Narrow, Narrower and Narrowest: The Insurer's Playbook to Avoid Coverage
The Development of “Advertising Injury” Provisions in the ISO Policy Form
A recurring theme in Commercial General Liability (“CGL”) policy forms is that there has been an ongoing narrowing of “personal injury”/ “advertising injury” coverage provisions.
The 1976 ISO CGL form defines “advertising injury” (“AI”) as “any injury arising out of an offense committed during the policy period occurring in the course of the named policyholder’s advertising activities, if such injury arises out of such libel, slander, defamation, violation of right of privacy, piracy, unfair competition or infringement of copyright title or slogan.” It excluded coverage for advertising injury arising out of “infringement of trademark, service mark, or trade name, other than titles or slogans, in connection with goods, products or services sold, offered for sale or advertised.”
With its 1986 update, ISO issued an explanatory memorandum that emphasized that, despite substitution of the offense of “misappropriation of advertising ideas or style of doing business” for “piracy” and “unfair competition,” there was “no change in scope” between the 1976 and 1986 policies. The new policy also eliminated the trademark infringement exclusion.
The 1998 ISO form deleted the offenses of “infringement of title” and “misappropriation of advertising ideas or style of doing business.” It added two new offenses: “Infringement upon another’s copyright, trade dress, or slogan in your advertisement;” and “the sue of another’s advertising idea in your ‘advertisement.’” It further defined “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.” That it references trade dress infringement but not trademark infringement has precipitated litigation, which has favored policyholders in finding potential coverage for trademark infringement, unfair competition, and false advertising claims.
ISO significantly curtailed its CGL “personal and advertising injury” coverage in its 2001 form. Without any reduction in premium, it limited Intellectual Property (“IP”) coverage to “your advertisement of copyright, trade dress or slogan,” and adds a general exclusion of IP unless an IP offense is specifically included.
The 2007/2013 ISO update’s only change was to make the 2001 form’s implicit exclusion of IP claims explicit, excluding “personal and advertising injury” for copyright, patent, trademark, trade secret or other IP claims. “Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your ‘advertisement.’”
ISO Policy Forms’ Intellectual Property Exclusions
Notably, various courts have found that underlying suits premised upon trademark infringement that tend to trigger an insurer’s defense duty would fall outside of a policy’s IP exclusions and endorsements, assuming they were held enforceable because the exclusions were “conspicuous, plain and clear.”[1]
ISO Policy Provisions Offer a Limited but Nonetheless Tangibly Broader Coverage
An “expansionary sentence” in an IP exclusion that eliminates coverage that was otherwise reasonably expected should not be enforceable. This is the case when it is not “conspicuous, plain and clear”—it did not inform the insured that it would dramatically change settled coverage law nationwide, which requires a defense of any potentially covered claim.
Many insurance brokers do not focus on the distinctions in coverage for “Personal and Advertising Injury” issues on specially drafted policy forms issued by insurers such as Travelers, Chubb and Hartford. Insurance brokers, risk managers and corporate counsel would be well-advised to study the distinctions among variant versions of CGL policies, as such differences can greatly impact coverage results.
Insurers’ Duties to Provide Clear and Conspicuous Notice of Changes to Policies
Renewal policy forms that do not adequately advise policyholders of the effect of the change in coverage are unenforceable.[2] Courts will not consider an insurer’s instruction to read the entire policy as sufficient notice, especially when an exclusion is unexpected.[3] An insurer cannot rely on its IP exclusion because of lack of proper notice to its insured if there is a dramatic reduction of coverage.
