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January 8, 1970


The opinion of the court was delivered by: Napoli, District Judge.


This action was brought by Stern, Walter & Simmons, an advertising agency, against its insurer, Seaboard Surety Company, to recover amounts it was forced to expend in defending and settling two law suits. The plaintiff asserts that the claims against it were within the policy coverage and that the defendant wrongfully failed to defend. Seaboard denies liability and the parties have filed cross motions for summary judgment. The facts are not in dispute.

The action arises out of an insurance policy issued to the plaintiff by Seaboard covering, among other things, liability for libel, slander, defamation and invasion of privacy. Stern, Walter & Simmons prepared a presentation as part of a successful effort to obtain the account of the United States Suzuki Motorcycle Corporation. The presentation included a photograph of two female models seated on a Suzuki Motorcycle on which was superimposed the legend "You Get More Nookie on a Suzuki." This photograph was distributed to certain officers and agents of the prospective client. A copy of the print was somehow obtained by a California firm who solicited Suzuki dealers to purchase the picture for advertising purposes and for sale to the public.

As a result of these facts the two models who posed for the photograph brought suits against Stern, Walter & Simmons alleging that the publication of the photograph with the inscription tended to expose them to public contempt and disgrace, tended to injure their reputation and show a want of chastity and to impeach their honesty, integrity and virtue "by reason of its smutty and pornographic implication and innuendoes; all of which conduct of the defendants was done in deliberate and malicious violation of [their] right of privacy." The plaintiff made demand upon Seaboard to defend these actions and Seaboard refused. This action was brought to recover the plaintiff's costs in defending and settling the claims against it and for reasonable attorney's fees in this suit.

The indemnity and service provisions of the policy state as follows:

  1. To indemnify the Insured against loss from the
  liability imposed on him by law, or assumed by him
  under contract as defined herein, as the result of
  any final judgment for money damages resulting from

(a) libel, slander, defamation or

  (b) any infringement of copyright or of title or of
    slogan or
  (c) piracy, or unfair competition or idea
    misappropriation under implied contract or
  (d) any invasion of rights of privacy committed or
  alleged to have been committed in any advertisement,
  publicity article, broadcast or telecast and arising
  out of the Insured's business of Advertising Agents.
  2. To defend, in the name and on behalf of the
  Insured, any suit seeking damages for any of the
  above causes, even if such suit is groundless, false
  or fraudulent. The Company shall have the right to
  make such investigation, negotiation and settlement
  of any claim or suit as it may deem expedient, or may
  permit the Insured to

  make any such investigation, negotiation and
  settlement as may be approved by the Company in

The plaintiff contends that under Illinois law, which is applicable here, if an insurer fails to defend an action stating a claim covered by its policy, it is in breach of its contract and liable for damages resulting therefrom including the amount of any judgment or settlement and the cost of the defense. This is true even if it becomes apparent from matter outside the complaint against the insured that coverage is excluded by some other clause of the policy. George H. Wolff Sons, Inc. v. Aetna Casualty & Surety Co., 286 F.2d 862 (7th Cir. 1961); Palmer v. Sunberg, 71 Ill. App.2d 22, 217 N.E.2d 463 (1966); Stein v. Lindquist, 69 Ill. App.2d 340, 217 N.E.2d 438 (1966); McFadyen v. North River Ins. Co., 62 Ill. App.2d 164, 209 N.E.2d 833 (1965); Sims v. Illinois National Casualty Co. of Springfield, 43 Ill. App.2d 184, 193 N.E.2d 123 (1963); Gould v. County Mutual Casualty Co., 37 Ill. App.2d 265, 185 N.E.2d 603 (1962); Rom v. Gephart, 30 Ill. App.2d 199, 173 N.E.2d 828 (1961). Perhaps the most concise statement of this rule is found in McFadyen v. North River Ins. Co., supra, 62 Ill.App.2d at 170-171, 209 N.E.2d at 836:

  The insurer's duty to defend is predicated not upon
  information in its possession which indicates or even
  proves non-coverage. Rather, it is predicated upon
  the allegations in the complaint in an action brought
  against the insured and when such allegations state
  facts which bring the case within, or potentially
  within, the coverage of the policy, the insurer is
  from this time on unjustified in not defending the

This doctrine does not dispose of the issue before this Court. The defendant relies on an exclusionary clause of the policy, arguing that the allegations of the complaints charging deliberate and malicious conduct take the claims outside ...

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