In 1991, Carolyn Palla was employed briefly at KMS, working for several months as an assistant to Patrick Forte, KMS’ administrative Vice-President. Palla quit, alleging that Forte’s actions on and away from the work premises caused her harm, including her termination. Specifically Palla claimed that, for the duration of her tenure, Forte sexually harassed her by his unwanted physical contact, questions about her personal life and with requests for intimacy. On one occasion, she claimed that Forte spread an office rumor about their having an affair and that she was fired after she protested against his actions and requests for sexual favors. After her firing, Palla sued Forte. Her suit included KMS (and two affiliated corporations) because, in her opinion, others in the company knew of the situation but did not intervene; further, they permitted the harassing and her termination. After they settled Palla’s suit for nearly $300,000, KMS submitted a claim to their insurance carrier requesting reimbursement for the payment.

KMS and its corporate partners were insured by a General Liability Policy from Transamerica Corporation. The policy contained an endorsement that provided coverage for personal injury damages such as invasion of privacy, libel, slander and character defamation. Transamerica reviewed the claim and denied it on the basis that the damages weren’t covered. The insurer then asked a court to rule that it wasn’t obligated to provide either coverage or a defense. KMS countered with its own claim that the insurer was guilty of breaching the insurance contract. The trial court ruled in favor of Transamerica and KMS appealed.

The higher court reviewed the relevant points of KMS’ argument, which centered upon Palla’s claim qualifying as a personal injury loss, involving both defamation of character and invasion of privacy. Further, KMS claimed that the insurer knew of the defamation claim which should have created an obligation to defend them. The court examined the details and felt otherwise. Any hints concerning a damaged reputation were contained in documents that were not shared with the insurer. Also, none of Palla’s complaints included a charge that her privacy was invaded. The court decided that the damages fell outside of the scope of the endorsed CGL and that Transamerica did not have a duty to either defend or pay the loss. The trial court’s grant of summary judgment in favor of the insurer was affirmed.

Transamerica Insurance Company vs. KMS Patriots, L.P. & Another(1); K & K Insurance Group, Inc., Third-Party Defendant. No. 98-P-1236 MassCtApp August 2, 2001. http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=ma&vol=appslip/98p1236&invol=1 (downloaded August 9, 2001)