Since the introduction of the 1986 ISO form, personal injury and advertising injury coverage have been automatic, unless the insured specifically negotiated to waive the coverage. The 1986 form also redefined "advertising" injury, replacing "unfair competition" and "piracy," used in earlier coverage endorsements, with "misappropriation of advertising ideas or style of doing business." The new "Coverage B" provided, in the insuring agreement, that:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which the insurance applies . . . . This insurance applies to "advertising injury" only if caused by an offense committed:
- in the "coverage territory" during the policy period; and
- in the course of advertising your goods, products or services."
"Advertising injury" was defined as injury arising out of one or more of the following offenses:
(a) Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
(b) Oral or written publication of material that violates a person's right of privacy;
(c) Misappropriation of advertising ideas or style of doing business; or
(d) Infringement of copyright, title or slogan.
"Personal injury" was defined as injury, other than "bodily injury" arising out of one or more of the following offenses:
(a) False arrest, detention or imprisonment;
(b) Malicious prosecution;
(c) Wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies;
(d) Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; or
(e) Oral or written publication of material that violates a person's right of privacy.
Subsequent forms were introduced by ISO in 1988, 1993 and 1996, with no material change to the advertising injury coverage. The first section of this paper discusses case law developments under the pre-1998 form. The 1998 form includes significant changes, discussed later in this paper.
COVERAGE B BASICS
The personal injury coverage encompasses torts which fall outside Coverage A, as they are largely intentional in nature and result in damage other than bodily injury or property damage. Under the insuring language, there are several requirements:
- The offense must occur in the coverage territory.
- The offense must occur during the policy period.
- The offense cannot occur in the course of advertising.
- The offense must arise out of conduct of the insured's business.
Unlike Coverage A, the wrongful conduct, not the damage or discovery of damage, that triggers coverage. Thus, it is the offense during the policy period, not the accrual of a cause of action, that determines coverage.
Torts stemming from a personal motive, or otherwise unrelated to the insured's business, are not covered. See, e.g., St. Paul Guardian Ins. Co. v. Centrum G.S. Ltd., (posting of personal information about former employee potentially stated covered offense, but did not arise out of insured's business activities); American Indem. Co. v. Foy Trailer Rentals, Inc., (defamatory comments were purely personal in nature).
a. False Arrest, Detention or Imprisonment.
Pleadings of other defined causes of action, such as harassment or discrimination, will likely not be construed to state false arrest or imprisonment, even if some facts arguably assert detention of the claimant. E.g., Roman Mosaic and Tile Co. v. Aetna Cas. & Sur. Co.; Cornhill Ins. PLC v. Valsamas, Inc.
b. Malicious Prosecution.
Coverage is usually limited to the specific tort of malicious prosecution, and does not extend to other, related, wrongful litigation conduct, such as sanctionable conduct. See, e.g., William J. Templeman Co. v. Liberty Mut. Ins. Co., (Ill. App. 2000) (no coverage, even if conduct is overlapping and could support malicious prosecution); Spiegel v. Zurich Ins. Co., (no coverage for sanctions under Fed. R. App. P.). But, a number of courts have recently been willing to blur the distinction between abuse of process and malicious prosecution. Typically, these courts conclude that the torts may be different, from a legal standpoint, but seem synonymous to a layperson. See Northwestern Nat'l Cas. Co. v. Century III Chevrolet, Inc.; Martin's Herend Imports, Inc. v. Twin City Fire Ins. Co.; U.S. Fid. & Guar. Co. v. Saddle Ridge, L.L.C.; Toll Brothers, Inc. v. Gen'l Acc. Ins. Co.
Because the coverage is offense-based, the majority of courts hold malicious prosecution is covered during the period in which the underlying charges or suit is filed, not upon favorable termination. See City of Erie v. Guaranty Nat'l Ins. Co., (canvassing case law and discussing majority and minority views).
c. Wrongful Eviction, Wrongful Entry, Invasion of Right of Occupancy.
The offense of wrongful eviction, wrongful entry, or invasion of right of occupancy should be limited to tenancy situations, in which the eviction or entry is by or at the behest of the owner or landlord. E.g., State Farm Fire & Cas. Co. v. Burkhardt, (did not extend to claims of assault and invasion of privacy arising from sexual harassment); Sterling Bldrs., Inc. v. United Nat'l Ins. Co., (allegation that insured obtained easement by fraud was not within offense; interference with property rights that does not include physical occupation or trespass are not covered); STIC Enterprises, Inc. v. Crusader Ins. Co., (restaurant/bar customers' claims of racial discrimination did not constitute wrongful eviction; offense requires possessory interest in property) (relying on Groshony v. Mut. of Enumclaw, ; Heil Co. v. Hartford Acc. & Ind. Co.; United States of America v. Security Mgmt. Co., Inc., ("invasion of right of private occupancy" did not extend to discrimination claims of prospective tenants); American Hardware Ins. Group v. West One Automotive Group, Inc., (eviction implied right of occupancy and did not extend to wrongful termination); see also Assurance Co. of Amer. v. Horton,(misrepresentation in sale of house did not constitute wrongful eviction); cf. St. Paul Fire and Marine Ins. Co. v. Green Lake State Bank, (where evicted tenant sued for breach of contract, no coverage). But see Internat'l Ins. Co. v. Rollprint Packaging Products, Inc., (offense does not require vested right in property; duty to defend existed for allegations, in wrongful termination case, that claimant was evicted from office); Z.R.L. Corp. v. Great Central Ins. Co., (wrongful eviction could include claims that club engaged in racial discrimination by turning away patrons); Town of Goshen v. Grange Mut. Ins. Co., (civil rights action against Town and planning board, asserting loss of use of enjoyment of property, fell within "invasion of right of private occupancy"); Ins. Co. of N. Amer. v. Forrest City Country Club, (wrongful eviction was ambiguous and could include discrimination against club members).