Overbroad AI Exclusions in Non-ISO Policies Render Coverage Illusory
“[I]nsurance coverage is illusory when policy provisions, limitations, or exclusions completely contradict the insuring provisions.”[4] The law of many states prohibits giving effect to policy language that would render coverage illusory in this way, and requires that all policy provisions be read together where an endorsement is contemporaneously issued with the policy. “Each phrase and clause of an insurance contract should be considered and construed together and seemingly conflicting provisions harmonized when that can be reasonably done, so as to effectuate the intention of the parties as expressed therein.”[5]
Fact Disputes Evidence a Potential for Coverage, Not Its Elimination
In Align, an overbroad definition of an IP exclusion to Federal’s AI coverage, which included an overbroad definition of “unfair competition,” still created a defense duty for discrete fact allegations of implicit disparagement.[6] The court criticized Federal’s overbroad construction of its IP exclusion, observing that “accepting Federal’s argument would allow it to cobble together the most favorable allegations from both parties and disregard the rest. . . . At best, the conflicting allegations might create a factual issue as to whether injury from each statement was related to an alleged intellectual property dispute. Since a factual dispute does not completely eliminate the possibility of coverage, it does not relieve Federal of its duty to defend.”[7] Securing broader policy language to invest more porous allegations with enough steam to evidence potential coverage is seminal.[8]
Redefinitions of Coverage for Advertising Injury to Eliminate Coverage Are Unenforceable
The insurer in Princeton redefined the policy’s AI coverage to only preserve (a)-(c) out of covered offenses (a)-(g), thereby eliminating all potential coverage for AI and rendering the AI coverage promise illusory.[9] Far from eliminating a particular kind of covered activity, which insurers are permitted to do with appropriate notice, the insurer used deft-of-hand redefinition to eliminate virtually all meaningful insurance coverage within the policy. The court held that it would be improper to avoid illusory coverage simply because an exclusion is in an endorsement, and that “insurance coverage is illusory when policy provisions, limitations, or exclusions completely contradict the insuring provisions”—which a “Field of Entertainment” exclusion did by excluding coverage for Personal and Advertising Injuries that were included elsewhere in the policy.
Recently, in Rawlings,[10] the court found a duty to defend because the the “unfair trade practices” exclusion in Rawlings’s CGL policy did not define the phrase. Applying the doctrine of “noscitur a sociis,” the court noted that a “word takes meaning from the company it keeps” and that the instant meaning of “unfair trade practice” should not include false advertising by businesses targeted by consumers, while Starr urged that the language “’any’ loss ‘arising out of’ the excluded categories of conduct” supported the contrary result.
The court acknowledged California courts have “consistently given a broad interpretation to the clause ‘arising from’ in an insurance contract.” It determined that the phrase “unfair trade practice” is ambiguous as used in the anti-trust exclusion. Limiting “unfair trade practices” to antibusiness practices renders the term meaningless in context with the rest of the policy, and thus the court found adoption of such a definition unreasonable under the circumstances.
Conclusion
There is no time when insurance coverage counsel’s participation in selecting appropriate insurance policies is more critical. Purchasing insurance policies without knowing how courts have construed ambiguous and often illusory coverage is like firing a gun with blanks. The benefits of carefully evaluating the myriad of policy choices beyond traditional CGL policy provisions, including an array of Media/Cyber/Directors & Officers coverage, is best accessed with the assistance of insurance coverage counsel.
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[1] See, e.g., Super Duper, Inc. v. Pennsylvania Nat’l Mut. Ins. Co., 683 S.E.2d 792, 795-98 (S.C. 2009); General Cas. Co. of Wisconsin v. Wozniak Travel, Inc., 762 N.W.2d 572, 579 (Minn. 2009).
[2] See, e.g., Allstate Ins. Co. v. Fibus, 855 F.2d 660, 663 (9th Cir. (Cal.) 1988).
[3] See Scottsdale Ins. Co. v. Century Sur. Co., 182 Cal. App. 4th 1023, 1039 (Ct. App. 2010).
[4] Princeton Express & Surplus Ins. Co. v. DM Ventures USA LLC, 209 F. Supp. 3d 1252, 1258 (S.D. Fla. 2016).
[5] PBM Nutritionals, LLC v. Lexington Ins. Co., 724 S.E. 2d. 707, 713 (Va. 2012).
[6] Align Tech., Inc. v. Federal Ins. Co., 673 F.Supp.2d 957, 971. (N.D. Cal. 2009).
[7] Id. at 972.
[8] For more on this, see David A. Gauntlett, Knowing Where and How to Look for IP Coverage in CGL Policies (July 8, 2021), https://www.linkedin.com/posts/davidgauntlett_knowing-where-and-how-to-look-for-ip-coverage-activity-6818920173760856064-TCnp.
[9] Princeton Express & Surplus Ins. Co. v. DM Ventures USA LLC, 209 F. Supp. 3d 1252, 1258 (S.D. Fla. 2016).
[10] James River Ins. Co. v. Rawlings Sporting Goods Co., 2021 U.S. Dist. LEXIS 20970, *11 (C.D. Cal. 2021).