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(Article from Insurance Law Alert, January 2015)

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Our April 2014 Alert Reported on a Mississippi federal district court decision holding that a general liability insurer had no duty to defend or indemnify misappropriation and unfair competition claims against a policyholder. Nationwide Ins. Co. v. Lexington Relocation Serv., LLC, 2014 WL 1213805 (N.D. Miss. Mar. 24, 2014). This month, the Fifth Circuit affirmed. Nationwide Mut. Ins. Co. v. Gum Tree Prop. Mgmt., L.L.C., 2015 WL 170244 (5th Cir. Jan. 14, 2015). The Fifth Circuit held that the use of trade secrets or confidential business information does not constitute "disparagement" and that "the right to privacy" referenced in the personal injury coverage provision does not extend to business organizations. In addition, the Fifth Circuit rejected the policyholder’s attempt to invoke Mississippi’s "true facts" exception with respect to an insurer’s duty to defend. The policyholder argued that even if the underlying complaint did not allege facts within coverage, the insurer was obligated to defend because it was aware of "true facts" that established coverage. According to the policyholder, "true facts" establishing coverage were set forth in the policyholder’s answer to the complaint and in affidavits executed by the policyholder’s employees. The Fifth Circuit rejected this argument, stating that:

We do not interpret the "true facts" rule to require an insurance company, when the claim is outside coverage, to consider the denials in an answer when deciding whether to defend or to review affidavits from the insured that support the denials. Such a rule would transform the narrow exception into a broad one.