While there is a split in authority, the majority of courts have also concluded that pollution claims, although arguably a trespass or nuisance, do not constitute wrongful entry, or other invasion of the right of private occupancy. See, e.g., Buell Indus., Inc. v. Greater N.Y. Mut. Ins. Co.; but see Allstate Ins. Co. v. Dana Corp., (environmental contamination could be invasion of privacy); Travelers Indem. Co. v. Summit Corp. of America, (recognizing split in authority, but concluding nuisance or trespass from contamination could constitute personal injury). In 1996, the policy form was amended to specifically exclude pollution claims from personal and advertising injury coverage. This exclusion is revised but included in the 1998 form.
Defamation involves a communication that damages the reputation of another, or deters others from association with a person or entity. Libel involves written communication. Slander involves oral communication. Defamation must include a false statement, actionable words, publication, and reference to an ascertainable person.
While defamation is covered, allegations of defamatory remarks that merely state the background for a cause of action may not be. See, e.g., Amerisure Ins. Co. v. Gold Coast Marine Distributors, Inc., (conclusory allegation of defamation, without pleading of facts supporting libel or slander, did not trigger duty to defend); St. Paul Fire and Marine Ins. Co. v. Green Lake State Bank, (Feb. 29, 2000) (allegation that defendant made belittling remarks, after defamation claim dismissed, did not trigger duty to defend); but cf. CGU v. Travelers Prop. & Cas. Ins. Co., (allegations that defendant instituted campaign of slander was sufficient to trigger defense obligation, although actual courts asserted monopoly and conspiracy in violation of the Sherman Act). Similarly, reputation damages, arising from other torts, do not state a covered offense. See Hardy v. Hartford Ins. Co., (suit against lawyer for breach of contract, breach of fiduciary duty, negligent misrepresentation and fraud, did not fall within personal injury coverage, although damages included injury to reputation); L&D of Oregon, Inc. v. Amer. States Ins. Co., 171 Ore. App. 17 (2000) (no coverage where factual allegations did not state all elements of defamation or invasion of privacy).
e. Violation of Privacy.
Depending upon state law, invasion of privacy can take four forms:
- intrusion on physical seclusion or solitude,
- public disclosure of private facts,
- appropriation of name or likeness to the plaintiff's benefit, or
- "false light."
Under the defined offense, the violation of privacy must arise from a "publication."
B. Advertising Injury:
Most claims involving intellectual property rights fall within standard general liability coverage, if at all, under the advertising injury section. Infringement of another's intellectual property rights, or misappropriation of an idea, typically involves intentional conduct that will not constitute an "occurrence." E.g., Select Design, Ltd. v. Union Mut. Fire Ins. Co. Typically, no "bodily injury" is involved, and the economic damages are unlikely to be considered "property damage." See, e.g., Nutmeg Ins. Co. v. Pro-Line Corp.; Robert Bowden, Inc. v. Aetna Cas & Sur. Co., (copyright infringement not "property damage").
While there have been efforts to bring such claims within the personal injury coverage, and thus avoid the required nexus with advertising activity, these efforts have been largely unsuccessful. Most courts will not consider infringement or misappropriation as disparagement, relying largely on the concept of disparagement as negative, while infringement, "like other imitations, is the sincerest form of flattery." See, e.g., Clary Corp. v. Union Standard Ins. Co., (patent infringement was not disparagement); see also Everest and Jennings v. American Motorists Ins. Co.; Microtec Research Inc. v. Nationwide Mut. Ins. Co., (patent infringement not "disparagement of title" under personal injury coverage); accord United Nat'l Ins. Co. v. SST Fitness Corp.; Hawaii Ins. and Guaranty Co. Ltd. v. Blair Ltd.
- Must occur in course of advertising.
- Must occur in the coverage territory.
- Must occur during the policy period.
a. Policy Period.
The offense itself must be committed during the policy period. See Essex Ins. Co. v. Redtail Products, Inc., (trademark infringement occurred before policy inception). Continuing or repeated offenses give rise to issues under the insuring agreement, the exclusions, and public policy.
