“Knowing Violation” Exclusion Is Narrower Than Many Assume

By David A. Gauntlett*

Introduction

Commercial General Liability (“CGL”) policies define “personal and advertising injury” in terms of seven enumerated offenses. Among the many standard exclusions applicable to that coverage is the “Knowing Violation” exclusion. It precludes potential coverage for “‘[p]ersonal 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.’” Very few courts have taken the time to properly parse and analyze this language, which has led to conflicting interpretations (even from cases in the same jurisdiction).

“Intentional Acts” Analysis Is Flawed

Many courts attempt to simplify this exclusion by treating it as one for “intentional acts.” This is flawed for three major reasons.

First, the text of the exclusion simply does not align with that construction. In legal analysis, an “intentional act” is defined as one the person intends to perform. It is focused on the action itself. By contrast, the “Knowing Violation” focuses on the injury. Accordingly, the question is not whether the insured meant to perform the action. Rather, it is whether the insured knew harm would result from the action.

Second, the very nature of “personal and advertising injury” would conflict with an “intentional acts” exclusion.[1] The definition of the term includes offenses such as “[m]alicious prosecution” and “[f]alse arrest, detention or imprisonment.” These offenses intrinsically require intent to perform an action.

Third, insurers have long employed an actual “Intentional Acts” exclusion in other policies.[2] If insurers intended to exclude intentional acts, the burden rests on them to do so with readily available language.[3]

Minority View Relies Exclusively on Alleged Scienter in Pleadings

Atlas Fencing v. Hartford Ins. Co.[4] is illustrative of this view. The underlying allegations urged that Atlas Fencing committed willful copyright infringement through copying Walpole's protected catalogs, confidential price books, and its drawings and photographs as part of a “bait and switch” plan to trick Walpole's customers into believing that they were purchasing a specific Walpole product, when in fact they were purchasing an Atlas Fencing product.

The court concluded that the “Knowing Violation” exclusion applied even though copyright infringement under 17 U.S.C. §504(c)(2) does not make intent or willfulness a required element for liability. The court’s analysis relied on a citation to American National Fire Insurance Co. v. Schuss,[5] but that case evaluated an “occurrence” definition in “bodily injury/property damage” coverage, not the offense-based policy language relevant for “personal and advertising injury.”

Other courts have accepted pleadings at face value based on the assumption that scienter is a fact allegation that cannot be questioned.[6] The Texas Supreme Court, however, explicitly ruled that alleged scienter is merely a “legal theory” that could be disregarded rather than a “factual allegation” that must be accepted.[7] Express allegations of facts evidencing a “subjective intent to harm”[8] meet this test as in Beyond Gravity.[9]

Proper Construction: Knowledge Must Be Established or Required

The majority of courts addressing this exclusion have correctly concluded that allegations of knowing or willful conduct cannot be blindly accepted where liability is also possible under theories of negligent or reckless conduct.[10] “Knowing Violation” triggers rarely arise in disparagement or Lanham Act cases. The requirement that knowledge of harm is inherently linked to the act itself is not met.[11]

In such cases, the exclusion’s potential application is limited to the duty to indemnify, not the duty to defend. In Decorative Ctr. of Houston v. Emps. Cas. Co., 833 S.W.2d 257, 260 (Tex. App. 1992), writ denied (Dec. 2, 1992), for example, scienter was established through a prior jury verdict. The insurer defended the underlying case and only sought to enforce the exclusion for its duty to indemnify.If insurers desired an exclusion that only required allegations of knowledge, they are capable of drafting one. Many policy provisions, including other exclusions found in standard CGL policies, refer to “actual or alleged” conduct.[12]

The thoughtful opinion in Allied Prop. & Cas. Ins. Co. v. Armadillo Distribution Enterprises[13] exhaustively analyzed the “Knowing Violation” exclusion and supplied an additional reason to overlook alleged scienter. There, as in many cases, the underlying complaint was replete with allegations of knowing, willful, and intentional conduct. Specifically at issue in the underlying case were trademark claims under the Lanham Act. The Armadillo court noted that the claimant had a clear financial incentive to allege heightened scienter: “Gibson's complaint alleged Armadillo's intentional or willful conduct in support of Gibson's request for certain enhanced remedies provided by statute for intentional or willful behavior.”[14]

The Lanham Act is not unique in this regard. Many statutes allow for treble damages, punitive damages, recovery of attorneys’ fees, and many other enhanced remedies if intent to harm can be established.[15] It would be foolish for any plaintiff to limit their potential recovery by only pleading negligence, particularly given that discovery has not yet occurred at the pleadings stage.

