Current Controversies over Personal and Advertising Injury Coverage

The Current ISO Form and its Emphasis on Advertising

The pre-1998 ISO form expressly conditioned advertising injury coverage on specifically defined offenses that were committed “in the course of advertising your goods, products or services.”[2] Policyholders and carriers litigated which types of marketing constituted advertising,[3] the role of advertising as causal agent in producing the third party’s damage,[4] and whether certain intellectual property claims could be shoehorned into advertising injury offenses.[5]

The post-1998 ISO revisions have eliminated some of these disputes while giving rise to different ones. The 1998 ISO form consolidated “personal injury” and “advertising injury” into a single definition as follows:

“Personal and advertising injury” means injury, including consequential “bodily injury”, arising out of one or more of the following offenses:

Subsections (f) and (g) were also updated. Subsection (f) formerly included “misappropriation of advertising ideas or style of doing business.” The current version refers to use of another’s “advertising idea,” deletes the amorphous “style of doing business,” and requires that the use be in an “advertisement.” Subsection (g) dropped infringement of “title” in lieu of “trade dress” and likewise added the “in your advertisement” language. Further, the ISO added an exclusion that specifically excludes infringement of copyright, patent, trademark, trade secret, or other intellectual property rights. The surviving infringement claims are copyright, trade dress, and slogan if the infringement occurs in the policyholder’s advertisement.

The current version also added a definition of “advertisement” that should reduce disputes over that issue. Most standard CGL policies now define an advertisement as

a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters. For the purposes of this definition:

These combined changes appear to make it more difficult for policyholders to establish potential coverage or, at a minimum, a defense, for most routine intellectual property disputes. On the other hand, coverage for infringement of copyright and slogan in advertising was preserved, and infringement of trade dress in advertising is now specifically covered. However, policyholders must be wary of characterizing their business as “advertising” because it could result in application of the exclusion for “insureds in media and Internet type businesses.” Moreover, that exclusion, which applies to “advertisers, broadcasters, publishers, or telecast[ers],” has not been uniformly interpreted, as the Dish Network cases illustrate (discussed below). Recent decisions also highlight the continued significance of commonly litigated exclusions such as “breach of contract,” “knowing violation,” and “first publication” to personal and advertising injury cases.

Recent Cases Interpreting the Current ISO Coverage Grant Provisions

Patent and trademark infringement claims. Hartford Fire Insurance Co. v. Vita Craft Corp.[6] arose out of a lawsuit by Thermal Solutions, Inc., against Vita Craft for alleged patent infringement and misappropriation of trade secrets in connection with the sale of cookware that incorporated radio frequency identification. Thermal Solutions also accused Vita Craft of spreading false rumors about its purported licensees. At trial, the sole claims that remained were for declaratory relief declaring the invalidity of the patent and for patent infringement.[7] Vita Craft argued that Hartford Fire was obligated to defend the suit based on personal injury coverage subsection (d) for publication of material that slanders or disparages an organization’s goods, products, or services.[8] Hartford countered that such coverage was limited to torts of slander, libel, and disparagement as defined by Kansas law and where all of the state law elements were explicitly pled.[9]

The court held that the policy provided broader coverage because it defined personal and advertising injury as “injury, including consequential ‘bodily injury’, arising out of . . . publication . . . of material that slanders or libels. . . [] an organization or disparages a person’s or organization’s goods, products or services.”[10] The court thus held that the complaint in the underlying suit need not expressly allege a cause of action for slander, libel, or disparagement to be covered. Moreover, the allegation that the policyholder spread false rumors about Thermal Solutions’ licensees arose out of disparagement.[11]

Outside the patent context, the Seventh Circuit has distinguished claims involving consumer fraud with product disparagement.[12] Judge Posner agreed that “a claim that fits the legal definition of product disparagement will trigger coverage even if the magic words are missing.”[13] However, a class action alleging that consumers were fraudulently induced to buy the policyholder’s more expensive brand of baby formula because of its disparagement of a competitor’s product did not arise out of a claim for product disparagement.[14] He also likened coverage for consumer fraud to antitrust liability, which insurance companies generally refuse to cover because of the moral hazard problem, i.e., “deliberate and often profitable wrongdoing, such as conspiring to fix prices, a core antitrust violation, would be encouraged if the conspirators were insured against damage for their misconduct.”[15]

Publication . . . That violates right of privacy. Although the term “advertisement” is now defined, the term “publication”—which appears in subsections (d) (slander, libel, disparagement) and (e) (violation of privacy)—is not. The term also appears in the first publication exclusion, discussed below. Recent litigation has focused on whether allegedly confidential information was published.