In addition to the insuring language, public policy prohibits insurance for a known loss or loss in progress. See Two Pesos, Inc. v. Gulf Ins. Co., (continued trade dress infringement, after injunction, constituted known loss and would not be covered); Essex Ins. Co. v. Redtail Products, Inc., (no coverage where complaints of trademark infringement preceded purchase of policy); Franklin v. Fugro-McClelland (Southwest), Inc., (no coverage for knowing patent infringement preceding policy inception); see also Westchester Fire Ins. Co. v. G. Heilman Brewing Co., (no coverage where suit filed a year before policy inception).
The first publication exclusion also serves to reinforce the policy period requirements. The scope and parameters of this exclusion are discussed below.
b. Causal Connection.
Typically, there must be a causal connection to advertising: the offense must actually occur in the process of advertising or, at least, the advertising must directly cause the damage. E.g., Sentry Ins. Co. v. R.J. Weber Co.; Everitt v. Transportation Ins. Co., (injury must be caused by offense committed in the course of advertising the insured's goods, products or services); Bank of the West v. Superior Court; see also Novell, Inc. v. Federal Ins. Co.; Everest and Jennings, Inc. v. American Motorists Ins. Co.; Bank of the West v. Superior Court; Select Design, Ltd. v. Union Mut. Fire Ins. Co. If the offense is simply "revealed" by advertising, the connection will not be present. See, e.g., Simply Fresh Fruit, Inc. v. Continental Ins. Co., ("advertising activities must cause the injury -- not merely expose it.").
Case law is less than clear as to the nature or amount of activity necessary to constitute advertising. Many courts suggest that widespread dissemination to the public is necessary. See, e.g., International Ins. Co. v. Florists' Mut. Ins. Co.; Playboy Enterp. v. St. Paul Fire & Marine Ins. Co. Internal distribution, even if widespread, is not sufficient. Fox Chem. Co. v. Great Amer. Ins. Co., (internal distribution of pamphlet to master distributors to educate sales force did not constitute "advertising"); Smart Foods, Inc. v. Northbook Prop. & Cas. Co., (letters of solicitation to distributors were not "advertising"); but cf. Elan Pharmaceutical v. Employers Ins. of Wausau, (commercialization of clinical studies of drug constituted "advertising"); see also USX Corp. v. Adriatic Ins. Co. (under policy including "unfair competition" as advertising offense, antitrust claims from filing of tariffs, required by statute, did not involve advertising).
Some courts have found a single solicitation to be sufficient. See Atlantic Lloyds Ins. Co. v. Susman Godfrey, L.L.P., (without analysis, court concluded single solicitation letter from law firm to prospective client constituted advertising); see also John Deere Ins. Co. v. Shamrock Indus., Inc., (solicitation of one person constitutes "advertising"); but see Peerless Lighting Corp. v. American Motorist Ins. Co., (single solicitation to prospective buyer through competitive bidding process, with product tailor-made for customer, was not "advertising"); First Bank and Trust Co. v. New Hampshire Ins. Group, (explanation of bank services in office not "advertising").
The best approach is probably to assume that any solicitation or dissemination directed to customers or prospective customers may constitute advertising. E.g., Sentex Sys., Inc. v. Hartford Acc. & Ind. Co.; New Hampshire Ins. Co. v. Foxfire, Inc., (where audience is small, but comprises all or significant portion of customer base, advertising requirement is met); see also Elan Pharmaceuticals, (dissemination of drug study to physicians and hospitals, rather than consumers, reflected marketing strategy and reality of drug market).
d. "Your" Goods, Products or Services.
In Stenbock v. Hartford Fire Ins. Co., the court concluded there was no coverage where the alleged offense arose from advertising the claimant's goods, products or services -- not the insured's. But cf. Platinum Technology, Inc. v. Federal Ins. Co., (use of another's trademark to advertise insured's goods and services fell within coverage).
To fall within advertising coverage, the defamation must occur in the course of advertising. However, republication or broadcast of defamatory remarks is actionable. Most defamation claims do not involve advertising, and are more likely to fall under the personal injury coverage.
Disparagement typically involves a false or misleading statement about a competitor, or its good, made to influence the public not to purchase the competitor's goods. For example, assertions that insured's software had capabilities that competitor's did not, false comparative statements regarding the speed of the software, and allegedly misleading statements comparing the products were held to state a claim for disparagement, and to trigger a duty to defend. Winklevoss Consultants, Inc. v. Federal Ins. Co.; see also Decision One Corp. v. ITT Hartford Ins. Group,(allegations of false or misleading comparisons, causing customer defection, fall within disparagement).
b. Violation of Privacy.
Of the possible forms of invasion of privacy, appropriation of likeness is the most likely to be stated in conjunction with advertising. This tort can include false sponsorship of goods, or use of a public figure's name, picture, or voice in conjunction with advertising.
