Why neither side has won yet: recent trends in advertising injury coverage.

AuthorAntognini, Richard L.

Insureds have won trademark cases, but in other intellectual property cases, the results have been less clear cut

BY NOW, the phrase "information superhighway" has become a cliche. Yet, no one can dispute that we live in an age of high technology in which ideas have both power and value. Because they have value, people will sue over who owns them. Lawsuits, in turn, cost money to defend, and if the defense doesn't succeed, require more money to pay the judgment. When litigation and money come together, you soon have a demand, if not a desperate hunt, for insurance.

That search turns to advertising injury coverage, which most general liability policies (or CGLs) now provide. Insurers and insureds disagree over the scope of this coverage, and coverage litigation is the inevitable result. Recent advertising injury cases have produced conflicting results. Counsel for policyholders see a proinsured trend in the case law:(1) counsel for insurers believe the trend favors the insurance industry.(2)

The truth lies between the two extremes. Cases dealing with trademark and trade secrets issues have favored coverage. Once beyond these two areas, however, courts have sided with insurers. Two themes emerge from these conflicting trends. First. when the liability action arises from a dispute between competitors, judges were inclined to find coverage. Insureds who sought coverage for liability claims brought by consumers had no luck. Second, if the insured can show a strong causal connection between its advertising and injury to the plaintiff, it has a far greater chance of obtaining coverage.


  1. An Overview

    Insureds attempt to invoke coverage for intellectual property claims by looking to the "advertising injury" protection of their CGL policies. These policies typically were based on forms developed by the Insurance Services Office (ISO).(3) The latest version is the 1986 edition of the CGL, which provides that the carrier

    will pay those sums that the insured becomes

    legally obligated to pay as damages because of

    "personal injury" or "advertising injury " to which

    this coverage part applies.


    The action of the trial court, the brief argues, deprived the defendants of the due process protections to which they were entitled under both the Alabama and federal constitutions, and it also violated Alabama Rule of Civil Procedure 23, which has been held by the Alabama Supreme Court to require that classes may be certified only after the plaintiffs come forward with evidence sufficient to satisfy the requirements of Rule 23.

    Others Joining the amicus brief are the Chamber of Commerce of the United States of America, the National Association of Manufacturers, and Lawyers for Civil Justice, as well as several corporations. The brief was filed by Howrey & Simon of Washington, D.C.

    U.S. Postal Service Statement of Ownership, Management and Circulation

    1. Publication title: Defense Counsel Journal. 2. Publication number: 0895-0016. 3. Filing date: Oct. 1, 1997. 4. Issue frequency: Quarterly (January. April, July. October). 5. Number of issues published annually: four. 6. Annual subscription rate: $55.00. 7. Complete mailing address: Suite 2400, One North Franklin, Chicago, IL 60606. Contact person: Richard B. Allen. Telephone 312/368-1494. 8. Complete mailing address of headquarters or general business office of publisher (not printer): Same as above.

    2. Publisher: International Association of Defense Counsel, Suite 2400, One North Franklin, Chicago, IL 60606. Editor: Richard L. Neumeier, 73 Tremont St., Boston. MA 02108. Managing Editor: Richard B. Allen, Suite 2400, One North Franklin. Chicago, IL 60606.

    3. Owner: International Association of Defense Counsel, Suite 2400, One North Franklin, Chicago, IL 60606. 11. Known bondholders: None. 12. The purpose, function and nonprofit status of this organization and the exempt status for federal income tax purposes has not changed during the preceding 12 months.

    4. Publication title: Defense Counsel Journal. 14. Issue date for circulation data below: July 1997.

    5. Nature and extent of circulation:


      1. Total number of copies (net press run): average number of copies each issue during preceding 12 months: 4.123: actual number of copies of single issue published nearest to filing date: 4.082.

      (b)(1) Paid and/or requested circulation: Sales through dealers and carriers, street vendors. and counter sales: None.

      (b)(2) Paid and/or requested circulation: paid or requested mail subscriptions: average 12 months: 3.420: actual nearest filing date: 3,260.

      (c) Total paid or requested circulation: average 12 months: 3.420: actual nearest filing date: 3.260.

