An airline pilot sued a woman for defamation, alleging that his professional reputation had been ruined by a letter she had written to his employer, stating that he had violated FAA regulations in his operation of a private aircraft. The lawsuit ended with a judgment in her favor, whereupon she filed a declaratory judgment action against her insurer to recover her legal expenses. She appealed a trial court judgment in the insurer's favor.

The insured had been advised to select her own attorney when she forwarded the pilot's complaint to her insurer, but the insurance company reserved the right to deny coverage if it was determined that the policy did not cover the claim. The insurer had volunteered to pay legal costs incurred until the time coverage was denied, but made clear that they would be at her expense thereafter.

The homeowners policy provided for defense, at the insurer's expense, for a claim or suit for damages "because of bodily injury or property damage....caused by an occurrence...." The policy defined "bodily injury" as "bodily harm, sickness or disease." The term "property damage" was defined as "physical damage to or destruction of tangible property, including loss of use of this property."

The appeal court said that the pilot's allegation of injury to his reputation as a professional pilot was within the realm of defamation. It cited various precedents to the effect that such injury is economic, not physical. It concluded, as a matter of law, that "....injury to reputation cannot be a 'bodily injury' as that term is defined in a homeowners policy...." The insured's argument that injury from a defamatory statement amounted to "property damage" was found untenable. (Reputation was described as an "intangible asset.")

Noting that the insurer's handling of its reservation of rights was clearly and properly done, the court agreed that there was no basis for liability on the part of the insurer to defend or indemnify. The pilot's complaint alleged only damage to reputation.

The judgment of the trial court was affirmed in favor of the insurance company and against the insured.

(WASHINGTON, Appellant v. STATE FARM FIRE & CASUALTY COMPANY, Appellee. District of Columbia Court of Appeals. No. 92-CV-245. July 29, 1993. CCH 1993-94 Fire and Casualty Cases, Paragraph 4451.)