Are Products Advertisements That Give Rise to Advertising Injury Coverage?
April 2006
In determining whether a commercial general
liability (CGL) policy responds to claims for "advertising injury" coverage,
many courts apply a three-part test: (1) the suit must have alleged a cognizable
advertising injury; (2) the infringing party must have engaged in advertising
activity; and (3) there must be some causal connection between the advertising
injury and the advertising activity.1
by R. Steven
Rawls and Rebecca Appelbaum
Butler Pappas
Weihmuller Katz Craig, LLP
What constitutes an "advertisement" or "advertising" for the purpose of determining
whether the policy covers "advertising injury" depends on whether the policy
itself defines "advertising" or "advertisement," if the policy does not do so,
how the jurisdiction defines advertising, and whether there is a causal connection
between the advertisement and the advertising activity allegedly causing injury.
Standard CGL Policy Language
Determining whether something is advertising depends first on the language
of the insurance policy at issue. "Advertising injury" in most Insurance Services
Office, Inc. (ISO), policy forms is 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 insuring agreement in most ISO policy forms provides that the insurer
"will pay those sums that the insured becomes legally obligated to pay as damages
because of 'personal and advertising injury' to which this insurance applies."
Additionally, the policy typically provides that:
- this insurance applies to "personal and advertising injury" caused by
an offense arising out of your business but only if the offense was committed
in the "coverage territory" during the policy period.
The newer ISO policy forms and some manuscript policies contain a separate
definition of "advertisement."2 Most policies, however,
do not further define "advertising" or "advertisement," frequently leaving the
interpretation of what constitutes an advertisement to the courts. The question
of what comprises an advertisement can become further complicated when courts
consider whether a product itself is an "advertisement."
The Product Is Not an Advertisement
Some courts have explicitly held the product itself cannot be advertising.
Thus, in Ekco Group, Inc. v. Travelers Indemnity Co.
of Ill., 273 F.3d 409 (1st Cir. 2001), the court explained that "advertising"
contemplated by the policy should be given its conventional meaning, "the familiar
bundle of business activities associated with that term," and distinguished
as something separate from the product itself. Ekco at 414. The court refused to apply an expansive definition of "advertising"
because the "far broader concept of inviting public attention, deliberately
or not and by any means," would produce an absurd result because every product
is an advertisement for itself. Id. If this
definition applied, insurers would be unable to calculate risks and set premiums. Id.
Other courts have focused on the product's inability to independently convey
a message about the product itself. In Farmington Casualty
Company v. Cyberlogic Technologies, Inc., 996 F. Supp. 695 (E.D. Mich.
1998), the insured, Cyberlogic, was sued for copyright infringement and sought
a defense from its insurer under the advertising injury provisions of the policy.
Cyberlogic created a software driver for another corporation and that corporation
retained the copyright. Cyberlogic then entered into a separate agreement with
another company to create a software driver. The subsequent driver was allegedly
distributed on floppy disk and on CD. The CD version, however, had a 4-hour
lifespan and was intended to serve as a demonstration or "free sample."
In determining whether the sample disk was advertising, the court recognized
conflict among other courts and, noting that the policy provided no definition
of advertising, adopted a broad definition of "advertising." That definition
included "any oral, written, or graphic statement made by the seller in any
manner in connection with the solicitation of business" and encompassed "promotional
activities directed at particular individuals or groups rather than [only] to
the public at large" as advertising. Farmington at 700 and 703. Nonetheless, the policy did not provide advertising injury coverage
because under any definition, an "advertisement" must "make a statement about
its subject. The product itself cannot meet this requirement. It does not convey
an independent message about the product; it simply is the product." Farmington at 703.
The Product Is an Advertisement
In some situations, courts recognize products as advertisements. Thus, Robert Bowden, Inc. v. Aetna Cas. & Surety, 977
F. Supp. 1475 (N.D. Ga. 1997), explained that there was advertising injury coverage
in Irons Home Builders, Inc. v. Auto-Owners Ins.,
839 F. Supp. 1260 (E.D. Mich. 1993), because "there, the homes themselves, physical
manifestations of the very plans which had been pirated, constituted advertisement
for the insured company." Robert Bowden at 1480.
