The US Court of Appeals for the Tenth Circuit has ruled that New Hampshire Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA, were within their rights to deny coverage to TSG Ski & Golf, LLC, and other insured parties. The dispute centered on whether the insurers had a duty to defend and indemnify TSG in a lawsuit involving allegedly false and misleading statements.
The controversy began when TSG Ski & Golf and its affiliated entities were sued over a debt-collection letter they sent regarding unpaid assessments at The Peaks, a ski-in/ski-out resort in Colorado. Telluride Resort & Spa, LLC, and its principals, Ted and Todd Herrick, alleged that the letter falsely claimed they owed $15.5 million in unpaid dues. They argued that TSG knowingly misrepresented the amounts owed to pressure them into paying money that wasn’t due.
TSG sought coverage under their liability policies issued by New Hampshire Insurance and National Union Fire Insurance. However, both insurers denied coverage based on policy exclusions for knowingly false statements. Despite this, New Hampshire initially provided a legal defense under a reservation of rights but later filed a lawsuit seeking a declaratory judgment to confirm they had no obligation to defend or indemnify TSG.
The court ruled in favor of the insurers, holding that the exclusions in the policies clearly barred coverage. The policies specifically excluded coverage for “personal and advertising injury” arising from false statements made with knowledge of their falsity. The court found that both the allegations in the lawsuit and trial evidence established that TSG and its officers knew the debt-collection letter contained false claims before it was circulated.
With this ruling, the insurers were not required to cover the $225,000 in damages awarded to the plaintiffs, nor the $2.3 million in attorney fees and costs. The decision also dismissed TSG’s counterclaims for breach of contract and bad faith, affirming that the insurers had acted within their rights under the policy terms.
This case reinforces the strength of “knowledge-of-falsity” exclusions in liability policies, providing a clear precedent that insurers are not obligated to defend policyholders who knowingly disseminate false information. For insurance professionals, the ruling highlights the importance of carefully assessing claims where intent and knowledge of wrongdoing may affect coverage eligibility.
