The “Advertiser’s Exclusion” Doesn’t Bar Coverage for Advertisers Who Act Beyond Its Scope

The “Advertiser’s Exclusion” Doesn’t Bar Coverage for Advertisers Who Act Beyond Its Scope

By David A. Gauntlett*

A number of insurers issue standard ISO policies that exclude conduct including: “’Personal and advertising injury’ committed by an insured whose business is: (1) Advertising, broadcasting, publishing or telecasting . . .”[1]

Even if no intellectual property exclusions exist in a Commercial General Liability Policy, they can include express exclusions for “advertisers, broadcasters or publishers” that function to bar coverage for advertisers. This exclusion can be circumvented, however, where the nature of their conduct of an advertiser is not their principal business. The same analysis bars overly expansive constructions of this exclusions to preclude coverage to incidents involving advertisers as well as publishers and broadcasters who, may have procured distinct error and omissions policies, many of which exclude patent infringement lawsuits.

 

“Business of Advertising” Have Been Narrowly Construe by Courts

ISO Policies

In American Employers’ Insurance Co. v. DeLorme Publishing Co. Inc.,[2] the first case to analyze business of advertising exclusion: the policy language states: “This insurance does not apply to: . . .b. ‘Advertising injury’ arising out of: (4) An offense committed by an insured whose business is advertising, broadcasting, publishing or telecasting.”[3]

The court interpreted this phrase to mean “insureds whose primary, essential, chief or principal business is publishing.”[4] DeLorme asked the court to make a distinction between “in the publishing business” and “whose business is publishing,” thus to find coverage for DeLorme because publishing was not DeLorme’s sole business.[5] It reasoned that it would not make sense to read the exclusion to apply to insureds whose business, only in part, is one of the four areas because most businesses are involved in multiple areas of practice and reading the exclusion in that manner would render the exclusion inapplicable because no insureds would qualify.

“[T]he language of the exclusion makes it clear that it does not apply to insureds who are ‘in the business of ... publishing’ only in part. The phrasing ‘insureds whose business is ...’ clearly contemplates that the insured is more than just, in part, engaged in one of the four listed activities. An ordinary person would not reasonably conclude that the exclusion applies if one of a company's ancillary activities is in one of the four listed areas.”[6] This court draws a clear line that the exclusion does not apply when the advertising is only a part of the business of the insured and a reasonable person would still interpret the insured’s principal business to be something else.

Travelers adopted this policy form and argued that this exclusion applies to all insureds who engage in advertising for revenue-generating business.[7] In State Auto Prop., the fourth circuit, applying North Carolina law, made it clear that the exclusion is not limited to those insureds whose sole business is advertising. It disagreed with Travelers’ interpretation of the exclusion finding the “business of advertising” exclusion only applies to insureds whose principal or primary business is advertising. The court reasoned that “[t]he logical interpretation is that the Business of Advertising exclusion ‘applies to insureds whose primary, essential, chief or principal business’ is advertising.”[8] Although NCC sold advertising space on its websites, its principal business was computer sales and services. Accordingly, the Business of Advertising Exclusion does not excuse Travelers from its obligation to defend NCC.”

Advertising must be the principal or primary business of the insured for the business of advertising the exclusion to apply. The court rejected the view asserted by Travelers that any time an insured’s business generates revenues via advertising, the exclusion will apply. It agreed with DeLorme that “[m]ost, if not all, businesses are engaged in multiple areas of business even if they primarily practice in one area.”[9] This means that the insured could be a manufacturing company which uses advertising to sell its products. To make the exclusion broad enough to include anyone who advertises would make the exclusion inapplicable.

A federal district court in the Northern Distinct of California in Western Int’l Syndication Corp. v. Gulf Ins. Co.[10],analyzed the same exclusion. It found there was no applicable exclusion because Western was neither a broadcaster nor a telecaster, nor excluded under the other relevant exclusion categories, as it did not transmit programs to the public. Nor was there evidence that its business was that of a motion picture or television production company that necessarily addressed broadcasting or telecasting.

In Acuity v. Superior Marketing Systems[11], the court required proof beyond just the name of the business and a fax to show that the defendant’s primary business was advertising. As the court observed, “Acuity is asking the court to look to the name of Superior . . . and the offering in the fax of ‘creative marketing services in advertising’ [and] . . . twenty- one production printing and design services, and conclude that Superior is in the advertising business . . . Without evidence, the Court cannot make the leap of faith suggested by Acuity.”[12] [Id.] Thus, the court required more evidence to show that the insured’s business is advertising. The evidence that the insured has engaged in some advertising to promote his business does not trigger “business of advertising” exclusion.