Conclusion

It is universally accepted that exclusions must be read narrowly to maximize coverage for the insured. Accordingly, the proper construction, supported by both the majority of judicial analysis as well as the text itself, is to treat the exclusion as one applicable only where knowledge of harm is inherent in the act itself or where that knowledge has been established by an adjudication determining the insured’s state of mind.

*David A. Gauntlett is a principal of Gauntlett & Associates 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) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.

[1] Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1032 (2002) (“Unlike coverage for bodily injury and property damage, which is ‘occurrence’ based, there is no requirement for personal injury coverage that there be an ‘accidental’ occurrence.  All that is required is that the injury arise out of the conduct of the insured’s business.  Thus, even an intentional tort, such as those alleged in the Continental complaint, may be covered.  The triggering event is the insured’s wrongful act, not the resulting injury to the third party claimant.”)

[2] See, e.g., Tvergyak v. Rak, Case No. 114513, 2025 Ohio App. LEXIS 2614, *3 (Ct. App. 2025) (“A liability coverage clause in State Farm's policy states: ‘There is no coverage for an insured who intentionally causes bodily injury or damage to property.’”)

[3] Energy Res., LLC v. Petroleum Sols. Int'l, LLC, No. H:08-656, 2011 U.S. Dist. LEXIS 91829, at *35 (S.D. Tex. Aug. 17, 2011) (“If Lexington had intended to exclude coverage for all ‘loss of use’ from Endorsement #11, it could have done so in clear and explicit terms. It did not.”)

[4] Atlas Fencing v. Hartford Ins. Co., No. CV020468174S, 2004 WL 1925892 (Conn. Super. Ct. July 22, 2004).

[5] American National Fire Insurance Co. v. Schuss, 221 Conn. 768, 776 (1992).

[6] Great Am. Ins. Co. v. Beyond Gravity Media, Inc., 560 F. Supp. 3d 1024, 1036 (S.D. Tex. 2021) (“[S]peculative jury findings are beside the point. The court must measure the plain meaning of the policy’s exclusions against the underlying complaint's allegations to determine whether an exclusion absolves an insurer of the duty to defend.”)

[7] Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 142 (Tex. 1997) (“Although the pleadings allege that Hart negligently discharged the firearm, we must focus our review on the pleading's factual allegations, not on the legal theories asserted.”) (emphasis in original).

[8] Superior Integrated Sales v. Mercer Ins. Co., 2020 N. J. Super. Unpub. LEXIS 2147423 (Super. Ct. App. Div. Nov. 10, 2020) (“[E]vidence [must show] that the insured subjectively intended to injure the claimant.”)

[9] Beyond Gravity, 560 F. Supp. at 1038–39 (“[Investigation revealed] [Beyond Gravity] .. [retained customers by various misappropriation  strategies including use of]   DOJO TECH trademark in a job posting a website and social media pages .  .  . created a facebook and Instagram page using the name [DOJO].”)

[10] Westfield Ins. Co. v. Mt Charleston Landlord, LLC, No. 5:18-CV-541-BO, 2019 WL 3502624, *3 (E.D.N.C. Aug. 1, 2019).(“Here, as in Kubit, the underlying complaint clearly permits the conclusion that defendant had acted with reckless disregard for the truth, and is therefore liable for business disparagement under Nevada law, but that defendant nonetheless did not knowingly violate the underlying plaintiff's rights . . . .”); CGS Indus. v. Charter Oak Fire Ins. Co., 720 F.3d. 71, 83 (2d Cir. (N.Y.) 2013) (“Despite the boilerplate allegation of willful misconduct, Five Four's Lanham Act section 43(a) claim did not require it to prove that CGS intended to infringe on its trademark, as such a claim does ‘not require proof of intent to deceive.’ [citation]. Our inquiry ends there: as at least one of the claims in the Underlying Action did not require intent, Charter was required to defend the entire action.”)

[11] See, e.g., Farmers Tex. Cty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82–83 (Tex. 1997) (alleged damages resulted from drive-by shooting).

[12] E.g., “Wrongful Act” defined as “any actual or alleged negligent act, error, omission . . .”; “Contractual Liability Exclusion” precludes potential coverage for “any liability arising out of any actual or alleged contractual liability . . . .”

[13] Allied Prop. & Cas. Ins. Co. v. Armadillo Distribution Enter., No. 4:21-CV-00617-ALM, 2022 WL 3568482, *10 (E.D. Tex. Aug. 18, 2022).

[14] Id.

[15] Id. (“[I]t is far from apparent that Gibson’s claims do not also contemplate and encompass the lesser compensatory relief available for less egregious conduct.”)