"Misappropriation" refers to the common law tort of "passing off," but is also a description of conduct. In the context of advertising injury, it may apply to trade dress infringement, palming off, or to theft of trade secrets -- if the trade secrets relate to marketing. See, e.g., John Deere Ins. Co. v. Shamrock Indus., Inc., (claim of misappropriation of trade secrets, in manufacture and sale of machines to fill ice cream containers stated claim for advertising injury under definition that included "idea misappropriation"); but see Tri-Clover, Inc. v. DSO Sanitary Supply, Co., (misappropriation of product information and specifications did not involve advertising idea or style of doing business); Twin City Fire Ins. Co. v. Ennen, (misappropriation of advertising ideas did not include claims arising from failure to pay for creation of marketing plan).
An "advertising idea" is generally an idea about solicitation of business, or the manner in which one advertises. E.g., Frog, Switch & Mfg. Co. v. Travelers Ins. Co.; Zurich Ins. Co. v. Sunclipse, Inc.; Atlantic Mut. Ins. Co. v. Badger Med. Supply Co. "Style of doing business" is typically construed as a company's comprehensive manner of operating or conducting its business. E.g., Novell, Inc. v. Federal Ins. Co.; Applied Bolting Tech. Prods., Inc. v. U. S. Fid. & Guar. Co.
There is a minority position holding that coverage for "misappropriation" is limited to the common law tort of misappropriation. See Advance Watch Co., Ltd. v. Kemper Nat'l Ins. Co. Most courts, however, have rejected this theory and have held that the term refers to a wider body of commercial and intellectual property torts. Industrial Molding Corp. v. Amer. Mftrs. Mut. Ins. Co.; Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co.; Frog, Switch & Mftrg. Co. v. Travelers Ins. Co.; American Employers Ins. Co. v. DeLorme Pub. Co.
One of the more unusual cases of "misappropriation" is American Simmental Ass'n v. Coregis Ins. Co. The claimants, breeders of full-blooded Simmental cattle, alleged that the American Simmental Association ("ASA") certified another breeder's cattle as full-blooded when they were not. As a result, the claimant's own cattle lost market value. The court found that the advertisements of the falsely certified cattle satisfied the causal nexus to advertising, and that certification, itself, was an advertising idea or style of doing business (and possibly a title or slogan).
d. Infringement of Copyright, Title or Slogan.
Copyright infringement is expressly covered, if it is causally connected to advertising. Infringement of title or slogan involves the use of another's name or one confusingly similar to it. E.g., Ross v. Briggs and Morgan. "Title" is usually restricted, in context, to its sense as a name, rather than legal ownership. See, e.g., Heritage Mut. Ins. Co. v. Advanced Polymer Tech., Inc.; Palmer v. Truck Ins. Exch.
Copyright infringement is expressly covered by the policy, but coverage is still dependent on a causal connection to advertising. See Interface, Inc. v. Standard Fire Ins. Co., (use of pictures of floor covering in advertising constituted infringement of copyrighted pattern and satisfied requirement of causal nexus); Western Amer. Ins. Co. v. Moonlight Design, Inc., (sufficient connection in advertisement of knock-off bridal gowns); but see Sentry Ins. v. R.J. Weber Co., (no connection between claims of copyright infringement of Caterpillar's parts publications and advertising activity); Nationwide Mut. Ins. Co. v. Bartlett, (no causal connection to advertising in unauthorized use of architectural plans); Robert Bowden, Inc. v. Aetna Cas. & Sur. Co., (no causal connection in unauthorized duplication of software).
Claims for purely injunctive relief do not seek "damages" within coverage. See, e.g., Feed Store, Inc. v. Reliance Ins. Co., (suit for trademark infringement seeking purely injunctive relief did not state claim for damages); Certain Underwriters at Lloyds v. 2-Up, Inc., (no coverage for costs incurred in complying with voluntary injunction in trademark infringement case); see also USX Corp. v. Adriatic Ins. Co.
There is also an argument that "disgorgement" does not constitute damages. See Bank of the West v. Superior Court, (disgorgement of benefits from unfair trade practices not within meaning of "damages"); see also Seaboard Sur. Co. v. Ralph Williams Northwest Chrysler-Plymouth, Inc., (disgorgement and injunctive relief, allowed by consumer protection statute, did not state claim for "damages"). Arguably, allowing indemnity for a disgorgement, in addition to the wrongful profit retained by the insured, unjustly enriches the insured. See, e.g., Nortex Oil & Gas Corp. v. Harbor Ins. Co. This rationale, however, has met with limited success. Most courts appear willing to recognize that a statutory measure of recovery that includes disgorgement of profit is nevertheless "damages." See, e.g., Internat'l Communication Materials, Inc. v. Employer's Ins. of Wausau, (accounting of profits was "damages," and not pure disgorgement); Owens-Brockway Glass Container, Inc. v. Internat'l Ins. Co., (royalty payment for non-willful patent infringement considered damages).
"Personal injury" or "advertising injury"
- Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;
- Arising out of oral or written publication of material whose first publication took place before the beginning of the policy period;
- Arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured;
- For which the insured has assumed liability in a contract or agreement. This exclusion does not apply to liability for damages that the insured would have in the absence of the contract or agreement; or
- Arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.
