet and commenced a libel action against Fox Chemical as a result of some defamatory material contained in the pamphlet. Id. at 385-86. Fox Chemical subsequently sued its insurance company for its failure to defend Fox Chemical in the libel action. Id. The Minnesota Supreme Court held that Fox Chemical's insurer had a duty to defend its insured because the limited distribution of the pamphlets to the company's distributors did not constitute a public distribution within the scope of the policy's exclusionary provision. Id. at 386. The court concluded that the provision's reference to advertising activities merely excluded any public or widespread distribution of defamatory material such as by posting the pamphlet in a public place or by reproducing it in the general media or in trade publications. Id. 10 We agree with the district court and the Minnesota Supreme Court in Fox Chemical that the term advertising does refer to the widespread distribution of promotional material to the public at large. Thus, if the insurance policy only excluded advertising activities, we would conclude that St. Paul breached its duty to defend Playboy because the dissemination of eleven letters would not constitute the widespread distribution of promotional materials to the public at large. However, the exclusionary provision in the present policy excludes any publication or utterance in the course of or related to advertising. (Emphasis added). St. Paul argues that in order for Kabler's letters to be outside of the policy's coverage, the letters need only have a connection or affiliation with an advertising activity. St. Paul concludes that Kabler's statements, which were made within the scope of his employment as an advertising manager for Playboy, are connected with and relevant to advertising activities--activities intended to attract Penthouse advertisers to Playboy. 11 In response to St. Paul's interpretation, Playboy argues that if St. Paul's construction of the policy were accepted, then there would never be policy coverage for defamatory written or oral statements that might even remotely be characterized as somehow promoting the sale of advertising space. Playboy stresses that in view of the myriad ways in which its magazine endeavors to promote the sale of advertising space. St. Paul's construction of the exclusionary provision would result in a major gap in policy coverage. 12 We agree that Kabler's dissemination of the eleven letters, while not advertising per se, was related to an activity designed to promote one of Playboy's products, advertising space, to potential buyers of the space and thus appears to come within the plain meaning of the clause related to advertising activities. However, we are also cognizant of the fact that this construction of the exclusionary provision could completely exclude any activities conducted by Kabler, as Playboy's advertising manager, because one could always attempt to show that any act performed by him was related to an advertising activity. The ambiguous nature of the exclusionary provision is evidenced by Playboy's and St. Paul's varying interpretations of the purpose of the policy. St. Paul claims that the policy only covers publication of defamatory articles and literature in the magazine itself, while Playboy argues that there is nothing in the record or the policy itself to suggest that this was the policy's only purpose. In view of the several equally plausible interpretations that can be placed on the provision, we conclude that the exclusionary clause is ambiguous and that we must construe it in favor of the insured. Therefore, we hold that St. Paul breached its duty to defend Playboy in the libel suit.