For example, a receipt to a customer that contained more than five digits of the customer’s credit card number was not considered a publication.[16] Likewise, consumers’ claim that Urban Outfitters used their ZIP code information to determine their mailing address did not constitute publication within the definition of personal and advertising injury.[17] However, a separate suit against the same retailer alleging that it had disseminated ZIP code information to third-party vendors and retailers did constitute publication, although, unfortunately for Urban Outfitters, potential coverage was excluded by the “recording and distribution of material or information in violation of law” exclusion.[18]

Use of an advertising idea. Recent decisions suggest that the “use of another’s advertising idea in your ‘advertisement’” (subsection (f)) will be construed narrowly. Courts, including the Eleventh Circuit, have interpreted the words “of another”—which were substituted for “misappropriation” in the prior ISO form—to mean that the policyholder must have used the advertising idea of the complaining party in the underlying case without that party’s consent.[19]

The Utah Supreme Court declined to find advertising injury coverage in a case alleging claims of false advertising where the policyholder’s liability was not premised on the wrongful use of another’s slogans.[20] In that case, customers who purchased a weight-loss product marketed by Basic Research, L.L.C., filed lawsuits claiming false advertising, defective product, and failure to perform as promised.[21] Although the complaint alleged that Basic Research marketed the product using the slogans “Eat All You Want And Still Lose Weight” and “And we couldn’t say it in print if it wasn’t true!,” the consumers did not need to prove the original source of the slogans but merely that Basic Research used them to market a defective product.[22] In other words, although the claims involved the policyholder’s advertising, they did not arise out of the “‘use of another’s advertising idea’ in the sense required for coverage under the Policy.”[23]

Infringement . . . in your advertisement. Courts addressing infringement claims under the prior ISO form employed a three-prong analysis—namely, whether the complaint alleged a predicate offense, whether it involved “advertising activities,” and whether there was a sufficient causal nexus between the advertising activities and the liability.[24] The new subsection (g) explicitly requires that infringement occur in the policyholder’s advertisement. Under either the prior or the current version, courts will likely continue to require that the third-party complaint expressly allege infringing advertising.[25]

Assuming that the underlying liability sufficiently alleges advertising, what is required to be proved for indemnity coverage? A recent decision involving underlying liability for copyright infringement is instructive.[26] Kipp Flores Architects obtained a judgment against Hallmark Design Homes, LP, for infringement of copyrighted house plans. In the coverage action, the carrier asserted that the damages did not have the requisite causal nexus with the policyholder’s advertising activity.[27] The court held that evidence sufficed to establish the casual nexus between the advertising injury and the damages awarded. That evidence included that the judgment against Hallmark was for copyright infringement, the damages awarded were based solely on the sale of infringing homes, and the carrier conceded that “none of these infringing houses were purchased ‘sight unseen’ by the customers.”[28] Further, the court rejected the carrier’s position that Kipp Flores had to prove that each homebuilder who purchased a house built from an infringing plan was motivated to purchase the house based on a specific advertisement.[29]

Recent Cases Interpreting Noteworthy Exclusions

Breach of contract.

