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The New York Court of Appeals held Tuesday that an insurance company must defend an upstate hospital in a defamation action, even though the claim alleges malicious slander and the policy excludes coverage for intentional wrongdoing. In a unanimous opinion, the court concluded that malice and intentional misconduct are not necessarily equivalents within the framework of a defamation case. Town of Massena v. Healthcare Underwriters Mutual Insurance Co., 89, reversed an Appellate Division finding that coverage was precluded for public policy reasons, namely that someone should not be able to insure themselves against willful misconduct. The 3rd Department had held that a physician plaintiff’s allegation of malicious defamation was essentially the same as a claim of intentional misconduct, for which coverage would be precluded. But in a narrowly construed 6-0 opinion Tuesday, the Court of Appeals reversed. Chief Judge Judith S. Kaye did not take part. “Even if the allegedly defamatory statements … were intentionally and maliciously made, there was no allegation that the statements were made with knowledge of their falsity,” Judge George Bundy Smith wrote for the court. The dispute involves Dr. Olof Franzon and his advocacy of midwifery. In 1997, Franzon commenced a federal lawsuit alleging that Massena Memorial Hospital and others engaged in a conspiracy to ruin his reputation and medical practice because he had publicly urged the medical facility to establish a midwifery program. The town of Massena, which owns the hospital, brought an action against its insurers to compel defense and indemnification. After a supreme court ordered three insurers to defend the hospital and its staff, the 3rd Department reversed on public policy grounds. Tuesday, the Court of Appeals said one of the insurers, Healthcare Underwriters, must defend the federal action. At the center of the case is the district court’s finding that Franzon was a limited public figure who must prove actual malice to sustain a defamation claim. Because he had made the issue of nurse-midwives a matter of considerable public concern, Franzon became a limited public figure, and consequently subject to a higher standard for defamation than a purely private person. The federal court found that to sustain his action, Franzon had to establish that the offending statements were made with “actual malice,” a higher standard than the showing of ill will that would be required under common law malice. Tuesday the Court of Appeals said actual malice “requires only recklessness as to the truth of the statement, and not knowledge of the falsity.” It said defamatory statements made with reckless disregard for the truth would be covered under the policy, and that such coverage would not violate the public policy principle precluding coverage for conduct intended to cause injury. Additionally, the court referred to various precedents suggesting that the benefit of the doubt goes to the insured in disputes of this nature. “If the allegations of the complaint are even potentially within the language of the insurance policy, there is a duty to defend,” Judge Smith wrote. “When an exclusion clause is relied upon to deny coverage, the burden rests upon the insurance company to demonstrate that the allegations of the complaint can be interpreted only to exclude coverage. The merits of the complaint are irrelevant.” The case prompted amicus curiae briefs from the Medical Society of the State of New York and the Healthcare Association of New York State (HANYS). Both organizations were concerned that the 3rd Department ruling would erode statutory peer review and quality assurance programs by exposing physicians to defamation lawsuits when they candidly assess the performance of a colleague, as they are expected to do. Already, the statute cloaks doctors appearing on peer review panels with immunity except when their conduct is intentionally harmful. Under Tuesday’s decision, insurance companies can apparently exclude coverage for intentional acts, which is the only conduct not already covered under the immunity umbrella. Advocates said it is unclear from this decision what a doctor gets for buying such a policy that he or she does not already have under the statute. The Medical Society and HANYS were both seeking a broad public health policy declaration from the Court of Appeals — some indication that the court was embracing or extending the expansive civil immunity component inserted by the Legislature — but Tuesday’s decision, which rests largely on contractual interpretation, stopped well short of that goal. William S. Brandt of Nixon Peabody in Rochester, N.Y., said the ruling has important ramifications for his client, Massena Memorial Hospital. “In the absence of this decision, the hospital would have been left with no insurance coverage at all in a long lasting, expensive [dispute] and with no way to cover that expense except through the citizens of the town of Massena,” he said. “It is important for the town and the citizens of Massena because the insurance company is now going to have to meet its contractual duties to defend the hospital and pick up the cost of defense.” Thomas J. O’Connor of O’Connor, Yoquinto & Ryan in Troy, N.Y., argued for Healthcare Underwriters. The case, which was argued May 30, was the only matter the court left unresolved over the summer break.

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