Defaming a Former Law Partner May Not Be Covered

In Peerless Indem. Ins. Co. v. Moshe & Stimson, LLP, 22 N.E.3d 882 (Ind. App. 2014), the Indiana Court of Appeals held that a defamation claim brought against a former law partner was an “employment related” activity, and thus fell within the law firm’s liability insurance policy’s employment-related practice exclusion.

Under the facts of the case, Sarah Moshe, Justin Stimson’s sister and former law partner, sued her brother alleging, among other things, defamation. Stimson made a claim under Moshe & Stimson, LLP’s insurance policy for defense and indemnification. Peerless Indemnity Insurance Company insured the law firm. Peerless argued that it owed no duty to defend and indemnify Stimson due to an employment related practices exclusion in the policy, which included within its scope, defamation. The trial court ordered Peerless to defend and indemnify Stimson.

On appeal, Peerless argued that the employment-related exclusionary clause was unambiguous and enforceable. The Indiana Court of Appeals agreed. The Court found that because Justin Stimson’s alleged actions towards his sister and former law partner were employment-related, the exclusion applied. Under the facts presented, it was revealed that Sarah Moshe and Justin Stimson were siblings and former law partners in the law firm of Moshe & Stimson. In December 2011, Moshe told her brother that she intended to leave the firm. After that, the working relationship between the two deteriorated. Stimson refused to dissolve the partnership, ceased control of the firm’s assets, and refused to pay Moshe her regular income. He also refused to turn over client files and certain personal property belonging to Moshe. Stimson began making accusations about Moshe’s personal integrity and her professional competence. One month later, Moshe sued Stimson. Stimson presented the lawsuit for defense and indemnification to Peerless. Peerless denied the claim and sought a declaratory judgment that it had no responsibility to defend or indemnify Stimson because the allegations in Moshe’s complaint constituted employment-related practices, which were excluded.

Stimson argued that the employment-related exclusion did not apply because his sister had been a partner at Moshe & Stimson and was not an employee. Additionally, Moshe did not allege in her complaint that she was employed by Stimson, or the law firm, nor did the complaint suggest that the defamation Moshe alleged was employment-related. Stimson also argued that his sister was not associated with the firm either as a partner or as an employee at the time the lawsuit was filed. Therefore, he asserted that his alleged defamatory comments were not employment-related. The Indiana Court of Appeals rejected these arguments.

The Indiana Court of Appeals found that the issue of whether Sarah Moshe was an employee of the law firm, as opposed to a partner of the law firm was a red herring, because it was not necessary for the Court to determine in what capacity Moshe was employed by the firm. The issue, according to the Court, was whether Stimson’s alleged actions, particularly his alleged defamation of his sister, were employment-related.

The Peerless policy did not define the phrase “employment-related.” Stimson repeatedly argued that because the parties disagreed on the meaning of the undefined phrase an ambiguity was created which had to be resolved in his favor. However, the Court found that the phrase “employment-related” was not ambiguous simply because a controversy existed and because the parties’ interpretation of the phrase differed.

BLACK’S LAW DICTIONARY defined “employment” in many ways, including “the quality, state or condition of being employed; the condition of having a paying job.” See, BLACK’S LAW DICTIONARY, 541 (10th Ed. 2014). “Related,” in turn, the Court found meant “connected in some way; having relationship to, or with something else . . . .” BLACK’S LAW DICTIONARY, 1479. When the plain and ordinary definitions of the terms were applied, the Court concluded that Sarah Moshe’s claims against her brother related to her job: after Moshe told Stimson she would be leaving the firm, he allegedly refused to dissolve the partnership, ceased control of the firm’s assets, and refused to pay Moshe her regular income, refusing to turn over client files, and certain personal property belonging to Moshe, and then began making accusations about Moshe’s personal integrity and her professional competence. These acts were connected to Sarah Moshe’s employment at the law firm and, as a result, they were not covered under the policy because of the exclusion.

In closing, the Court also noted that the Peerless policy was designed to protect the siblings in suits brought by third-parties, but was not meant to protect one against the other in a suit between the two.