In Bridge Metal Industries, L.L.C. v. Travelers Indemnity Co.,[30] a federal district court in New York first addressed whether trade dress infringement—now specifically covered in subsection (g)—constituted infringement of title under the pre-1998 ISO form. The court then analyzed the breach of contract exclusion and applied the “but for” test under New York law. Under this test, the exclusion applied only if the policyholder would not be liable but for the contract.[31] The Fifth Circuit has applied the same analysis under Louisiana law.[32]

Other courts have interpreted the exclusion more broadly. In Nationwide Insurance Co. v. Lexington Relocation Services, L.L.C.,[33] for example, a federal district court in Mississippi applied the exclusion despite the fact that the policyholder was not a party to the employment contract allegedly breached by a codefendant. Similarly, in Liberty Corporate Capital Ltd. v. Security Safe Outlet, Inc.,[34] the court found that a trademark infringement claim was premised on the policyholder’s alleged breach of a license agreement; hence, the exclusion applied. Likewise, a Texas appellate court interpreted “arising out of breach of contract” broadly to hold that the exclusion applied where the parties’ contract had at least an incidental relationship to all of the claims against the policyholder. [35]

Knowing violation.

In the Bridge Metal case discussed above, the court also applied a narrow interpretation of the knowing violation exclusion. The court analyzed the substantive law to determine whether the policyholder could be liable for infringement and unfair competition without a knowing finding; if so, the exclusion did not apply.[36] This is significant because the Copyright and Lanham Acts, for example, contain provisions for enhanced damages for willful conduct, and such allegations are often included in the underlying complaints.[37] If a plaintiff alleges willfulness but is not required to prove it to establish liability, a carrier may not prevail on the exclusion to bar coverage.

Intellectual property.

This exclusion is consistent with subsection (g) of the personal and advertising injury definition. For coverage to apply, the infringement of copyright, trade dress, or slogan must be committed in the policyholder’s advertisement. The exclusion also works to exclude other infringement claims, e.g., patent, trademark, and trade secret.

In Santa’s Best Craft, L.L.C. v. St. Paul Fire & Marine Insurance Co.,[38] the carrier argued that all of the slogan infringement claims resulted from violations of trade dress infringement. The Seventh Circuit, however, refused to apply the intellectual property exclusion to bar coverage for the infringement of slogan claims. [39]

Insureds in media- and Internet-type businesses.

In Travelers Property Casualty Co. v. Dish Network, L.L.C.,[40] the district court narrowly construed the exclusion as respects broadcasters. The court held that the dictionary definitions of “broadcast” and “telecast” could mean “any instance of sending out television signals” or “the dissemination of television and radio programming to the public at large.” As a result, the exclusion’s terms were ambiguous as applied to satellite TV programmer Dish Network, which did not broadcast to the public at large but rather to a finite number of consumers who paid for its subscription service. [41]

Another case involving Dish Network yielded a different result. In Dish Network Corp. v. Arch Specialty Insurance Co.,[42] the Tenth Circuit reversed the district court’s ruling that claims of patent infringement against Dish Network did not constitute advertising injury under the prior ISO form. Nonetheless, the district court on remand again granted judgment for the carriers, this time on the basis of the broadcasting exclusion.[43] The decision is back before the Tenth Circuit on appeal.[44]

First publication.

The first publication exclusion can be important in cases alleging successive or ongoing torts. For example, the Third Circuit held that the exclusion applied where the policyholder had allegedly contacted the plaintiff’s customers and misrepresented that its products infringed on its patent prior to the policy period and continuing until the filing of the suit.[45] The court noted that “[u]nder the exclusion’s plain terms the ‘first publication’ date is a landmark: if the injurious advertisement was ‘first published’ before the policy coverage began, then coverage for the ‘advertising injury’ is excluded.”[46] The Third Circuit further observed that because “[t]here is no indication in the complaint that G&B’s alleged misrepresentations changed in substance between when they were first made and the filing of the complaint, G&B’s conduct, therefore, falls squarely within the plain language and purpose of the exclusion.”[47]

Further, the court specifically rejected the argument that “the extent of the injury—and the audience for G&B’s misrepresentations—grew after [the first publication date] and that the exclusion is therefore inapplicable.”[48] The court reasoned that such conduct merely caused additional injury or increased the damages. Quoting Judge Posner in a case involving Taco Bell’s “feisty Chihuahua” ads, the court emphasized that, “[u]nless later publications contained ‘new matter—i.e., substantively different content—that the underlying complaint ‘alleged[d] [were] fresh wrongs,’ the prior publication exclusion applies.”[49]

