Part 1 of this
article examined the nature of Coverage B—Personal and Advertising Injury Liability
Insurance as found in the December 2004 edition of the Insurance Services Office,
Inc. (ISO), commercial general liability (CGL) policy. Part 2 deals with the
exclusions to Coverage B.
& Stanovich Risk Managers, LLC
In Part 1, we noted that several sections
of the CGL policy applied to Coverage B in the same manner as they apply to
Coverage A (Bodily Injury and Property Damage), such as the Duty to Defend,
Who Is an Insured, and Supplementary Payments. But we also noted that Coverage
B is not triggered by physical harm. Instead, it requires that an insured commit
a listed "offense" for coverage to apply. In general, an "offense" involves
a violation or infringement of the rights of others. Further an "offense" is
often the result of an intentional act. The concept of an "occurrence" is irrelevant
to Coverage B, which does not require personal or advertising injury be caused
by an "occurrence."
That is not to suggest that intentional injury will be covered by Coverage
B. However, eliminating coverage for intentional injury is accomplished by exclusions
to coverage, not by limitations found in the Coverage B insuring agreement.
By way of review, the covered "offenses" are specifically listed and are
found in the definition of "personal and advertising injury":
False arrest, detention, or imprisonment;
The wrongful eviction from, wrongful entry into, or invasion of the right
of private occupancy of a room, dwelling or premises that a person occupies,
committed by or on behalf of its owner, landlord, or lessor;
Oral or written publication, in any manner, 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, in any manner, of material that violates
a person's right of privacy;
The use of another's advertising idea in your "advertisement"; or
Infringing upon another's copyright, trade dress, or slogan in your "advertisement."
As noted in Part 1, not only are the offenses
legalistic terms, the exclusions to coverage also tend to be legalistic and
therefore difficult to understand. In view of this, the explanations in this
article of the 14 exclusions to Coverage B will include an illustration as to
when the exclusion might apply. Of course, the illustration is not the only
situation in which the exclusion might apply, but is intended to assist in understanding
the general meaning of the exclusion when read together with the Coverage B
insuring agreement and the definition of personal and advertising injury.
This restriction to coverage is one of the prime exclusions intended to eliminate
coverage for claims involving intentional injury. For the exclusion to apply,
the insured must know their actions would violate the rights of another, and
that violation would inflict personal or advertising injury. The exclusion applies
whether the infliction was caused by the insured or caused by others under the
direction of the insured.
After a rancorous public debate at last week's town meeting, I am
seething at one person who dared to question my motivations. When that
person walked into my store, I immediately ordered him detained by my
security personnel, accusing him of shoplifting, even though I knew
that he had done no such thing. He later sues me for wrongful detention.
Once I recover from my anger, and before an answer to the complaint
is due, I admit that the only reason I detained him is because I was
insulted by his comments at the town meeting debate. As I knew full
well that I was violating his rights by detaining him, and that directing
my security personnel to detain him would inflict injury upon him, my
insurer has no obligation to defend or pay damages on my behalf. In
this illustration, I intentionally inflicted injury on the store patron.
As above, this exclusion is intended to eliminate coverage for intentional
injury, but specific types of intentional injury—usually intentional libel or
slander. If the insured knows the information being distributed is false, this
exclusion eliminates coverage. As in the prior exclusion, there is no coverage
here if the insured directly publishes or directs others to publish information
the insured knows to be false.
It is worth pointing out that the exclusion only applies if the insured actually
knows the injurious information is false. That the insured could have or should
have known the injurious information was false probably does not rise to the
level of knowledge by the insured. In short, as demonstrating actual knowledge
is a factual matter, an insurer may well have to defend allegations of libel
or slander until a finding of fact is made as to whether the insured did have
In a hotly contested bid situation for the Acme Manufacturing account,
I am so frantic about writing this account that, against my better judgment,
I include in my proposal to Acme that the competitor's insurer's A.M.
