of a per se wrongful act or the doing of a lawful act with malice and unjustified in law for the purpose of invading the contractual rights or business relationship of another." Id. (quoting Jim-Bob, Inc. v. Mehling, 178 Mich. App. 71, 443 N.W.2d 451, 462 (Mich App. 1989). Because the focus of this tort is on interference with contractual rights and in this case the contractual rights relate to property -- such as interference with the sale of a painting -- the Court holds that an exemption for personal injury does not preclude coverage of intentional interference with an advantageous economic relationship.
In the alternative, International argues that this tort is "a claim arising out of . . . defamation, including but not limited to libel and slander" which is also excluded from the Policy. Guaranty counters that under Michigan law, tortious interference with economic relations is not defamation. Wilkerson, 300 N.W.2d at 660. In distinguishing these two claims, the appellate court in Wilkerson noted that other jurisdictions are split on whether tortious interference with economic relations accomplished through defamatory statements is actionable in its own right or is merely subsumed within the general category of defamation. Id. at 660 n.3; see Kollenberg v. Ramirez, 127 Mich. App. 345, 339 N.W.2d 176 (Mich. App. 1983). Given the fact that Michigan recognizes a distinction between these two claims, that the state of the law is unsettled outside Michigan, and that the Court must resolve ambiguities in favor of the insured, the Court holds that a claim for tortious interference with economic relations is not excluded from coverage under an exemption for defamation.
B. Invasion of Privacy
The jury found that the defendants in Rosenbaum invaded the privacy of the plaintiff. International argues that invasion of privacy is a personal injury and therefore excluded from coverage. International also argues that the invasion of privacy in this case is the same as defamation and therefore excluded from coverage. Finally, International argues that any damages from improper searches of Rosenbaum's business are excluded from the Policy as a result of "wrongful entry." Apart from renewing its argument regarding the proper definition of "personal injury" under the Policy, Guaranty claims that invasion of privacy is different from defamation. The Court will focus only on the defamation question.
Michigan law recognizes four types of invasions which constitute the tort of invasion of privacy:
1. Intrusion upon a plaintiff's seclusion or solitude, or into his private affairs.
2. Public disclosure of embarrassing private facts about the plaintiff.
3. Publicity which places the plaintiff in a false light in the public eye.
4. Appropriation, for the defendant's advantage, of plaintiff's name or likeness.
Beaumont v. Brown, 401 Mich. 80, 257 N.W.2d 522, 527 n.10 (Mich. 1977) (quoting Prosser, Privacy, 48 Cal.L.Rev. 383, 389 (1960)). This case involves both types one and three. Under Michigan law, invasion of privacy overlaps with the tort of defamation. Beaumont v. Brown, 65 Mich. App. 455, 237 N.W.2d 501, 505 (Mich App. 1975), rev'd on other grounds, 401 Mich. 80, 257 N.W.2d 522; (citing Prosser, Privacy, at 422 ("the public disclosure of private facts, and putting the plaintiff in a false light in the public eye, both concern the interest in reputation, and move into the field occupied by defamation."). Because Michigan law recognizes the tort of invasion of privacy to be the same as defamation, the Court holds that the Policy exclusion for defamation includes claims alleging invasion of privacy.
C. Intentional Infliction of Emotional Distress
The jury found that the defendants in the Rosenbaum case intentionally inflicted mental and emotional distress on the plaintiff. International contends that this tort claim is a "personal injury" excluded from its policy. Curiously, International cites Farm Bureau Mut. Ins. Co. v. Hoag, 136 Mich. App. 326, 356 N.W.2d 630, 632-33 (Mich. App. 1984), for the proposition that the infliction of mental and emotional distress resulting from false arrest and malicious prosecution is an injury to the person. But, the state appellate court's analysis in Hoag cuts against International's position in this case. The Hoag Court held that an insurer that indemnifies "bodily injury" need not cover a claim of mental anguish. This case presents the flip side of the facts in Hoag, so that an exclusion of claims regarding "bodily injury" would not exclude an otherwise covered claim of mental anguish. In fact, Hoag is inapposite to this case. The term at issue here is "personal injury, which is broader than "bodily injury." Izzo v. Colonial Penn Ins. Co., 203 Conn. 305, 524 A.2d 641, 645 (Conn. 1987).
Although Michigan has never directly addressed this point, a number of states have held that emotional distress is a personal injury. Kilduff v. Adams, Inc., 219 Conn. 314, 593 A.2d 478, 490-91 (Conn. 1991); Bates v. Superior Court of Arizona, 156 Ariz. 46, 749 P.2d 1367 (Ariz. 1988); Blanchette v. Contributory Retirement Appeal Board, 20 Mass. App. Ct. 479, 481 N.E.2d 216 (Mass. App. 1985); Ex Parte First Alabama Bank, N.A., 461 So.2d 1315, 1318 (Ala. 1984); McCroskey v. Cass County, 303 N.W.2d 330, 336 (N.D. 1981). The Court has found no case law to the contrary, and Guaranty, tellingly, has not responded on this point. Because emotional distress is a personal injury and International's policy excludes personal injury, International is not required to indemnify the City on this claim.
