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CNA units must defend 'as seen on TV' policyholder

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An appeals court has overturned a lower court ruling and has held that units of CNA Financial Corp. are obligated to defend a marketing firm because an exclusion to its personal and advertising injury coverage does not necessarily apply.

Units of Chicago-based CNA provided policies to New York-based E. Mishan & Sons that included coverage for personal and advertising injury, according to Wednesday's ruling by the 2nd U.S. Circuit Court of Appeals in New York in National Fire Insurance Co. of Hartford et al. v. E. Mishan & Sons Inc.

According to its website, E. Mishan, which conducts business as Emson, invests in, promotes and distributes “as seen on TV” products as part of its business.

The policies included an exclusion for personal and advertising injuries for knowing violations of another's rights, according to the ruling.

In 2013, Emson was sued in two class action lawsuits charging that, along with two other firms, it worked “to deceptively trap customers into recurring credit card charges,” according to the ruling.

The insurers filed suit in U.S. District Court in New York seeking a declaratory judgment they were not required to defend Emson in the underlying lawsuits.

The court granted the insurers summary judgment dismissing the case, concluding the allegations against Emson fell into the knowing violations exclusion.

Emson appealed the ruling, which was unanimously overturned by a three-judge panel of the 2nd Circuit.

The knowing violation exclusion alone “did not absolve the insurers of their duty to defend,” said the appellate court's ruling. “We cannot conclude with certainty that the policy does not provide coverage because the conduct triggering the knowing violation policy exclusion is not an element of each cause of action.”

“Furthermore, while the underlying plaintiffs allege generally that Emson acted knowingly and intentionally, the actual conduct described does rule out the possibility that Emson acted without intent or harm.

“The underlying lawsuits both assert claims against Emson for breach of contract and unjust enrichment, neither of which require a showing of knowledge of intent,” said the panel, in remanding the case to the lower court with instructions to enter judgment for Emson.

In February, an appeals court ruled that an American International Group Inc. unit that was acting as a fronting insurer had a duty to help defend a paint manufacturer, even though its costs will ultimately be paid by the policyholder.