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No homeowners liability coverage for insured’s defamatory statements against former colleague

January 16, 2017

No homeowners liability coverage for insured’s defamatory statements against former colleague

January 16, 2017

Authored By

Linda Schmidt

Linda S. Schmidt

Special Counsel

pillarsIn Blomdahl v. Peters, the Court of Appeals reaffirmed Wisconsin’s broad interpretation of “arising out of” when it held that a business pursuits exclusion precluded homeowners liability coverage for a defamation action based on statements made by the insured against a former business associate. 2016 WI App 26 (unpublished). 

Eric Blomdahl and Raquel Peters were salespersons, or distributors, in a multi-level marketing organization. Multi-level marketing is a strategy in which a company encourages its existing salespersons, or distributors, to recruit new distributors by paying the existing distributors a percentage of their recuits’ sales in addition to earnings from the distributors’ own direct sales. The recruits are known as a distributor’s “downline.” Peters became involved in the organization in 2003, with the earnings she generated there becoming her family’s primary source of income by 2006. She subsequently terminated her involvement in 2009, claiming that upline management had failed to properly compensate her for recruits’ sales.

Blomdahl sued Peters and her husband four years later, in 2013, for defamatory statements made both before and after her disassociation with the sales organization, and Peters tendered the defamation action to her homeowners liability carrier, West Bend Mutual Insurance Company. West Bend’s policy included a business pursuits exclusion, excluding coverage for personal injury “[a]rising out of or in connection with a ‘business’ ... whether or not the ‘business’ is owned or operated by an ‘insured’ or employs an ‘insured.’”

Confirming that “the term ‘arising out of’ is given an expansive and broad definition,” the Court found the exclusion barred coverage:

“Wisconsin law does not require that the allegedly tortious conduct occur during the business relationship. Rather, coverage is defeated by the business-pursuits exclusion because the allegedly defamatory statements arose out of and were in connection with the business dispute.”

Neither the general nature of Peter’s defamatory statements (e.g., “poser”), nor the passage of time since Peter’s last involvement in the business were sufficient to overcome the exclusion.

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