Interestingly, Judge Posner concluded that the first publication exclusion did not bar coverage for successive Taco Bell commercials featuring the same character.[50] Although the commercials were part of a similar advertising campaign involving the same infringement, the plaintiff’s complaint alleged separate misappropriationclaims with respect to discrete “advertising ideas” (e.g., the dog poking its head through a hole at the end of the advertisement), which alleged other types of advertising injury.[51]

In a case involving Urban Outfitters, a federal district court in Pennsylvania held that pre- and post-policy advertisements do not have to be identical for the exclusion to apply where the same idea or trademark is allegedly infringed.[52] Specifically, the court held that post-policy advertisements of different products did not alter application of the first publication rule where all of the products allegedly infringed the same Navaho Indian trademark.[53] The court reasoned as follows:

The court noted its reasoning was consistent with the Taco Bell analysis and the purpose of the first publication exclusion, which is to prevent against insuring risks that had previously materialized.[55]

Conclusion

Current personal and advertising injury coverage litigation continues many of the familiar themes from years past, not least the role of advertising. Now, however, there may be fewer disputes about whether advertising occurred in patent, trademark, or trade secret infringement claims as coverage for such claims is expressly excluded. For potentially covered copyright, trade dress, or slogan infringement claims, disputes will likely continue over whether the infringement was caused by advertising activities and specifically whether it occurred in an advertisement. Practitioners should also anticipate continued controversy over coverage for use of an “advertising idea” and the scope of the “advertising, broadcasting, publishing or telecasting” exclusion as well as older exclusions for breach of contract and knowing violations. Traditional intellectual property disputes may also continue to raise questions concerning Coverage Part B in older policies with the prior ISO form.

Keywords: litigation, insurance, coverage, personal and advertising injury, knowing violation exclusion, first publication exclusion, intellectual property

Laura J. Grabouski is with Buchanan DiMasi Dancy & Grabouski in Austin, Texas.

