Digging Deeper: Evaluating Potential Coverage for Litigation

By David A. Gauntlett*

Introduction

In-house counsel is often tasked with the difficult job of assessing ongoing or imminent lawsuits against a company to determine whether there is potential insurance coverage. The difficulties of interpreting insurance provisions, particularly those related to “personal and advertising injury,”[1] makes this nearly impossible to accomplish for any counsel without years of experience practicing coverage law. While there is no substitute for the advice of expert coverage counsel to properly evaluate these matters, this blog offers some guidance for those attorneys making such assessments and highlights several of the most commonly overlooked avenues to potential coverage.

Proactivity Is Key

 As with all problems, insurance issues are best addressed sooner rather than later. Unless a claim is so indisputably covered that the insurer fears bad faith liability for issuing a denial, an initial tender rarely results in a policyholder’s desired outcome. You should expect a denial and be prepared for a lengthy back-and-forth, and perhaps even litigation, before an insurer finally accepts its obligation to defend or indemnify a claim. For that reason, it is best to begin that process early, which requires constant vigilance in investigating potential claims against the company. Assume the worst case scenario. Every demand letter, notice of government investigation, workplace injury, and disgruntled former employee is a million dollars in legal fees waiting to happen. Make sure the insurance company is paying for it from the start.

Commonly Overlooked Coverage Opportunities

Because “personal and advertising injury” in standard Commercial General Liability (“CGL”) policies is defined by nebulous “offenses” rather than specific torts, it is common for pleadings to allege facts sufficient to trigger coverage even where none of the labeled causes of action appear to match a coverage provision. Luckily, it is the alleged facts, not the labeled causes of action, that dictate potential coverage.[2] Insurers are also obligated to consider the potential for amendment to establish additional claims.[3] This follows because courts recognize that modern pleadings are not intended to articulate claims with great particularity.[4]

In my experience, the offenses most commonly implicated (yet ignored in an insurer’s hasty denial) offenses are “disparage[ing] a person's or organization's goods, products or services” (offense “d”) and “use of another’s advertising idea in your ‘advertisement’” (offense “f’). Unfair Competition counts commonly implicate either offense “d”[5] or “f,”[6] depending on the underlying facts. Trademark dilution can also trigger either offense depending on whether the claimant alleges dilution by “blurring”[7] or “tarnishment.”[8] In the majority of jurisdictions, trademark infringement may also implicate offense “f.”[9] Critically, these claims also avoid common CGL policy exclusions like the “Knowing Violation” exclusion and the “Intellectual Property” exclusion.

More Policies Create More Opportunities

Other policies are important to supplement the coverage provided by a CGL policy. In previous blogs, we have highlighted the distinct coverage opportunities created by D&O,[10] E&O,[11] Media/Cyber,[12] and even Homeowner’s policies.[13] The last is often most surprising, yet the coverage can be robust as long as the “Business Pursuits” exclusion is avoided.[14]

Procuring Insurance after a Lawsuit’s Inception

CGL policies are typically issued on an “occurrence” basis. Many lawsuits (especially those addressing IP claims) assert that the defendant/counter-defendant is engaged in ongoing wrongdoing. There is no reason that policyholders cannot acquire CGL policies that broadly define coverage that will implicate a defense for distinct conduct that allegedly occurs after the inception of the new policy.

Conclusion

The uninitiated are prone to mistakes when evaluating potential coverage for a claim because “you don’t know what you don’t know.” The complex interplay of exclusions and alterations made by endorsements, as well as the poor draftsmanship that prevails in standard policy forms, ensure that the task is rarely simple. Do not make the mistake of accepting a denial under the assumption that the adjuster must be an expert. Only experienced coverage counsel can make that determination with anything approaching certainty, but the advice above should help in deciding when it’s worth the resources to call in the experts.

*David A. Gauntlett is a principal of Gauntlett Law and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 553-1010 by voicemail or dag@gauntlettlaw.com. For more information, visit Gauntlett Law at www.gauntlettlaw.com.

[1] Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 744, 746–47 (3d Cir. (Pa.) 1999) (“The definition of ‘advertising injury’ in standard business insurance policies has troubled and in some cases confounded courts for years. . . . With varying degrees of success, insured parties have sought coverage for the underlying actions of patent infringement, trademark or trade dress infringement, misappropriation of trade secrets or other confidential information, and actions alleging harm to consumers rather than competitors.”); see also EKCO Grp., Inc. v. Travelers Indem. Co., 273 F.3d 409, 412 (1st Cir. (N.H.) 2001) (“Needless to say, the advertising injury provision is, at least in certain applications, unclear and has provoked a good deal of litigation.”)

