The Scope of the Prior Publication Exclusion: Now You See It, Now You Don't
October 2005
In 1993 the Eastern District of Michigan ostensibly
applied Florida law when determining whether an insurance policy's exclusion
for prior publication applied to an advertising injury claim. The court's incomplete
analysis of Florida law and "tortured reading" of the standard Insurance Services
Office, Inc. (ISO), policy language has created confusion among courts and expanded
coverage for advertising injury in ways never contemplated by insurers or policyholders.
by R. Steven
Rawls and Rebecca Appelbaum
Butler Pappas
Weihmuller Katz Craig, LLP
"Advertising injury," is typically defined as follows:
"Advertising injury" means injury arising out of one or more of the following
offenses:
- 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;
- Oral or written publication of material that violates a person's right
of privacy;
- Misappropriation of advertising ideas or style of doing business; or
- Infringement of copyright, title or slogan.
The prior publication exclusion (sometimes called the first publication exclusion)
eliminates coverage for "advertising injury" "arising out of oral or written
publication of material whose first publication took place before" the beginning
of the policy period (or prior to the retroactive date, etc.).
Irons Home Builders:
Exclusion Must Explicitly Refer to All Listed Coverages
In Irons Home Builders, Inc. v. Auto-Owners Insurance
Co., 839 F. Supp. 1260 (E.D. Mich. 1993), the court considered the scope
of the prior publication exclusion applicable to advertising injury coverage
under Florida law. The insured, Irons Home Builders, was sued by a construction
company alleging that Irons had copied a set of house plans and built three
houses using the infringed plans. The parties settled for $17,500, resulting
in a judgment against Irons that found that Irons had infringed the copyright
by copying the plans and constructing the houses.
Irons notified Auto-Owners of the judgment and requested payment for both
the judgment and the $34,779.91 incurred in defense costs. Auto Owners denied
coverage, claiming that its policy was not triggered and, if so, the prior publication
exclusion precluded coverage because the first instance of copyright infringement
occurred before the policy covering such conduct came into effect. Irons filed
suit for breach of contract and bad faith.
The Ruling
Auto Owners also argued that any later infringement was also not covered
because it arose out of the original copying of the plans. The court found that
the prior publication exclusion did not apply because the language of the exclusion
explicitly stated that it applied to "oral or written publication of material."
The court found this language tracked the coverage language for advertising
injury involving libel, slander, and invasion of privacy. Consequently, the
court reasoned that "the exclusion provision ... merely limits the coverage
for advertising injury that arises from those three
particular torts. [Emphasis supplied.] There is no exclusionary provision
that limits coverage where one of several instances of copyright infringement
occurred before the effective date of the policy." Irons at 1264-5.
The court cited Florida's general rule of interpreting insurance policies
"strictly against [Auto Owners] and liberally in favor of Irons." Irons at 1265. The court went on to note that
"[w]here the terms of an insurance contract are susceptible of two reasonable
constructions, that interpretation which will sustain coverage for the insured
will be adopted." Id. (citations omitted).
The court concluded that "[g]iven the duplicate language of the provision, it
is a reasonable construction of the provision that it only applies to libel,
slander, and invasion of privacy, not to copyright infringement." Id.
In so doing, it appears that the Irons court
failed to consider Florida's primary rule of policy construction: insurance
contracts are construed according to their plain meaning and, in failing to
do so, misconstrued the policy. See e.g., Swire Pacific Holdings, Inc. v. Zurich Ins. Co.,
845 So. 2d 161, 165 (Fla. 2003). Moreover, Florida does not follow those jurisdictions
that apply the doctrine of reasonable expectations. Deni Associates of Florida, Inc. v. State Farm Fire & Cas. Ins. Co.,
711 So. 2d 1135, 1140 (Fla. 1998). Under Florida law, "only when a genuine inconsistency,
uncertainty, or ambiguity in meaning remains after resort to the ordinary rules
of construction" that the policy should be construed against the drafter/insurer. State Farm Mutual Auto. Ins. Co. v. Pridgen,
498 So. 2d 1245, 1248 (Fla. 1986). Courts cannot "rewrite contracts, add meaning
that is not present, or otherwise reach results contrary to the intentions of
the parties." Id.
Some courts have adopted the Irons reasoning
that the prior publication exclusion does not apply in misappropriation or copyright
infringement cases because the duplicate language appears only in subsections
(a) and (b) of the advertising injury definitions. See, Westfield Cos. v. O.K.L. Can Line, 804 N.E.2d
45, 53 (Ohio App. 2003); Adolfo House Distrib. Corp.
v. Travelers Prop. & Cas. Co., 165 F. Supp. 2d 1332, 1342 (S.D. Fla.
2001). Irons is also cited occasionally for the
bootstrap proposition that the language must be ambiguous if reasonable circuit
courts differ and, thus, the prior publication exclusion does not preclude coverage
for and "advertising injury" which does not mimic the exclusionary language.