"Advertising injury" arising out of:
- Breach of contract, other than misappropriation of advertising ideas under an implied contract;
- The failure of goods, products or services to conform with advertised quality or performance;
- The wrong description of the price of goods, products or services; or
- An offense committed by an insured whose business is advertising, broadcasting, publishing or telecasting.
Knowledge of Falsity.
As with "first publication," a conflict exists in regard to the "knowledge of falsity" exclusion. This exclusion, like that for prior publication, makes the most sense when applied to the defamation offenses. Many of the other torts do not include intent as an element, and an infringing product, while possibly counterfeit, is not typically considered "false." See, e.g., Interface, Inc. v. Standard Fire Ins. Co., (claims of copyright infringement arising from advertising material displaying infringing floor covering not within exclusion). In Martin's Herend Imports, Inc. v. Twin City Fire Ins. Co., the court refused to apply the exclusion for "knowledge of falsity" and, in dicta, approved the limited construction for prior publication. The court noted, in part, that the exclusion -- if applied to the covered offense of malicious prosecution -- would entirely defeat coverage. Cf. A. J. Sheepskin and Leather Co., Inc. v. Colonial Ins. Co., (knowledge of falsity exclusion applied to claims that insured was a "serial infringer" and had "deliberately sought to confuse the public").
To satisfy the "first publication" requirement, the actionable statement must be substantially identical to the prior publication, not merely part of an ongoing "theme." Cf. Dogloo, Inc. v. Northern Ins. Co. of N.Y., (existence of nationwide ad campaign over five year period did not conclusively prove prior publication); Internat'l Communication Materials, Inc. v. Employers Ins. of Wausau, (statements consistent with "theme" of ongoing advertising campaign were not sufficiently similar to invoke exclusion). It need not, however, be an identical re-publication, if the gist of the material is the same. See Ringler Associates, Inc. v. Maryland Cas. Co.
This exclusion bars coverage if the first publication of allegedly offending materials occurs before policy inception, even if the material is re-published during the policy period, and creates new and different harm. See Ringler Associates, Inc. v. Maryland Cas. Co.; Applied Bolting Tech. Prods., Inc. v. U. S. Fid. Guar. Co.; John Deere Ins. Co. v. Shamrock Indus., Inc.
There is a split in the case law as to whether exclusion subparts (1) and (2) apply only to defamation, or to any personal or advertising injury. Compare Irons HomeBuilders, Inc. v. Auto-Owners Ins. Co., and Arnette Optic Illusions, Inc. v. ITT Hartford Group, Inc., (limiting exclusion), with Applied Bolting Tech. Prods., Inc. v. U. S. Fid. & Guar. Co.; Tradesoft Tech., Inc. v. Franklin Mut. Ins. Co.; Maxtech Holding, Inc. v. Federal Ins. Co., (rejecting limitations and applying exclusion); Doskocil, Inc. v. Fireman's Fund Ins. Co.
Breach of Contract.
Because many commercial and advertising torts arise in the context of a contractual relationship, courts have narrowly construed the exclusion for breach of contract, and have not applied it when there is an alternative common law or statutory basis for the claim. E.g., Home Ins. Co. v. Waycrosse, Inc., (exclusion did not preclude defenses when some claims were independent of breach of confidentiality agreement); Assurance Co. of America v. J.P. Structures, Inc., (allegations of trademark infringement arose both under franchise agreement and under Lanham Act, and were therefore not excluded); Zurich Ins. Co. v. Killer Music, Inc., (copyright infringement arose from contractual relationship, but could also sound in tort); but see Ross v. Briggs and Morgan, (claim for liquidated damages under contract excluded); Fallon McElligott, Inc. v. Seaboard Surety Co., (where insured created advertising campaign that infringed copyrights of other companies, suit by client against insured was for breach of contract, within exclusion); Custom Machinery Design, Inc. v. West Bend Mut. Ins. Co., (patent infringement in violation of licensing agreement fell within exclusion); Callas Enterp., Inc. v. Travelers Indemn. Co. of Am., (all allegations arose out of breach of alleged agency agreement).
Failure to Conform/Wrong Description.
Subparts (2) and (3) emphasize that the advertising coverage is for commercial torts, not consumer claims for deceptive trade practices.
Changes in the 1998 Form
The insuring agreement in the 1998 form is almost identical to the 1996 form. The covered offenses, however, are re-defined. The policy combines the definitions of personal and advertising injury and provides:
"Personal and advertising injury" means injury, including consequential "bodily injury", arising out of one or more of the following offenses:
(a) False arrest, detention or imprisonment; (b) Malicious prosecution; (c) The wrongful eviction from, or wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor; (d) Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; (e) Oral or written publication of material that violates a person's right of privacy; (f) The use of another's advertising idea in your "advertisement"; or (g) Infringing upon another's copyright, trade dress or slogan in your "advertisement".