[1] Laura J. Grabouski is a partner at Buchanan DiMasi Dancy & Grabouski in Austin, Texas, where she handles insurance coverage disputes, provides coverage opinions and consulting, and defends contract and bad faith litigation.
[2] See, e.g., Sentry Ins. v. R.J. Weber Co., 2 F.3d 554, 555 (5th Cir. 1993).
[3] See, e.g., Hayward v. Centennial Ins. Co., 430 F.3d 989, 992 (9th Cir. 2005) (distinguishing one-on-one solicitation with advertising); Sport Supply Grp., Inc. v. Columbia Cas. Co., 335 F.3d 453, 464 (5th Cir. 2003) (under Texas law, advertising used in conventional sense to refer to public announcement such as billboard, newspaper, or signpost to induce public to patronize establishment or purchase particular product).
[4] See, e.g., Simply Fresh Fruit, Inc. v. Cont’l Ins. Co., 94 F.3d 1219, 1223 (9th Cir. 1996) (“[T]he advertising activities must cause the injury—not merely expose it.”) (emphasis in original).
[5] See, e.g., Sport Supply Group, 335 F.3d at 465 (trademark infringement does not constitute misappropriation of advertising ideas); contra State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co., 343 F.3d 249, 258 (4th Cir. 2003); Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 749 (3d Cir. 1999).
[6] 911 F. Supp. 2d 1164 (D. Kan. 2012).
[7] Vita Craft, 911 F. Supp. 2d at 1170.
[8] Vita Craft, 911 F. Supp. 2d at 1176.
[9] Vita Craft, 911 F. Supp. 2d at 1176–77.
[10] Vita Craft, 911 F. Supp. 2d at 1178 (emphasis in original).
[11] Vita Craft, 911 F. Supp. 2d at 1179; see also Hudson Ins. Co. v. Colony Ins. Co., 624 F.3d 1264, 1268–69 (9th Cir. 2010) (complaint did not allege specific slogan; nonetheless coverage for infringement of slogan implicated).
[12] See Nat’l Union v. Mead Johnson & Co., 735 F.3d 539 (7th Cir. 2013) (Posner, J.).
[13] Mead Johnson, 735 F.3d at 548.
[14] Mead Johnson, 735 F.3d at 547. In other words, such claims were simply too attenuated and “there would be no basis for rational estimation [of premiums]” if “arising out of” were construed to include claims by consumers having merely an indirect link with disparagement of a competitor’s product. Mead Johnson, 735 F.3d at 548.
[15] Mead Johnson, 735 F.3dat 548.
[16] See Creative Hospitality Ventures, Inc. v. United States Liab. Ins. Co., 444 F. App’x 370, 375, 2011 LEXIS 19990, at *5 (11th Cir. 2011).
[17] See OneBeacon Am. Ins. Co. v. Urban Outfitters, Inc., 2014 LEXIS 67719, at *9–12 (E.D. Pa. May 15, 2014).
[18] OneBeacon American Insurance Co., 2014 LEXIS 67719, *9–12.
[19] See, e.g., Trailer Bridge, Inc. v. Ill. Nat’l Ins. Co., 657 F.3d 1135, 1139 (11th Cir. 2011) (“We reject Trailer Bridge’s contention that the use of a co-defendant’s (and alleged co-conspirator’s) idea—as opposed to the idea of a plaintiff in the underlying antitrust action—could qualify as an ‘offense’ under the Policy.”); Suwannee Am. Cement L.L.C. v. Zurich Ins. Co., Ltd., 885 F. Supp. 2d 611 (S.D.N.Y. 2012) (“[E]ven if the idea of the false public statements came from a co-conspirator, they were used with his permission. There was no misappropriation.”).
[20] Basic Research, L.L.C. v. Admiral Ins. Co., 297 P.3d 578 (Utah 2013).
[21] Basic Research, 297 P.3d at 579.
[22] Basic Research, 297 P.3d at 580–81.
[23] Basic Research, 297 P.3d at 581–82. In contrast, the Ninth Circuit held that a suit alleging trademark infringement, unfair competition, and unfair trade practices arising out of a skateboard manufacturer’s use of trademarked “Streetsurfer” name triggered “use of another’s advertising idea.” See Street Surfing, L.L.C. v. Great Am. E&S Ins. Co., 752 F.3d 853, 858–59 (9th Cir. 2014).
[24] See, e.g., Novell, Inc. v. Fed. Ins. Co., 141 F.3d 983, 986 (10th Cir. 1998).
[25] See, e.g., Premier Pet v. Travelers, 678 F. Supp. 2d 409 (E.D. Va. 2010) (addressing claims for trademark infringement under prior policy form; irrespective of whether trademark infringement covered, court held complaint did not allege advertising and rejected “implied advertising” argument).
[26] See Mid-Continent Cas. Co. v. Kipp Flores Architects, L.L.C., No. 1:13-cv-00060, 2014 LEXIS 97537 (W.D. Tex. Apr. 3, 2014).