D. Civil Rights
The jury found that the defendants in Rosenbaum intentionally and willfully violated the civil rights of the plaintiff by either an unreasonable search, an unreasonable seizure or the deprivation of his property without due process of law. The jury also found that the City had violated Rosenbaum's civil rights through an official policy or custom. International argues that civil rights claims brought under 42 U.S.C. § 1983 are expressly excluded by its policy because they are "willful violations of a statute committed by or with the knowledge or consent of an insured."
Guaranty argues that a violation of the United States Constitution is a "wrongful act" covered by International's policy and that, although the Policy excludes violations of statutes and ordinances, it does not exclude violations of constitutional rights. According to Guaranty, § 1983 merely provides a remedy for constitutional rights and cannot be violated itself. For support, Guaranty points to the title of § 1983, which is called "An Act to enforce the provisions of the Fourteenth Amendment to the Constitution of the United States, and for other purposes."
As noted by Guaranty, Congress enacted Section 1983 to enforce provisions of the Fourteenth Amendment. The statute merely provides a remedy for the violation of rights created elsewhere. Chapman v. Houston Welfare Rights Organization, 441 U.S. 600, 616-618, 99 S. Ct. 1905, 1915-16, 60 L. Ed. 2d 508 (1979); Smith v. State, Department of Public Health, 428 Mich. 540, 410 N.W.2d 749, 755 (Mich. 1987). Therefore the defendants in the Rosenbaum case did not violate § 1983 when they infringed on the plaintiff's fourth and fifth amendment rights; they violated the Constitution. The policy excludes only violations of statutes and ordinances, and the Constitution is neither of these. Because an ambiguous exclusion provision must be construed against the insured, the Court holds that the Policy does not exclude violations of the Constitution brought pursuant to § 1983.
E. Punitive Damages
The jury found that the defendants in Rosenbaum were liable for punitive damages in the amount of $ 1,000,000. International excluded from coverage any "loss," which includes any "fines and penalties imposed by law." Punitive damages "are not compensation for injury. Instead, they are private fines levied by civil juries to punish reprehensible conduct and to deter its future occurrence." International Brotherhood of Electrical Workers v. Foust, 442 U.S. 42, 48, 99 S. Ct. 2121, 2125-2126, 60 L. Ed. 2d 698 (1979); Hartford Acci. & Indem. Co v. Hempstead, 48 N.Y.2d 218, 397 N.E.2d 737, 741, 422 N.Y.S.2d 47 (N.Y. App. 1979). As such, punitive damages are not covered when a policy excludes fines. Northwestern National Casualty Co. v. McNulty, 307 F.2d 432, 436 (5th Cir 1962); American Home Assur. Co. v. Fish, 122 N.H. 711, 451 A.2d 358, 360 (N.H. 1982); see also Restatement (Second) of Torts § 908 (1977). Therefore, International is not liable to provide coverage for any such damage awarded.
International claims in its complaint that Guaranty has waived any defenses to covering all of the City's settlement by undertaking the defense of the City, failing to reserve the right to deny coverage, and failing to make reasonable efforts to settle the case before trial. Guaranty moved for summary judgment on the grounds that under the doctrine of equitable subrogation, it has a right to obtain contribution from International.
See, e.g. Commercial Union Ins. Co. v. Medical Protective Co., 426 Mich. 109, 393 N.W.2d 479 (Mich. 1986). Equitable subrogation is a legal fiction which provides that a person who pays a third party's debt is substituted or subrogated to all the rights and remedies of that party. Certain Underwriters of Lloyd's, etc. v. General Acci. Ins. Co., 909 F.2d 228, 232 (7th Cir. 1990); see also Home Insurance Co. v. Certain Underwriters at Lloyd's of London, 729 F.2d 1132, 1134 (7th Cir. 1984) (equitable action for contribution lies when one insurer pays a debt shared by other insurers).
In the context of an insurance policy, the waiver issue generally applies to a dispute between the insurer and an insured, rather than between two insureds. Under the doctrine of waiver, the insurer, by its words or conduct, induces the insured to believe that coverage would not be affected by a variation from the strict requirements of the policy. American Home Assur. Co. v. Dykema, Gossett, et al., 811 F.2d 1077, 1081 n.6 (7th Cir. 1987) (citing 18 G. Couch, Cyclopedia of Insurance Law § 71.2, at 216-17 (2d rev. ed. 1983)). After an extensive search, the Court has found no legal support, and International has not cited any, for the proposition that an insurer waives any defenses to covering all of an insured's settlement by undertaking the defense of the insured, failing to reserve the right to deny coverage, and failing to make reasonable efforts to settle the case before trial. In fact, no policy reason exists for holding that Guaranty waived such a claim against International. In order to establish waiver, International must show that Guaranty intentionally and knowingly relinquished its rights against International. See Commercial Union Ins. v. Medical Protective Co., 136 Mich. App. 412, 356 N.W.2d 648 (Mich App. 1984), aff'd in pertinent part and remanded in part, 426 Mich. 109, 393 N.W.2d 479 (1986). This cannot be the case here, because Guaranty kept International apprised of developments in the case and repeated its requests that International participate in both the defense and the settlement. As a matter of law, the Court holds that Guaranty has not waived its right to equitable subrogation.
For these reasons, International's motion for summary judgment is granted in part and denied in part, and Guaranty's motion for summary judgment is granted in part and denied in part.
ILANA DIAMOND ROVNER
UNITED STATES DISTRICT COURT
DATED: November 25, 1991