Best rating is B-, even though I admit that I did check the ratings
the day I wrote the proposal and found the competitor's insurer's rating
had been upgraded 6 months earlier to A-. If the insurer brings legal
action against me for libel, in this illustration, my insurer would
not have to defend or pay any damages awarded to the plaintiff insurer
against me as I knew the material that I published was false.
As publications, for example an advertising campaign, may span over months
or years, the intent of this exclusion is to limit the coverage to the policy
in which the publication and thus the offense was first committed. If no prior
coverage existed at the time of the first publication, then the intent is to
avoid the policyholder obtaining retroactive insurance by purchasing coverage
after suspecting they might have trampled on someone else's rights.
How courts have interpreted this exclusion is decidedly mixed, however. The
issue is that while the intent appears to be to eliminate coverage for material
published before the policy period, even if a subsequent publication of the
same or similar material is published during the policy period, some courts
find this interpretation less than compelling.
For example, in P.J. Noyes Co. v. American Motorists
Ins., 855 F. Supp. 492, 495-97 (D.N.H. 1994), the court denied an insurer's
demand for summary judgment (applying New Hampshire law):
… even though the alleged infringing term was first published prior to
the policy inception—a material issue of fact existed because the alleged
infringing term was also published after the inception of the policy and
it was unclear which material the advertising injury arose out of.1
Other courts have interpreted this exclusion to apply regardless of which
publication, the publication prior to or the publication during the policy,
is alleged to have caused the injury—the determining factor is whether any of
the injurious material was published prior to the policy. In the case of
Sam Z. Scandaliato & Assoc., Inc. v. First Eastern Bank
& Trust, 589 So. 2d 1196 (La. App. 1991), the court found:
… prior publication exclusion applies and thus no duty to defend defamation
claim where the plaintiff in the underlying suit alleged defamatory publications
by insured were continuous over a number of years and covered several policies,
but where first injurious publication was made prior to the effective date
of each of the policies….2
Exactly how this exclusion will be interpreted depends to a large extent
on the circumstances.
As some offenses can also constitute criminal acts, coverage expressly eliminates
coverage for such criminal acts. As with prior exclusions, this exclusion applies
to criminal acts committed by the insured or committed at the direction of the
insured. This exclusion has been scaled back a bit from past editions of the
CGL, which eliminated coverage for criminal acts of
any insured. The difference is that this
exclusion does not reach those insureds not involved in the criminal acts, but
who may still be held liable (such as by vicarious liability—an employer for
an employee) for a criminal act.
As an owner of an apartment complex, I lease several apartments to
various local professors. I hear a rumor that one of my tenants has
filed for a medical patent on a process that may significantly slow
the aging process. As I see riches in my future, I hire an unsavory
associate to burglarize the professor's apartment to search for her
patent information. The tenant learns about my actions the next day
and, in addition to going to the police to file a criminal complaint,
brings a civil action against me for, among other things, wrongful entry
into her premises. When arrested and questioned by the police, I confess
immediately to my actions, hoping for lenient treatment. My insurer,
who has received the civil complaint for wrongful entry, refuses to
defend or pay any of my damages when they receive my confession from
the police, as I have directed others to commit a criminal act.
Simply put, Coverage B does not provide coverage for liability that the insured
assumes in a contract or agreement. In other words, if my liability for a personal
or advertising injury offense is based solely
on my agreement to assume the liability of others via a hold harmless or indemnity
agreement, no coverage exists under the CGL. However, if I would have been liable
if the hold harmless or indemnity agreement did not exist, then the exclusion
does not apply.
The contractual exclusion can be very problematic for several reasons. First,
hold harmless and indemnity agreements often employ the term personal injury
when they mean bodily injury. Second, it is not uncommon in a hold harmless
and indemnity agreement to be so broad as to demand indemnity for "any and all
liability." This might include personal and advertising injury offenses. Finally,
some indemnity agreements expressly require indemnity for personal injury or
advertising injury offenses.
