Valassis Communications, Inc., and David Brandon v. Aetna Casualty & Surety Company

Citations: 97 F.3d 870; 1996 U.S. App. LEXIS 26369; 1996 WL 577404Docket: 95-1635

Court: Court of Appeals for the Sixth Circuit; October 9, 1996; Federal Appellate Court

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The plaintiffs, Valassis Communications and David Brandon, appealed a lower court's decision to grant Aetna Casualty & Surety Company's motion to dismiss their complaint for failure to state a claim. The plaintiffs contended that the court erred in both reconsidering its previous denial of Aetna's motion to dismiss and asserting that Valassis' insurance policy with Aetna excluded their claims. Valassis had an officers' and directors' insurance policy with Aetna, effective from March 10, 1994, to March 10, 1995. The policy contained an exclusion for claims related to libel or slander, but this was amended by Endorsement 8, which removed the exclusion for oral or written defamatory publications.

Valassis specializes in creating free-standing inserts (FSIs), which are promotional materials distributed through over 350 newspapers to more than 50 million households weekly. In 1993, Sullivan Marketing, Inc. and its parent company filed a defamation lawsuit against Valassis and Brandon, alleging that Brandon's defamatory remarks caused them to lose a significant bond offering, hindering their entry into the FSI market. Valassis and Brandon acknowledged the allegations of engaging in a campaign to undermine Sullivan’s financial credibility, which involved communication with numerous financial institutions during a conference call initiated by Brandon.

Brandon's commentary was intended to defame Sullivan and Graphics, undermining their capital-raising efforts and interfering with their business advantage. Valassis/Brandon acknowledged that the Sullivan plaintiffs claimed Brandon misrepresented Sullivan's Offering Memorandum, stating it was misleading, inaccurate, and contained false claims. The plaintiffs alleged that Brandon's conference call resulted in significant negative publicity for Sullivan's Offering, which Valassis/Brandon subsequently circulated to discourage potential investors, harming Sullivan/Graphics' access to capital.

On June 30, 1994, the parties settled the Sullivan lawsuit, with Valassis agreeing to pay $14 million. Valassis later sought reimbursement from Aetna for legal fees under its officers' and directors' insurance policy, but Aetna refused, leading to this action for breach of contract. The lower court initially denied Aetna's motion to dismiss but later granted reconsideration, dismissing the complaint based on Exclusion (A)(4) of the insurance policy.

Plaintiffs-Appellants contended that reconsideration should have been denied under a local rule requiring a demonstration of a palpable defect. However, the court noted that local rules are not typically enforced as conferring rights on litigants. Additionally, Aetna's motion for reconsideration introduced novel arguments regarding Endorsement No. 8 that the court had not previously considered, prompting the trial court to change its ruling and dismiss the case.

The trial court reversed its initial refusal to grant Aetna's motion to dismiss, indicating that its original ruling was flawed. The district court is the ultimate authority on its local rules, confirming that it acted correctly in acknowledging Aetna's motion to dismiss. Dismissals for failure to state a claim are reviewed de novo. Under Michigan law, insurance contracts must be interpreted according to their written terms, with courts required to enforce these terms without inferring ambiguities. If a policy endorsement removes specific language, that deleted language cannot be considered in interpreting the remaining agreement. 

In this case, the relevant exclusion in Aetna's policy states that claims related to libel or slander are not covered. The district court found that the deleted language was redundant and did not alter the meaning of the exclusion, concluding that the claim for contribution from Valassis/Brandon was excluded under the policy due to its relation to libel and slander. The plaintiffs reference Guaranty National Insurance Co. v. International Insurance Co. to argue that defamation and tortious interference are distinct legal theories, suggesting that exclusions for one do not automatically apply to the other.

Guaranty National supports the plaintiffs' position that certain acts of tortious interference identified by the Seventh Circuit were not necessarily linked to defamation, as highlighted in the relevant case. The court acknowledged that the exclusion of one claim could also affect another if they were mutually inclusive, emphasizing the importance of considering the underlying conduct rather than solely the legal theories presented. The case originated from an action by the City of Birmingham and Guaranty National against International Insurance Company for contribution towards defense costs related to various claims, including false arrest and malicious prosecution. International Insurance disclaimed liability based on an exclusionary clause that exempted coverage for claims such as defamation and tortious interference. The plaintiffs argued that their tortious interference claim stemmed from defamatory disclosures and harassment, while acknowledging the exclusions of the International policy, which permitted coverage for certain claims. The key issue on appeal was whether the intentional interference with economic relationships claim could stand independently from the defamation exclusions in the policy. The Seventh Circuit sided with the plaintiffs, noting that a claim for tortious interference requires specific wrongful intent or actions. The court concluded that the alleged interference by Birmingham police officers exceeded mere defamation, reinforcing the distinction that the interference claim was not inherently based on defamation.

Michigan law differentiates between defamation and tortious interference with economic relationships, allowing a plaintiff to pursue claims for both, even when they overlap. In the case at hand, the appellate review does not require distinguishing between multiple overlapping causes of action, as the Valassis/Brandon claim stems from a single act of defamation that proximately caused the plaintiffs’ damages. The defamation in question was linked to a telephonic conference call initiated by Brandon/Valassis, which aimed to damage Sullivan/Graphics by disparaging their Offering Memorandum and undermining their capital-raising efforts. 

Valassis/Brandon acknowledged that this conference call led to negative publicity for the Offering, which they further disseminated to dissuade potential investors. Unlike the Guaranty National case, where tortious interference was based on separate wrongful acts unrelated to defamation, the Sullivan action's tortious interference claim was entirely predicated on the defamatory statements made by Brandon. Therefore, without the defamation allegations, the tortious interference claim would not have survived a motion to dismiss. Consequently, the defamation and tortious interference claims fell under the Aetna defamation exclusion clause, justifying the district court's dismissal of the complaint.

Additionally, Valassis/Brandon contended that the trial court erred in ruling that Aetna had no duty to defend them in the Sullivan lawsuit. Under Michigan law, an insurer's duty to defend extends beyond meritorious suits to encompass any claims that may arguably fall within the policy coverage, regardless of their merit.

Aetna's policy does not establish a duty to defend Valassis/Brandon, contrary to their claim based on a partial quotation. The policy explicitly states that it does not create such a duty, and instead, it provides for reimbursement of defense costs as part of covered losses. The distinction between reimbursing defense costs and a duty to defend is emphasized, with a reference to a relevant case supporting this interpretation. Consequently, the district court's finding that Aetna did not undertake Valassis/Brandon's defense in the Sullivan lawsuit is upheld, leading to the affirmation of the lower court's decision.