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Chrysler Insurance Co. v. Greenspoint Dodge of Houston, Inc.

The insurance policy at issue excludes coverage for defamatory statements an insured knew to be false, and the insurance company refused coverage on the basis of this exclusion. A corporation's knowledge, however, is not limited to what its officers know, but may include other employees' knowledge, if those employees are corporate vice-principals. Texas Supreme Court, No. 08-0780, 10-30-2009

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JUSTICE GUZMAN did not participate in the decision.

This case arises out of an insurance coverage dispute, involving liability policies insuring a corporation and its officers, among others. The issue here concerns the corporation’s coverage for defamation. The policies excluded coverage for defamatory statements an insured knew to be false, and the insurance company refused coverage on the basis of this exclusion. The court of appeals concluded, however, that this known-falsity exclusion did not apply to the corporation because no corporate officer knew that the defamatory statements, made by other corporate employees, were false when made. The court accordingly affirmed, in part, a judgment awarding damages for the insurer’s failure to defend and indemnify its insured. 265 S.W.3d 52.

A corporation’s knowledge, however, is not limited to what its officers know, but may include other employees’ knowledge, if those employees are corporate vice-principals. The employees who made the defamatory statements here, although not officers, were found to be corporate vice-principals. They were also found to have knowledge that their statements were false when made. The corporation thus knew, through its vice-principals, that the defamatory remarks were false when made and its knowledge, as a named insured, was sufficient to invoke the known-falsity exclusion. We accordingly disagree with the court of appeals’ application of the known-falsity exclusion and conclude that the policy did not provide liability coverage for the underlying defamation claim in this case.

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