      (d) Free distribution by mail: average 12 months: 293: actual nearest filing date: 421.

      (e) Free distribution outside the mail: None.

      (f) Total free distribution: As in (d), above.

      (g) Total distribution: average 12 months: 3.713: actual nearest filing date: 3.681.

      (h) Copies not distributed: Office use, leftovers, spoiled: average for 12 months: 410: actual nearest filing date: 401. Returns from news agents: none.

      (i) Total: average 12 months: 4,123; actual nearest filing date: 4.082.

      Percentage paid and/or requested circulation: average 12 months: 92.11; actual nearest filing date: 88.56.

    6. Publication of statement of ownership required. Will be published in January 1998 issue.

    7. Signature: /s/ Richard B. Allen, Managing Editor.

      1. This insurance applies to: ...

        (2) "Advertising injury" caused by an offense committed in the course of advertising your goods, products or services: but only if the offense was committed ... during the policy period.

        The 1986 ISO form defines "advertising injury" as "injury arising out of one or more of the following offenses":

      2. Oral or written publication of material

        that slanders or libels a person or

        organization, or disparages a person's or

        organization's goods, products or services:

      3. Oral or written publication of material

        that violates a person's fight of privacy:

      4. Misappropriation of advertising ideas or

        style of doing business: or

      5. Infringement of copyright, title or slogan.

        Some recent cases have considered coverage under pre-1986 ISO policies. Advertising injury coverage was added to those policies by an endorsement that obligated the insurer "to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... advertising injury ... sustained by any person or organization and arising out the named insured's business." That form defined "advertising injury" as injury "arising out of an offense committed during the policy period in the course of the named insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan."

        Advertising injury coverage has three elements under these forms: (1) injury to the plaintiff (2) caused by the insured's commission of a covered offense that (3) is committed "in the course" of the insured's advertising.(4)

  2. Trademark Coverage

    The trend toward coverage for trademark claims began when a federal judge issued an opinion reconsidering American Economy Insurance Co. v. Reboans Inc.,(5) a notable 1994 pro-carrier decision. Applying California law, Judge Barbara A. Caulfield of the Northern District of California held in the original opinion that American Economy, the insurer, had no duty to defend a trademark infringement claim against Reboans, which argued that the covered offense of of advertising offense ideas or style of doing business" included trademark and trade dress infringement. Judge Caulfield decided, however, that the "misappropriation" offense referred only to the common law tort of misappropriation, which he found "inapplicable." In her view, "an objectively reasonable insured would not expect trademark infringement to be covered."

    After Judge Caulfield left the bench. Reboans was reassigned to Judge D. Lowell Jensen. Reboans moved for reconsideration, and Judge Jensen ordered American Economy to defend. He decided that the trademark claim triggered "advertising injury" coverage under two offenses--misappropriation and infringement of title. The average insured understood that the "infringement" offense included trademark infringement, he concluded, adding:

    American States did not define

    "infringement of title or slogan" in its policy.

    Accordingly, these terms must be construed

    in accordance with Reboans' objectively

    reasonable expectations. ... Under this

    framework, it is "objectively reasonable" for

    Reboans to expect that the meaning of

    "infringement of title" would encompass ...

    use of another's name or designation in an

    advertisement, whether or not the name or

    designation was a "trademark."(6)

    Judge Jensen next ruled that the average insured would believe that the misappropriation offense included trade dress infringement, one the claims asserted against Reboans:

    Numerous courts that have examined advertising

    injury coverage for "misappropriation of

    style of doing business" have concluded that the

    term refers to trade dress infringement. For

    example, one district court, applying California

    law, held that "the term `style of doing business'

    ... has been used by the courts to refer to a

    company's comprehensive manner of doing

    business. ... `Style of doing business' expresses

    essentially the same term as the more widely used

    term `trade dress.'"(7)

    But Reboans did not end there. American Economy filed its own motion for reconsideration, arguing that Judge Jensen should vacate his decision because he had relied on Clary Corp. v. Union Standard Insurance Co.,(8) a California Court of Appeal case that the California Supreme Court had removed from publication. He refused to change his mind, because a clear majority of cases from across the county had found advertising injury coverage for trademark claim.(9)

    Applying Michigan law, a...

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