The exclusions also include new and different subparts and provide that the insurance does not apply to:
a. "Personal and advertising injury":
- Caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury";
- Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;
- Arising out of oral or written publication of material whose first publication took place before the beginning of the policy period;
- Arising out of a criminal act committed by or at the direction of any insured;
- For which the insured has assumed liability in a contract or agreement. This exclusion does not apply to liability for damages for damages that the insured would have in the absence of the contract or agreement;
- Arising out of a breach of contract, except an implied contract to use another's advertising idea and/or "advertisement";
- Arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your "advertisement";
- Arising out of the wrong description of the price of goods, products or services stated in your "advertisement";
- Committed by an insured whose business is advertising, broadcasting, publishing or telecasting. However, this exclusion does not apply to paragraphs 14 a, b and c of "personal and advertising injury" under the Definitions section; or
- Arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" at any time.
The 1998 form is the first form to define "advertisement." It is defined 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."
There is sparse case law addressing the 1998 form. The changes should, however, cause some predictable results. First, the form further distances patent infringement from the definition of any covered offense. Consequential "bodily injury" is now expressly included, rather than excluded -- perhaps clarifying coverage for mental anguish arising from personal injury torts. "Misappropriation" has been reduced to use of another's advertising idea in an advertisement. Accordingly, the "causal nexus" requirement is reinforced, and questionable claims for trademark infringement or misappropriation of trade secrets will not be covered. Similarly, copyright infringement is limited to infringement in an advertisement.
NON-ENUMERATED OFFENSES: WILL THEY FIT?
The majority of courts have held that patent infringement is not covered. This conclusion is frequently based upon the reasoning that patent infringement involves the manufacture, use, or sale of a product, and thus could not occur in the course of advertising. E.g., Simply Fresh Fruit, Inc. v. Continental Ins.Co.; Iolab Corp. v. Seaboard Sur. Co.; Everest & Jennings, Inc. v. American Motorists, Inc.; Cigna Lloyds Ins. Co. v. Bradleys' Electric, Inc.; see also Elan Pharmaceutical v. Employers Ins. of Wausau, (under policy that specifically covered patent infringement, causal connection satisfied when clinical studies of drug use disseminated). Under older (pre-1986) policies that include "piracy" or "unfair competition," "patent infringement" may fall within the enumerated offenses (although the causal connection is still necessary). See New Hampshire Ins. Co. v. R. L. Chaides Constr. Co.; Rymal v. Woodcock; see also U.S. Test, Inc. v. NDE Environmental Corp., (distinguishing language in Rymal, which included piracy, from "title" language in later policy). But see Herman Miller, Inc. v. Travelers Indem. Co.; Abt v. St. Paul Fire & Marine Ins. Co. More recent opinions focus on the enumerated offenses, and especially the fact that patent infringement is not enumerated. E.g., U.S. Test, Inc. v. NDE Environmental Corp.; Lamson & Sessions Co. v. Indemnity Ins. Co.; Julian v. Liberty Mut. Ins. Co.
Patent infringement, in most instances, does not constitute a misappropriation of advertising ideas or style of doing business. See Tradesoft Technologies, Inc. v. Franklin Mut. Ins. Co., (rejecting coverage for patent infringement); Franklin Miller, Inc. v. Commerce and Industry Ins. Co., (patent infringement was neither "misappropriation of advertising ideas or style of doing business" nor "infringement of copyright, title or slogan"); Owens-Brockway Glass Container v. Int'l Ins. Co. But see Everett Associates, Inc. v. Transcontinental Ins. Co.
There is an argument that coverage could exist for inducement to infringe, a separate violation, even if infringement itself was not covered. See, e.g., New Hampshire Ins. Co. v. R.L. Chaides Constr. Co., (recognizing advertising could be sufficient basis for claim of inducement, but concluding inducement not sufficiently alleged to invoke coverage). Courts have, nevertheless, rejected coverage, concluding that inducement is not an advertising injury, primarily because it is not within the enumerated offenses, and it would be unreasonable to construe them to include such a significant omission. See Mez Industries, Inc. v. Pacific Nat'l Ins. Co.; United Nat'l Ins. Co. v. SST Fitness Corp.; Heritage Mut. Ins. Co. v. Advanced Polymer Tech., Inc.
Even after the 1996 change in patent law, allowing patent infringement during an "offer to sell," as well as during the manufacture, use, or sale of a product, courts have almost uniformly rejected coverage. 35 U.S.C. '271; see, e.g., Tradesoft Technologies, Inc. v. Franklin Mut. Ins. Co., (rejecting coverage, even for "offer to sell"); United Nat'l Ins. Co. v. SST Fitness Corp., (even though petition alleged that advertisement infringed and induced infringement of patent, no enumerated offense stated); see also Mez Indus., Inc. v. Pacific Nat'l Ins. Co., (noting that, while direct infringement might now occur in the course of advertising, this does not resolve question of whether patent infringement falls within a covered offense); Maxconn, Inc. v. Truck Ins. Exch., (amendment nullified argument that no causal connection existed as a matter of law, but patent infringement still not an enumerated offense). But see Everitt Associates, Inc. v. Transcontinental Ins. Co., (recognizing coverage could exist under ambiguous meaning of "misappropriation").