See, Adolfo House at 1342; Cincinnati Ins. Cos. v. Pestco, Inc., 374 F.
Supp. 2d 451, 461 (W.D. Pa. 2004).
Applied Bolting Technology Products: Exclusion
Need Not Explicitly Refer to All Listed Coverages
The case to which the Irons progeny usually
refers when asserting that ambiguity must be present is the differing result
in Applied Bolting Technology Products, Inc. v. U.S.
Fid. & Guar. Co., 942 F. Supp. 1029 (E.D. Pa. 1996). The Applied Bolting court applied Vermont law (and
common sense) to determine that the prior publication exclusion applies to all of the enumerated definitions of "advertising
injury."
Applied is also a copyright infringement case
in which the court observed that "the exclusion must be read to give effect
to the plain meaning of 'advertising injury.'" Applied at 1037. If the offending advertisement was made before the coverage period
began, then the policy excluded coverage. The insured, Applied, made the Irons argument that, because the advertising
injury at issue did not arise out of libel, slander, or invasion of privacy,
the exclusion did not apply. The Applied court
rejected this argument and explicitly disagreed with Irons. See also, Taco Bell
Corp. v. Continental Cas. Co., 2003 WL 1475035, 7 (N.D. Ill March 17,
2003) (unequivocally rejecting Irons in favor
of Applied); Tradesoft
Technologies, Inc. v. Franklin Mut. Ins. Co., Inc., 746 A.2d 1078 (N.J.
Super. 2000) (fully endorsing Applied).
In finding that the "first-publication exclusion applies to all of the offenses
listed in the four-subpart definition of 'advertising injury,'" the Applied court reasoned:
- "Advertising injury" is defined by the four, not two, offenses expressly
set forth in the policy to define "advertising injury." ... I read this
exclusion to mean that "advertising injury," which I must assume the insurance
company intentionally surrounded with quotation marks when it used that
term in the exclusion, has the same four-subpart meaning when used in the
exclusion that it has every other time it appears in the policy surrounded
by quotation marks. ... [I]t is certainly irrelevant that some of the language
in the exclusion happens to match some of the words in subpart (a) and (b)
of the definition of "advertising injury" but not match some of the language
in (c) and (d).
Applied at 1037. The court further explained
that the purpose of the exclusion was to avoid precisely the situation at issue:
providing coverage for republication of an offending advertisement first published
prior to the insured obtaining coverage.
Cases following Applied have found that the
exclusion must be read to encompass all of the offenses contained in the definition
of "advertising injury" and have expanded the Applied rationale. Tradesoft explained that to apply Irons "not only constitutes a tortured reading
of the coverage" but is "contrary to the legal concepts involved." Tradesoft at 147-8.
Tradesoft reasoned that there can be no defamation,
or invasion of privacy, without publication. However, infringement and misappropriation
do not require publication as an element of the offense. "Our point is that
the use of the term 'publication' in respect of defamation and invasion of privacy
defines the offense and not the injury. The publication element of the injury
is obviously common to all four categories of advertising injury, and the first-publication
exclusion is, therefore, also common to all." Tradesoft at 148.
Similarly, the court in Matagorda Ventures, Inc.
v. Travelers Lloyds Ins. Co., 208 F. Supp. 2d 687 (S.D. Tex. 2001), explained
that "'advertising injury' can arise from misappropriation or infringement without
the necessity of publication" whereas "advertising injury" arising from subparts
(a) and (b) "is limited to that arising from publication of oral or written
material." Matagorda at 689.
The injury at issue in Matagorda was misappropriation.
The court, after quoting and endorsing Applied,
explained that "[w]hen, as here, the alleged misappropriation arises from written
published materials, the first publication exclusion applies. If the misappropriation
or infringement does not arise from the publication of oral or written material,
it would still fall within the Policy definition of 'advertising injury,' but
the first publication exclusion would be irrelevant and inapplicable." Id.Matagorda also dismisses the ambiguity argument, explaining that "[a] split of authority
among courts as to the interpretation of policy language does not necessarily
make that language ambiguous." Id. at 690.
Conclusion
Courts that have considered the scope of the prior publication exclusion
to advertising injury coverage for misappropriation and infringement have reached
conflicting results. The Applied line of
cases appears to provide the better reasoned analysis. That case and its progeny
hold that the only reasonable interpretation of the prior publication exclusion
applies the exclusion to all of the policy definitions of "advertising injury."
As explained by Hugo Boss Fashions, Inc. v. Federal
Ins. Co., 1999 WL 1072819, 1 (S.D.N.Y. Nov. 29, 1999) failure to apply
the exclusion to all of the subparts of the "advertising injury" definition
"would not only amount to an unreasonable interpretation of the policy, but
would also amount to this Court impermissibly redrafting the contract in the
plaintiffs' favor."
Contributing author
Rebecca C. Appelbaum is an associate with Butler
Pappas Weihmuller Katz Craig, LLP, practicing in the areas of third-party coverage
and third-party liability defense.
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