A couple of solutions may be used, albeit with limited success as many insurers
will not change this wording. One such solution is to have this exclusion eliminated
entirely. This may not, however, completely solve the problem as some insurers
attempt to restrict the phrase "legally obligated to pay" as meaning only an
insured's tort liability and not liability that may arise out of contract.
A second solution, also limited, is to use the ISO endorsement Limited Contractual
Liability for Personal and Advertising Injury (CG 22 74). Although the endorsement
requires designating the contract or agreement to be covered, it does provide
an affirmative grant of contractual liability coverage for personal and advertising
offenses, but only for the offenses of false arrest,
detention, or imprisonment. No other offenses assumed by contract are
covered by this endorsement. Yet, it may be valuable if, as a security firm,
you are required to indemnify the building owner and its tenants for such offenses.
Insurers also have proprietary endorsements that may provide a better solution
to this coverage issue.
In agreeing to speak for an organization at their convention, I enter
a hold harmless and indemnity agreement in which I agree to indemnify
the organization for "all civil and administrative liability, including
the costs and expense of a lawsuit, defense and settlement…."
A comment is made during the convention, which an attendee finds
offensive and brings suit against the organization, alleging slanderous
comments directed to the attendee. Even though there were several speakers
at the convention, the attendee did not bother to identify the speaker,
instead alleging the organization as liable. The organization turns
the suit over to each speaker, demanding defense of the slander allegation.
My insurer denies both defense and payment of any damages that may result
as they deem this to be liability assumed in a contract and, since the
complaint did not name me, point out there is no evidence that I would
have liability to the attendee absent the indemnity agreement.
Aimed at advertising injury, the exclusion eliminates coverage (with one
exception) for an insured that does not honor the terms of a contract, even
if the contract involves advertising activities. The exception is that a breach
of an implied contract is not excluded provided
the alleged offense was the use of another's advertising ideas in your advertisement.
After long negotiations with a competitor,
we expressly agree that I am allowed to use their advertising idea—specifically,
crossword puzzle mailers that, when solved, promote in a novel way my
business to prospective customers. However, the contract spells out
a specific geographical area in which I may send the mailers, and clearly
prohibits using this mailer in other geographical areas. The mailers
are so successful that my sales department begins sending them outside
the agreed upon area—resulting in the competitor bringing suit against
me for breach of contract. My insurer denies coverage for both defense
and any obligation to pay damages for the competitor's suit as the complaint
refers to breach of the written contract, drawing attention to the agreed
upon prohibition to venture into other areas. The insurer has concluded
the complaint is for breach of contract, and therefore excluded.
Exception: If the competitor simply
gave me permission to use their advertising idea, but with no mention
of restrictions to any territory, the complaint by the competitor may
state that it was understood (implied) that I would not go into other
territories. The complaint by the competitor would likely be that I
have breached an implied contract
as respects limits on the use of their advertising idea, and thus this
exclusion would not apply.
Again targeting advertising injury type claims, this exclusion is intended
to eliminate coverage for claims that your goods, products, or services do not
perform or are not of the quality advertised. While it is difficult to identify
a specific offense that would trigger coverage for this type of situation, the
exclusion is more to reinforce that advertising injury will not provide coverage
for such claims, even if they do involve advertisements as defined in the CGL.
Also related primarily to advertising injury, this exclusion clarifies that
the CGL will not respond to claims made for mistakes made in prices.
Infringement of the intellectual property rights of others is not covered
by the CGL unless those intellectual property rights are your advertisement
and then only for the infringement of specifically listed intellectual property
rights: copyright, trade dress, or slogan. The extent of coverage for intellectual
property has been the subject of a significant amount of litigation, much of
which revolves around what, exactly, is meant by advertising in relation to
intellectual property rights. In some cases, the question litigated is what
is meant by copyright, trade dress, or slogan. For example, policyholders have
urged courts to consider patent infringement as a misappropriation of trade
dress and thus a covered offense.
Exclusion i. first appears in the October 2001 edition of the CGL and is
intended to make clear that coverage provided by Coverage B applies only if
the advertising material or broadcast itself
is a copyright violation, trade dress infringement, or misappropriation of trade
dress (a style of doing business).