Patent infringement is generally not considered disparagement, or infringement of title. See, e.g., Microtec Research, Inc. v. Nationwide Mut. Ins. Co.; Everest & Jennings v. American Motorists Ins. Co.; Lumbermens Mut. Cas. Co. v. Dillon Co.; U.S. Test, Inc. v. NDE Environmental Corp.; Atlantic Mut. Ins. Co. v. Biotech Corp.
Trademark infringement is not among the specified enumerated offenses, but is often considered as misappropriation of an advertising idea or style of doing business. See, e.g., Lebas Fashion Imports v. ITT Hartford Ins. Group.
There is a minority position, led by the Sixth Circuit in Advance Watch Co. v. Kemper Nat'l Ins. Co., holding that trademark infringement does not fall within the enumerated offenses. Advance Watch concluded that "trademark infringement" was a well-recognized tort and its omission indicated an intent not to include it. In addition, the court concluded that "misappropriation" should be construed narrowly to refer to the common law tort of misappropriation or "passing off." See also American Nat'l Fire Ins. Co. v. Methods Research Corp. Relying on Tradesoft Tech., Inc. v. Franklin Mut. Ins. Co, which held that patent infringement was not enumerated and therefore not covered, the court in Methods Research concluded that, under New Jersey law, trademark infringement and related claims of unfair competition and deceptive trade practices were not covered. Callas Enterp., Inc. v. Travelers Indemn. Co.
The majority of recent courts, however, have concluded that "misappropriation" refers to a wide body of torts, and that trademark infringement should be considered "misappropriation of advertising ideas or style of doing business," and therefore falls within the enumerated offenses. See, e.g., Indus. Molding Corp. v. Amer. Mftrs. Mut. Ins. Co.; Frog, Switch & Mfg. Co. v. Travelers Ins. Co.; ("the trademark depends for its effectiveness on communicating a message to consumers about the marked good, which is the essence of advertising, and therefore allegations of trademark infringement arguably allege misappropriation of an advertising idea."); American Employees Ins. Co. v. DeLorme Publishing Co., (claim for trademark infringement under the Lanham Act inherently and necessarily implicates possible advertising and potential that, if the facts are ultimately proved, the offenses were committed in the course of advertising); see also P. J. Noyes Co. v. Amer. Motorists, Ins. Co., (infringement occurred as a result of use of trademark in advertising); J. A. Brundage Plumbing & Roto Rooter, Inc. v. Mass. Bay, Inc. (misappropriating of "advertising idea" of "style of doing business" includes misuse of trademark); Allou Health & Beauty Care, Inc. v. Aetna Cas. & Sur. Co.; Bay Electric Supply, Inc. v. Travelers Lloyds Ins. Co.
A number of courts have also held that trademark infringement can be infringement of "title" or "slogan." See, e.g., J.A. Brundage,(infringement of Roto-Rooter trademark and trade name); see also Gemmy Indus., (acknowledging position); but see Palmer v. Truck Ins. Exch., (rejecting argument and limiting "title" to names of literary or artistic works).
Even if an enumerated offense is stated, however, there must still be a causal connection between the offense and advertising. See Sentry Ins. Co. v. R.J. Weber Co., Inc. In most instances, the offense must be committed in the course of advertising. Typically, this is not an issue when trademark infringement occurs directly in the use of advertising brochures, billboards, or other material widely considered to be advertising. See Frog, Switch & Mftrg. Co. v. Travelers Ins. Co. ("A trademark depends for its effectiveness on communicating a message to consumers about the marked good, which is the essence of advertising, and therefore allegations of trademark infringement arguably allege misappropriation of an advertising idea.")
C. Trade Dress Infringement
Trade dress infringement is typically covered as misappropriation of style of doing business. Given the nature of the tort, the causal link to advertising is not usually in issue. See, e.g., Dogloo, Inc. v. Northern Ins. Co. of N.Y.; American Economy Ins. Co. v. Reboans, Inc.; Poof Toy Products, Inc. v. U.S. Fed & Guar. Co.; but see Atlantic Mut. Ins. Co. v. Badger Med. Supply Co., (distinguishing common law tort of misappropriation); Gemmy Industries Corp. v. Alliance Gen'l Ins. Co.; Bay Electric Supply, Inc. v. Travelers Lloyds Ins. Co.; Sentry Ins. Co. v. Greenleaf Software, Inc. It may also be covered under older forms as "unfair competition." See Aloha Pacific, Inc. v. California Ins. Guar. Ass'n.