Similarly, in King Construction, Inc. v. Continental
Western Ins., 123 S.W. 3d 259 (W.D. Mo. 2003), the question in King was whether "the placing of a sign bearing
the builder's name next to a construction site of the builder constitutes advertising
within the meaning of the insurance policy." King at 261.
The policy did not define "advertising" and the trial court heard testimony
that "this type of advertising is very effective because potential customers
can see the quality of the construction and materials, and that many potential
customers contact builders after seeing the homes they are building." Id. at 264.
The King court found that constructing a home
in violation of another's copyright was an advertising injury. Although home
construction itself was not designated as advertising, "it was ... a necessary
part of King's advertising. The primary purpose of building the home may not
have been to make profits from advertising it, but rather from selling it; but
the policy does not limit coverage to cases where the offense predominantly
functions as advertising." King at 265.
- The court explicitly limited its holding, explaining that "[t]his court
does not hold that the construction of a home is, in and of itself, advertising....
This court does not hold that the offense of copyright infringement itself
creates coverage. This court does not hold that Continental had a duty to
defend King based upon the sign being placed after completion of the home...." King at 267. Nonetheless, the court found
the product itself, the house, to be "advertising" triggering the insurer's
defense obligation as well as, to a degree, its duty to indemnify.
Cases that find the product itself to be an advertisement often focus on
how the product is being used. Thus, in some cases in which the court found
advertising through the use of the product the courts did not specifically focus
on whether the product itself was an advertisement but rather on the connection
between the use of the product and the advertising activity.
At times, the requirement of a causal connection between the insured's advertising
and the injury can influence a court's perception of whether a product is an
advertisement. Thus, in Amway Distributors Benefits
Ass'n v. Federal Ins., 990 F. Supp. 936, 946 (W.D. Mich. 1997), the court
noted that "[v]irtually every business that sells a product or service advertises,
if only in the sense of making representations to potential customers. If no
causal relationship were required between 'advertising activities' and 'advertising
injuries,' then 'advertising injury' coverage, alone, would encompass most claims
related to the insured's business." Id. (citing Bank of
the West v. Superior Court, 833 P. 2d 545, 560 (Cal. 1992).
An unpublished decision, General Cas. Co. of Ill.
v. Four Seasons Greetings, 2004 WL 2987796, (Minn. App. 2004, illustrates
this relationship. There, the court did not decide whether the infringing product
itself constituted advertising but rather focused on the use of the product.
Four Seasons manufactures and sells preformatted and personalized greeting cards
and was sued for copyright infringement regarding some of the card designs.
Four Seasons sought a defense from General Casualty Company.
General Casualty filed a declaratory action arguing that Four Seasons was
merely providing sample cards (similar to the sample compact disc in Farmington) to retailers and distributors and
was not engaged in advertising activity. The court, however, found that because
"advertising" is undefined, it must be given its plain and ordinary meaning. Four Seasons at 7. The court adopted a broad
definition of advertising: "[t]he activity of attracting public attention to
a product or business" further defining "public" to include "[a] group of people
sharing a common interest" rather than meaning only the community as a whole.
Based on this broad definition, the court found that Four Seasons' actions
in providing sample cards with pricing information to retailers, a group of
people sharing the common interest of selling greeting cards, "falls within
the plain and ordinary meaning of the term 'advertising.'" Id. The court further distinguished Farmington because the inclusion of pricing and
verse selection information, rather than just samples, made this more than just
the product itself and did "'make a statement' about the product." Id. at 9.
Conclusion
Whether a product itself can be advertising depends first on whether the
policy at issue defines "advertisement" or "advertising." If not, courts will
define the term themselves. Unless the jurisdiction is one in which the infringing
product itself cannot be advertising, the determination of whether the allegations
of advertising injury will trigger coverage will depend on the breadth of the
definition chosen by the court, which in turn can sometimes depend on a court's
characterization of the use of the product in connection with the advertising
activity.
Contributing author
Rebecca C. Appelbaum is an associate
with Butler Pappas Weihmuller Katz Craig, LLP, practicing in the area of third-party
coverage.
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