Personal and Advertising Coverage – A Year in Review

Personal and Advertising Coverage – A Year in Review

By David A. Gauntlett*

Introduction

For our final blog of 2023, we wanted to look back at some of the prominent coverage cases and discuss emerging trends in insurance litigation.

Models’ Images as “Advertising Ideas”

Several cases this year had a nearly identical fact pattern: a club used models’ images in its advertisements without permission and sought coverage for “use of another’s advertising idea in your ‘advertisement.’” These cases were decided under the laws of Florida,[1] California,[2]  and Texas.[3] The latter two cases (AIX and Princeton Excess) concluded that the models’ images could not constitute an “advertising idea,” both with similar reasoning:

Contrary to Timed Out's contention, an electronic image of a model (or anyone or anything else) is not itself advertising; rather, as Hameid holds, only a “widespread promotional” campaign using the image constitutes “advertising” under a CGL policy like the one AIX issued to Godtti. (Ibid.) Timed Out's complaint alleges only that Godtti misappropriated the models' likenesses as they appeared in digital images—not that Godtti misappropriated an advertisement or advertising idea using those likenesses or images.[4] 

[T]he Clubs’ misappropriation of the Models’ images did not amount to use of their “advertising idea” because at essence, the Models' images are their products, not their advertising ideas. The Clubs took those products and used them without permission. “[W]ithout more, taking and then advertising another's product is different from taking another's ‘advertising idea.’”[5]

The courts’ analysis did not explain what the contours of the undefined policy term “advertising idea” were. Nor did they analyze why an image rather than words could not be an “advertising idea.” Their analysis also presumes that “use of another’s” must be a wrongful taking when in fact the policy language only requires any form of misuse.

There are no contextual limits on the term “advertising idea” as it is positioned in offense “f.”[6] The term could have been defined to require a distinctive and source-identifying image that attracts potential consumers to the serve being promoted, but no such definition was included. So understood, there is no logical reason why the models’ images could not be deemed an “advertising idea.” As the definition posited by the policyholder offers one reasonable construction for the meaning of an “advertising idea,” that suffices to evidence a potentially covered claim.[7]

Posada, by contrast, did not accept the Fifth Circuit’s conclusion that a “product” could not also be an idea:

Here, Plaintiffs' images are their product. . . . But it is possible that their images are also a concept related to the promotion of their product. After all, Plaintiffs allege that they establish their “brand” by the choices they make as to which companies they permit to display their image.[8]

Despite embracing the potential for coverage under offense “f,” the Posada court nonetheless ruled against the policyholder because the IP Exclusion, which typically includes an exception for offense “f” in standard Insurance Services Office (“ISO”) forms, had been amended by endorsement to remove that exception.

“Prior Publication” Exclusion Strictly Interpreted

All exclusions are to interpreted strictly against insurers, only precluding potential coverage if they apply in “all possible worlds.”[9] All too often, courts fall short in applying this rigorous standard, but two cases decided this year correctly rejected insurer arguments in favor of applying a “Prior Publication” exclusion.

In PriMed Pharm. LLC v. Starr Indem. & Liab. Co.,[10] the insurer conceded potential trade dress coverage arose but argued it properly denied a duty to defend based on the “Prior Publication” exclusion. The allegations asserted that the policyholder’s conduct began “in the past 24 months,” but the policy’s coverage window only covered roughly half of that time.[11] The court rejected Starr’s argument first because the uncertainty of the timeline must be resolved in favor of the policyholder:

If PriMed “published” its first “advertisement” for Abbott's test strips in, for example, December 2014, the Prior Publication Exclusion would not apply; on the other hand, if PriMed “published” its first “advertisement” in October 2014, the Prior Publication Exclusion would apply. Because this uncertainty in the Abbott FAC leaves open the possibility that the Prior Publication Exclusion does not apply, Starr does have a duty to defend.[12]

The court also observed Starr’s failure to establish that the earliest relevant publications (emails sent to “a dozen or so contacts”) qualified as “advertisements,” defined by the policy as a notice “published to the general public or specific market segments.”[13] The court noted that Starr could only invoke the exclusion based on the date of first publication in an “advertisement,” not the first publication in general.[14] This same reasoning was crucial in the case below as well.