[27] Kipp Flores, 2014 LEXIS 97537.
[28] Kipp Flores, 2014 LEXIS 97537, at *6.
[29] Kipp Flores, 2014 LEXIS 97537, at *7.
[30] 812 F. Supp. 2d 527 (S.D.N.Y. 2011).
[31] Bridge Metal, 812 F. Supp. 2d at 543–44.
[32] Looney Ricks Kiss Architects, Inc. v. State Farm Fire & Cas. Co., 677 F.3d 250, 257 (5th Cir. 2012) (under Louisiana law, breach of contract exclusion does not preclude coverage for copyright infringement of architectural apartment plans, even though the same factual basis could support a claim for breach of contract); see also Natural Organics, Inc. v. OneBeacon Am. Ins. Co., 102 A.D.3d 756, 959 N.Y.S.2d 204, 208 (N.Y. 2013) (underlying lawsuit alleged unfair competition after policyholder wrongfully terminated exclusive distributorship agreement and then issued press release announcing competitor’s appointment; breach of contract exclusion applied only if plaintiffs cannot prove product disparagement without proving breach of contract); John T. Doyle Tr. v. Country Mut. Ins. Co., 8 N.E.3d 490, 497–98 (Ill. Ct. App. Mar. 26, 2014) (although parties to wrongful eviction claim had signed a lease, reasonable person would not have concluded that breach of contract exclusion would bar coverage for all wrongful eviction claims).
[33] Nationwide Ins. Co. v. Lexington Relocation Services, L.L.C, No. 1:12CV181 (N.D. Miss. Mar. 24, 2014).
[34] Liberty Corporate Capital Ltd. v. Security Safe Outlet, Inc, 937 F. Supp. 2d 891, 907–8 (E.D. Ky. 2013).
[35] Yates Carpet, Inc. v. Travelers Lloyds Ins. Co., No. 07-06-0478-CV (Tex. App. Amarillo 2008) (petition denied) (mem. op.).
[36] Bridge Metal, 812 F. Supp. 2d at 545.
[37] See, e.g., 17 U.S.C. § 504 (c) (on finding that infringement was willful, court may increase statutory maximum damages from $30,000 to $150,000); 15 U.S.C. § 1117 (rebuttable presumption of willful infringement of trademark; where violation is willful, statutory damages raised from $200,000 to $2,000,000).
[38] Santa’s Best Craft, L.L.C. v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 348 (7th Cir. 2010).
[39] Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co.,611 F.3d 339,2010 U.S. App. LEXIS 13470,95 U.S.P.Q.2D (BNA) 1778(7th Cir. Ill.2010).
[40] Travelers Prop. Cas. Co. v. Dish Network, L.L.C., 2014 LEXIS 37914 (C.D. Ill. Mar. 24, 2014).
[41] Dish Network, 2014 LEXIS 37914, at *10–11.
[42] Dish Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010 (10th Cir. 2011).
[43] Dish Network Corp. v. Arch Specialty Ins. Co., 2013 LEXIS 151520 (D. Colo. Oct. 22, 2013).
[44] See Dish Network Corp. v. Arch Specialty Ins. Co., No. 13-1457 (10th Cir. filed Nov. 4, 2013).
[45] Transp. Ins. Co. v. Pa. Mfrs. Ass’n. Ins. Co., 346 F. App’x 862 (3d Cir. 2009).
[46] Pennsylvania Manufacturers Ass’n Insurance Co., 346 F. App’x at 866 (quoting Applied Bolting Tech. Prods., Inc. v. USF &G, 942 F. Supp. 1029, 1036 (E.D. Pa. 1996)).
[47] Pennsylvania  Manufacturers Ass’n Insurance Co., 346 F. App’x at 866.
[48] Pennsylvania  Manufacturers Ass’n Insurance Co., 346 F. App’x at 867.
[49] Pennsylvania  Manufacturers Ass’n Insurance Co., 346 F. App’x at 867 (quoting Taco Bell Corp. v. Cont’l Cas. Co., 388 F.3d 1069, 1074 (7th Cir. 2004) (Posner, J.)). Likewise, the Ninth Circuit has stated that if an advertisement is published before the policy period, the exclusion “bars coverage of injuries arising out of republication of that advertisement, or any substantially similar advertisement, during the policy period, because such later publications are part of a single, continuing wrong that began before the insurance policy went into effect.” Street Surfing, L.L.C. v. Great Am. E&S Ins. Co., 752 F.3d 853, 859 (9th Cir. 2014) (“Street Surfer” and “Street surfing” advertisements used same advertising idea).
[50] Taco Bell, 388 F.3d at 1074.
[51] Taco Bell, 388 F.3d at 1073–74.
[52] Hanover Ins. Co. v. Urban Outfitters, 2013 LEXIS 116889 (E.D. Pa. 2013).
[53] Urban Outfitters, 2013 LEXIS 116889, at *5.
[54] Urban Outfitters, 2013 LEXIS 116889, at *5.
[55] Urban Outfitters, 2013 LEXIS 116889, at *5.

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