Non ISO “Business of Advertising” Exclusion Policy

In Penn National Insurance Company v. Group C Communications, Inc,[13], the umbrella policy contained a “Publishers Liability Exclusion” which provides that “[t]he [publisher’s liability] exclusion bars coverage for “invasion of privacy” resulting from ‘dissemination of any matter published or printed by the insured or other person for whom the insured is legally responsible.’ . . . ‘[T]his exclusion shall not apply to advertising by or on behalf of the insured for the purpose of promoting its own business.’”[14]

The court, in Group C, held that the publisher’s liability exclusion does not apply to situations where the insured is promoting his own business. It was undisputed that the broadcast facsimile promoted Group C's own business, thus the publisher’s exclusion did not bar coverage. This case reinforces the proposition that the “publishers, broadcasters, and advertisers” exclusion does not apply where the insured is advertising simply to promote its principal or primary business.

“Broadcasting and Telecasting” Exclusion

The Tenth Circuit[15] affirmed a Colorado district court’s decision that the “broadcasting and telecasting exclusion“ barred defense benefits to Dish arising from its TV transmissions. Yet, a subsequent decision from the Southern District of New York did not agree with its approach and did not consider the earlier ruling by the Colorado district court ruling precedential even though the same parties were litigating both lawsuits.

The Tenth Circuit’s logic explained that “commonly-understood definitions of the terms ‘broadcasting’ and ‘telecasting" undoubtedly encompass Dish's transmissions.”[16] Equally significant, an Illinois Northern District court, in Travelers Prop. Cas. Co. of Am. v. Dish Network , LLC[17], disagreed with the Arch Specialty[18] court. It held that “Dish was not a broadcaster or telecaster for the purposes of a similarly worded insurance agreement.”[19] [While the S.D. N. Y. was appealed to the Second Circuit on January 22, 2020 no subsequent negative opinion was issued].

Conclusion

A number of advertising agencies as well as commercial businesses that engage in significant publication activity have increased exposure for intellectual property lawsuits which may trigger coverage. The “business of advertising or publishing” exclusion applies to limited situations where the sole business of the insured is advertising. Many businesses engage in multiple areas of practice which may include advertising. This exclusion is not triggered when the insured is engaged in advertising, along with the primary practice area of its business.

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*David A. Gauntlett is a principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.  

[1] Commercial General Liability Coverage Form 00 01-10 13, page 6 of 16.

[2] American Employers’ Insurance Co. v. Delorme Publishing Co. Inc., 39 F. Supp. 2d 64 (D. Maine, 1999)

[3] Id.  at 72

[4] Id. at 81

[5] Id. at 80

[6] Id. at 81

[7] State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co. of America, 343 F.3d 249 (4th Cir. (N.C.) 2003).

[8] Id. at 261

[9] DeLorme Publishing Co. Inc., 39 F.Supp.2d 64, 81 (D. Maine, 1999)

[10] Western Int’l Syndication Corp. v. Gulf Ins. Co., 2004 WL 2580788 at *7 (C.D. Cal. Sept 2, 2004)

[11] Acuity v. Superior Marketing Systems, 2003 WL 24004567 (Cir. Ct. Ill. May 30, 2003)

[12] Id. at *4

[13] Penn National Insurance Company v. Group C Communications, Inc., 2011 WL 3241491 (Super. Ct. NJ, Aug. 1, 2011)

[14] Id. at *3

[15] Dish Network Corp. v. Arrowood Idem. Co., 772 F. 3d 856  (10th Cir. (Colo.) 2014)

[16] Id. at 872

[17] Travelers Prop. Cas. Co. of Am. v. Dish Network , LLC 2014 U. S. Dist. LEXIS 37914 (C.D. Ill. Mar. 24, 2014)

[18] Dish Network Corp. v Arch Specialty Ins. Co.¸ 989 F. Supp. 2d 1137, 1155 (D. Colo. 2013) (“Simply put, DISH provides television programming to a vast population and is therefore a broadcaster.”)

[19] Dish Network, LLC, 2014 U. S. Dist. LEXIS 37914, at 425