D. Trade Secrets
A misappropriation of trade secrets can fall within coverage, if the trade secrets relate to advertising or style of doing business. Where the trade secrets involve marketing ideas, or customer lists, courts have found that coverage may exist. See Sentex Sys., Inc. v. Hartford Acc. & Indem. Co., (trade secrets included customer lists and marketing techniques misappropriated and used by insured to advertise products); John Deere Ins. Co. v. Shamrock Indus., Inc., (product demonstrated to customer); Tradesoft Technologies, Inc. v. Franklin Mut. Ins. Co., (where allegations related to misappropriation of computer code included misappropriation of customer surveys, business plans, and marketing studies, advertising injury coverage was triggered); see also Lexington Ins. Co. v. Widger Chem. Corp., (summary judgment for insurer improper, in case involving alleged misappropriation of trade secrets and unfair competition in manufacture and sale of automotive products, where allegations did not foreclose advertising activity). Again, however, there must be a causal link to advertising. See Associated Aviation Undw'rs., Inc. v. Vegas Jet, L.L.C., (misappropriation or misuse of air tour property, including business strategy, pricing information, client lists, and audio tapes used during flights, did not occur in course of advertising); Select Design Ltd. v. Union Mut. Fire Ins. Co., (finding no advertising injury from misappropriation of customer lists, existing orders, and customer artwork by former employee, because injury did not arise from content of statements about products or services).
Courts have refused coverage where the trade secrets are related to the manufacture or design of a product, but are not related to advertising, and do not involve a tort that may be committed in the course of advertising activity. See Frog, Switch & Mftrg. Co. v. Travelers Ins. Co., (claims of unfair competition, including misappropriation of trade secrets, in design and manufacture of dipper buckets did not involve advertising; although resulting product was advertised); Microtec Research Inc. v. Nationwide Mut. Ins. Co., (where insured "passed off" plaintiff's compiler code as its own, claims of inter alia, misappropriation of trade secrets and unfair competition, did not state claim for advertising injury; harm was caused by misappropriation of code, not advertising); Amer. States Ins. Co. v. VorTherms, (misappropriation of trade secrets to develop software program not causally connected to advertising); Simply Fresh Fruit, Inc. v. Continental Ins. Co., (misappropriation of trade secrets to develop competing fruit slicer was not causally related to advertising); Decision One Corp. v. ITT Hartford Ins. Group, (where claims of misappropriation of trade secrets related to computer program were coupled with claims of false comparisons to customers, advertising injury was stated).
On the other hand, simply advertising the competing product does not satisfy the causal requirement. E.g., Microtec Research, Inc. v. Nationwide Mut. Ins. Co., (although defendant advertised product, claims arose out of misappropriation of compiler code, not advertising); Novell, Inc. v. Federal Ins. Co., (injury arose from creation of competing product based on trade secrets, not advertising of product).
While little law is yet on the books regarding personal and advertising injury coverage for Internet litigation, myriad intellectual property rights are implicated and it seems probable that cases will soon emerge. Without question, much of what appears on the Web involves advertising activity. Moreover, the accessibility and wide audience seem likely to lead to a proliferation of claims of infringement or misappropriation of ideas.
By its mere existence, the Internet simply provides a borderless venue in which traditional intellectual property torts can be committed. However, it also gives rise to more unique claims, such as infringement of domain names. A domain name can be trademarked, or may infringe upon a trademarked term, or it may just cause confusion as to sponsorship. See, e.g., Bancroft & Masters, Inc. v. Augusta Nat'l Ins., (dispute between owner of trademark "Masters" and domain name "masters.com" and user of domain name "masters.com"); Washington Speakers Bureau, Inc. v. Leading Authorities, Inc., ("Washington Speaker Bureau" alleged trademark dilution from use of domain names "washingtonspeakers.com," "washington-speakers.com," "washingtonspeakers.net" and "washington-speakers.net"). Trademark infringement or misappropriation can also occur in meta-tags -- the coding that allows browsers to search for websites. See, e.g., Brookfield Communications, Inc. v. West Coast Entertainment Corp., (recognizing potential for infringement, but finding no meta-tag infringement on specific facts); Eli Lilly and Co. v. Natural Answers, Inc., (enjoining use of "Prozac" in meta-tags for website advertising "Herbrozac"); see also Roberts-Gordon, LLC v. Superior Radiant Products, Ltd., (in determining personal jurisdiction, court noted that usage of competitors' trademarked names in meta-tags could be infringement, even without actual sale of product).
Infringement of the patent rights protecting the operation of a website, or misappropriation of the design of a site, may implicate advertising activity. Downloading software can infringe copyrights, and the programming underlying a site's operation may be patentable, giving rise to a new argument that patent infringement may constitute misappropriation of advertising ideas or style or doing business. See Hill & Assoc., Inc. v. Compuserve, Inc., (allegations of infringement of a patent for an electronic catalog system through operation of a browser for on-line shopping services); Amazon.com, Inc. v. BarnesandNoble.com, Inc., (alleged patent infringement in operation of order "checkout" procedure of website); Azar Corp. v. Multi-Fluid, Inc., (allegations of marketing infringing technology for watercut meters on a website).
While the mechanics of the torts may be novel, the same coverage analysis should apply: advertising injury exists if there is no enumerated offense, causal connection to advertising of the insured's goods, products or services, and damages. In many instances, however, the causal connection to advertising should be easier to establish. And, while the 1998 ISO form defines an "advertisement," even this definition will easily encompass much Web activity.
Personal injury coverage may also be implicated. Not only is the web a giant billboard for defamatory comments, but embarrassing information, exchange of personal and credit information, or cyberstalking suggest invasion of privacy.