TSI asserted that Mr. Tharp began working for a TSI competitor on January 7, 2013 and that in early January 2013, two of its customers decided without prior notice not to renew their contracts with TSI, which TSI believed was due to interference by Mr. Tharp and his new employer.

At a trade show in February 2013, Mr. Swankosky allegedly made defamatory statements about Mr. Tharp to employees of one of the customers who failed to renew its contract with TSI. Also at that same trade show, Mr. Swankosky allegedly made defamatory statements about Mr. Tharp to an individual in their industry.

TSI sued Mr. Tharp for breach of contract and intentional interference with contractual advantage. Mr. Tharp counterclaimed for, among other things, defamation.

TSI timely tendered the defense of Mr. Tharp's counterclaims to its insurer, Philadelphia Indemnity Insurance Company.

Philadelphia Indemnity refused, however, to defend or indemnify TSI in the Tharp lawsuit, relying on an exclusion for defamation arising out of the termination of a person's employment.

TSI sued, and the parties moved for summary judgment.

The Philadelphia Indemnity Insurance Policy

The Philadelphia Indemnity insurance policy included defamation within the definition of “personal and advertising injury” covered by the policy. It also provided:

This insurance does not apply to:

“Personal and advertising injury” to:

(1) A person arising out of any: . . .

(b) Termination of that person's employment . . .

The District Court's Decision

The district court, applying Washington law, granted TSI's motion for summary judgment.

In its decision, the district court found that Mr. Swankosky's allegedly defamatory remarks were made in response to Mr. Tharp's “competitive forays into the marketplace in an apparent attempt to protect [TSI] from [Mr.] Tharp's competition with potential customers or clients whose business he was soliciting.” The district court said that although some of the allegedly defamatory statements involved allegations of Mr. Tharp's misconduct during the time period he worked for TSI, the statements “likely never would have been made had [Mr.] Tharp not been communicating with [TSI's'] former customers in an attempt to solicit business.”

The district court pointed out that some of Mr. Swankosky's allegedly defamatory statements, including his statement that police were investigating Mr. Tharp, had “little, if any, connection to [Mr.] Tharp's earlier employment with [TSI].”

The district court read “arising out of” in the exclusion narrowly, finding that the “chain of causation” was broken by Mr. Tharp's actions and statements as a competitor in the marketplace, and that it was these actions and statements that caused the alleged defamation, even though his employment with TSI was the “but-for” cause of the alleged defamation.

The case is Technical Security Integration, Inc. v. Philadelphia Indemnity Ins. Co., No. 3:14-cv-1895-SB (D. Ore. March 18, 2019). Attorneys involved include: Jonathan M. Radmacher, MCEWEN GISVOLD LLP, 1100 SW Sixth Avenue, Suite 1600, Portland, OR 97204. Of Attorneys for Plaintiff. Guy Keating, SCHULTE, ANDERSON, DOWNES ARONSON& BITTNER, P.C., 811 SW Naito Parkway, Suite 500, Portland, Oregon 97204, and Thomas H. Nienow, NELSON, HALEY& ABBOTT LLP, 100 Smith Ranch Road, Suite 350, San Rafael, California, 94903. Of Attorneys for Defendant.