In Skechers United States v. Cont'l Cas. Co.,[15] the court acknowledged it was “reasonabl[y] infer[rable] that the first alleged offense occurred in 2010, and that each infringing shoe was a continuation of the same alleged wrong.”[16] Under that reasonable inference, the asserted claims occurring in 2013 under the applicable policy would not be “fresh wrongs.” But a “reasonable inference” in favor of the insurer does not meet the “all possible worlds” standard. The conduct explicitly asserted as beginning in 2010 was the design and manufacture of the infringing shoes, but the conduct creating potential coverage would be the publication of advertisements for those products.[17]

The insurer failed to conclusively establish the earliest date of this latter conduct through the pleadings or extrinsic evidence, so the court could not enforce the “Prior Publication” exclusion.[18] This case serves as an exemplar for the proper analysis of exclusionary provisions by focusing on inferences an insurer would need to adopt to meet the standard of proof to deny potential coverage. That standard requires more than suggestions about the absence of information that leaves open the possibility of an exclusion’s applicability because an insurer has a duty to establish that an asserted exclusion applies in “all possible worlds.”[19]

Conclusion

The Posada court’s analysis revealing potential coverage under offense “f” that would have implicated a duty to defend if not for a uniquely limited IP exclusion should open the door to more coverage litigation in similar cases. With the “Prior Publication” cases discussed above, 2023 saw several courts properly embracing their duty to interpret coverage provisions expansively and exclusions narrowly, all to maximize coverage for policyholders. Despite that obligation, courts are often misled by insurers into improper decisions. It is essential to secure expert coverage counsel for any coverage battle to ensure a voice of reason can combat their misdirection tactics.

*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) 553-1010 by voicemail or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.

[1] Posada v. Aspen Specialty Ins. Co., No. 8:22-cv-1578-CEH-AAS, 2023 U.S. Dist. LEXIS 55419 (M.D. Fla. Mar. 30, 2023).

[2] AIX Specialty Ins. Co. v. Timed Out, LLC, No. B320255, 2023 Cal. App. Unpub. LEXIS 5928 (Oct. 5, 2023).

[3] Princeton Excess & Surplus Lines Ins. Co. v. A.H.D. Hous., Inc., 84 F.4th 274 (5th Cir. (Tex.) 2023).

[4] AIX Specialty, 2023 Cal. App. Unpub. LEXIS 5928 at *17.

[5] Princeton Excess, 84 F.4th at 284.

[6] Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Grp., 50 Cal. App. 4th 548, 565 (1996) (“There is nothing about the terms ‘misappropriation of an advertising idea’ or ‘misappropriation of a style of doing business,’ neither of which constitutes a recognized tort, which compels us to conclude one way or the other as to just how broadly or narrowly they should be read.”)

[7] MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 655 (2003) (“[E]ven if [the insurer’s] interpretation is considered reasonable, it would still … have to establish that its interpretation is the only reasonable one.  ‘[W]e are not required, in deciding the case at bar, to select one ‘correct’ interpretation from the variety of suggested readings.’”) (italics original, citation omitted).

[8] Posada, 2023 U.S. Dist. LEXIS 55419 at *62.

[9] Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 1017, 1032 (2002).

[10] 2023 U.S. Dist. LEXIS 44673 (S.D.N.Y. Mar. 16, 2023).

[11] Id. at *24–25.

[12] Id. at *27.

[13] Id. at *28.

[14] Id. at *29–30.

[15] 2023 Cal. Super. LEXIS 64551 (Sep. 5, 2023).

[16] Id. at *12.

[17] Id. at *13.

[18] Id.

[19] Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1039 (2002) (“Thus, an insurer that wishes to rely on an exclusion has the burden of proving, through conclusive evidence, that the exclusion applies in all possible worlds.”)