[2] Hudson Ins. Co. v. Colony Ins. Co., 624 F.3d 1264, 1269 (9th Cir. 2010) (“The technical label on a cause of action does not dictate the duty to defend whether the claimed cause of action was omitted out of negligence or ‘for strategic adversarial reasons.’”); Syvertsen v. Great Am. Ins. Co., 700 N.Y.S.2d 289, 291–92 (N.Y. App. Div. 1999) (“A party’s characterization of the causes of action alleged . . . are not controlling . . . we . . . determine the nature of the claims based upon the facts alleged and not the conclusions which the pleader draws therefrom.”)

[3] Lexington Ins. Co. v. MGA Entm't, Inc., 961 F. Supp. 2d 536, 550 (S.D.N.Y. 2013) (“[A] court will consider facts fairly inferable from — and potential amendment to — the underlying complaint[.]”)

[4] DISH Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010, 1021 (10th Cir. (Colo.) 2011) (finding coverage and “recogniz[ing] the reality that ‘notice pleading does not contemplate detail and specificity’ and a complaint may initially ‘lack detail necessary to conclusively establish the duty.’”)

[5] Vitamin Energy, LLC v. Evanston Ins. Co., 22 F.4th 386, 389 (3d Cir. (Pa.) 2022) (offense “f” triggered for allegations of “false and misleading comparative advertising” in Unfair Competition count).

[6] Ross v. Briggs & Morgan, 520 N.W.2d 432, 435–436 (Minn.App.1994) (“Because the ‘passing off’ portion of Jaffe's deceptive trade practices and unfair  competition claims suggest that [insured] took and used his advertising ideas and possibly even his entire style of doing business, they arguably were covered by the ‘unauthorized taking of advertising ideas or style of doing business' clause in the policy.”)

[7] Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, 1188 (11th Cir. (Fla.) 2002) (defining “advertising idea” as “any idea or concept related to the promotion of a product to the public” and determining a dilution claim could trigger coverage because “a product's trade dress may fall within the definitions of ‘advertising idea’ or ‘style of doing business.’”)

[8] Michael Taylor Designs, Inc. v. Travelers Prop. Cas. Co. of Am., 761 F. Supp. 2d 904, 907 (N.D. Cal. 2011) aff’d, 495 F. App’x 830 (9th Cir. (Cal.) 2012) (“Plaintiff Glidewell has no control over the composition or quality of the goods sold under the confusingly similar trademark by Defendant Keating. As a result, to the extent Defendant's products are inferior to Plaintiff Glidewell's products, Plaintiff Glidewell's valuable goodwill, developed at great expense and effort by Plaintiff Glidewell, is being harmed by Defendant Keating's unauthorized use of the confusingly similar trademark, and is at risk of further damage.”)

[9] Sport Supply Grp., Inc. v. Columbia Cas. Co., 335 F.3d 453, 459 (5th Cir. (Tex.) 2003) (minority view—trademark not an “advertising idea”). But see Gen. Cas. Co. of Wisconsin v. Wozniak Travel, Inc., 762 N.W.2d 572, 579 (Minn. 2009) (majority view—trademark is an “advertising idea”).

[10] David A. Gauntlett, New Case Continues Trend Determining D&O Policies Offer Broad Coverage, https://www.gauntlettlaw.com/blogs/new-case-continues-trend-determining-dampo-policies-offer-broad-coverage (Dec. 12, 2024).

[11] David A. Gauntlett, “Slander of Title” Coverage under E&O Policy Unearthed by Ninth Circuit, https://www.gauntlettlaw.com/blogs/slander-of-title-coverage-under-eampo-policy-unearthed-by-ninth-circuit (Nov. 26, 2024)

[12] David A. Gauntlett, Finding Appropriate Media Policy Coverage, https://www.gauntlettlaw.com/blogs/finding-appropriate-media-policy-coverage-1 (Jan. 19, 2023).

[13] David A. Gauntlett, Businesses Operating out of Homes: Insurance Coverage Challenges and Opportunities, https://www.gauntlettlaw.com/blogs/businesses-operating-out-of-homes-insurance-coverage-challenges-and-opportunities (Feb. 27, 2025)

[14] See Springer v. Erie Insurance Exchange, 439 Md. 142, 157 (2014) (Insured’s alleged defamation was not excluded because he “would have had no profit motive to engage in the alleged defamation.”)