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Burden on Insurer to Establish Allocation of Defamation Award Between Covered and Uncovered Conduct
Insurance Law Update
March 2010
Supreme Court of Vermont
In Pharmacists Mut. Ins. Co. v. Myer, ___ A.2d ___, 2010 WL 376387 (Vt. Feb. 4, 2010), Pharmacists Insurance Company sought a declaratory judgment that it had no duty to defend or indemnify its insured, Glenn Myer, in a defamation lawsuit. The jury in the underlying defamation case had returned a special verdict form responding "Yes" to two separate questions. The first question sought a determination of whether Myer’s allegedly defamatory statements were made negligently, and the second question addressed whether Myer’s statements were made with knowledge of their falsity. Relying on the special verdict form, the court entered summary judgment for Pharmacists, holding that it had no duty to indemnify Myer because his statements fell within an exclusion for defamatory statements made which the insured "knew or had reason to believe … [were] false." The Vermont Supreme Court reversed, holding that summary judgment based on the special verdict in the underlying case was entered in error. The court observed that the policy exclusion did not apply to defamatory statements made negligently. The court also noted that the special verdict form explicitly instructed the jury that the defamation claim involved two separate sets of statements with separate and distinct burdens of proof and liability standards: one required evidence of negligence, the other clear and convincing evidence of knowledge or recklessness. The court remanded the matter for further proceedings in which Pharmacists would have the burden of demonstrating that the defamation award against Myer was based on conduct entirely excluded from coverage, or otherwise allocated between covered and uncovered conduct.
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