The Fifth Circuit Holds that a Corporation is Not a Person—At Least for Purposes of Insurance Coverage

Have you ever seen a corporation walk down the street? Or maybe you’ve shaken hands with a corporation lately? Perhaps you’ve witnessed a corporation do The Wiggle? Over two hundred years ago, Chief Justice Marshall wrote that a corporation is “an artificial being, invisible, intangible, and existing only in contemplation of law.” More recently, Justice Stevens wrote in dissent that “corporations have no consciences, no beliefs, no feelings, no thoughts, no desires”. Others disagree.

For example, former Massachusetts Governor Mitt Romney famously told a crowd  of hecklers during the 2012 presidential campaign, “Corporations are people, my friend.” Two years later in Justice Alito’s majority opinion in the Hobby Lobby case, the Supreme Court held that for-profit corporations qualified as “persons” under the Religious Freedom Restoration Act of 1993 because Congress intended to “provide protection for human beings”. A corporation, he wrote, is “simply a form of organization used by human beings to achieve desired ends.

Indeed, Justice Kennedy’s majority opinion four years earlier in Citizens United rejected the notion that political speech of corporations should be treated differently under the First Amendment simply because they are not “natural persons.” President Obama admonished the high court’s decision during his 2010 State of the Union address, arguing that the Supreme Court had “reversed a century of law that, I believe, will open the floodgates for special interests, including foreign corporations, to spend without limit in our elections”. Sitting in the front row that evening was Justice Alito, shaking his head and mouthing the words, “Not true, not true”. As evidenced by Justice Alito’s later decision in Hobby Lobby, perhaps the President would have been better served to have sent over some California wine for the justices’ pre-State of the Union meal that year. (Read: too much wine makes you sleepy.)

As always happens, pressing national legal issues like corporate personhood now have made their way into the insurance coverage dialogue. (Ok, not always, maybe more like, occasionally). In Nationwide Mutual Insurance Company v. Gum Tree Property Management, LLC, the United States Court of Appeals for the Fifth Circuit reviewed whether a dispute between two companies over a poached employee was covered by one or more commercial general liability (CGL) policies under Mississippi law. The employee at issue had worked as an account specialist for Lexington Relocation Services, LLC, a housing company that provided relocation services in several states. The employee had signed an agreement with Lexington that contained various confidentiality and non-compete provisions. When she left to work for Gum Tree Property Management, LLC—a company that rented and managed real estate in the Tupelo, Mississippi area—Lexington filed suit against Gum Tree.

Gum Tree argued that the lawsuit was covered by one or more of its CGL policies with Nationwide Mutual Insurance Company. Specifically, Gum Tree contended that the suit was covered by the policies’ “personal and advertising injury” coverage for “oral or written publication, in any manner, of material that violates a persons right of privacy.” Because Lexington, a limited liability company, was the claimant whose privacy supposedly was violated, the question was whether a corporate entity like Lexington qualified as a “person” within the meaning of this “personal and advertising injury” coverage. The Fifth Circuit held that it did not.

Rather than re-visit the esoteric questions raised by Mssrs. Romney, Kennedy, Alito and Obama, the Fifth Circuit answered the question at hand simply by looking at other portions of the insurance policies. The appellate court noted that the policies also provided “personal and advertising injury” coverage for “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a persons or organizations goods, products or services”. Unlike the privacy component of “personal and advertising injury” coverage, the slander/libel/disparagement component included both “a person or organization” as a party that could be injured. The privacy component of this coverage listed “person” only. Given this distinction, the Fifth Circuit held that the policies “differentiate between an individual and a business”. The court concluded that the “provisions providing coverage for offenses that violate a person’s right of privacy cannot apply in this case because Lexington is a business, not a person."

Beyond adding more precedent to the ever-growing body of caselaw on “personal and advertising injury” coverage, the Gum Tree Property decision provides a textbook example of how a court’s interpretation of a term or definition in one area of the law does not necessarily mean that the court will adopt that interpretation in the insurance coverage context. Either that, or the wine made its way down to Mississippi.

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Kerri Forsythe

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