Because certain businesses or organizations present an elevated exposure
to most offenses, Coverage B excludes all but three offenses for these businesses
or organizations. Excluded from coverage (subject to three exceptions) are offenses
committed by an insured whose business is:
Advertising, broadcasting, publishing, or telecasting
Designing or determining the content or website for others
An Internet search engine, access, or content or service provider
Certain Internet activities are not considered advertising, broadcasting,
publishing, or telecasting businesses. For example, an insured who develops
its own website, including links to the websites of others, would not be considered
an insured whose business is advertising, broadcasting, publishing, or telecasting
for the purposes of applying this exclusion. The three exceptions to this exclusion
and for which Coverage B would apply is for the offenses of:
False arrest, detention, or imprisonment
The wrongful eviction from, wrongful entry into, or invasion of the right
of private occupancy of a room, dwelling, or premises that a person occupies,
committed by or on behalf of its owner, landlord, or lessor
Coverage for any other offenses is flatly excluded. Coverage is usually available
for these exposures by either separate endorsement or separate policies. For
example, media liability coverage is available for publishers and usually includes
coverage for numerous professional liability type offenses, including copyright
infringement and libel.
This exclusion, introduced in the October 2001 edition of the ISO CGL policy,
recognizes (as does exclusion l. below) the potential liability for certain
uses of the Internet. An insured who owns, hosts, or otherwise controls electronic
chatrooms or bulletin boards also presents an elevated exposure to certain types
of Coverage B offenses. This exclusion eliminates coverage for liability arising
out of the electronic chatroom or bulletin board activities. This exclusion
may be contrasted to the media and Internet type exclusion as the exclusion
does not apply to all of the insured's activities, only those arising out of
the activities related to operating or owning an electronic bulletin board or
similar electronic message board.
A recent Associated Press news article recounted the difficulties companies
who operate message boards are experiencing. In some cases, because the electronic
discussions are so fraught with mean-spiritedness and potential damage to persons'
reputations, the message boards have been restricted or shut down entirely.
While the article states that site operators are not generally liable for offensive
postings, insurers wish to avoid the potential litigation entirely by excluding
all liability for such message boards by the use of this exclusion.
The operator of an electronic message board allows postings of messages
about a local bank with which several customers have had a poor experience.
Several of the postings suggest that the bank is ready to fail, causing
other customers to withdraw their deposits, creating a "run on the bank"
and its failure. The FDIC brings a suit against the operator of the
electronic message board, alleging gross negligence in not screening
such libelous postings. The CGL insurer for the operator of the electronic
denies both defense and the obligation to pay any damages as the allegation
of libel arose out of an electronic bulletin board over which the insured
An insured who uses, without permission, the product or name of another in
their e-mail address, domain name, or metatag to mislead potential customers
will not be covered under Coverage B for any liability that may result. The
key here is using the Internet, including e-mail and websites, to mislead potential
To target potential customers using Internet search engines, I include
in my e-mail address, my website domain name, and throughout the text
of my website, the name of a well-known competitor, which has the effect
of diverting potential customers to my website when they are actually
searching for my competitor's website. The competitor brings claim
against me for use of its name. My insurer, when served with the complaint,
points to this exclusion and refuses to respond in any way.
As policyholders were able, with limited success, to characterize pollution
claims as wrongful entry or other type of covered offense, the policy now excludes
coverage for the release of any pollutants.
Similar to the above, Coverage B excludes not only claims for the release
of pollutants but also any claims for cleaning up pollutants or responding to
a government authority's demand to cleanup or treat pollutants.
As a landlord of an apartment building, I have used a 40-year-old
bare steel 9,000-gallon underground heating oil tank to fuel my oil-fired
boilers. One morning it was found that the tank developed a hole and
that almost all of the oil has been released into the ground on the
premises. Public safety officials required evacuation of the entire
apartment for an indefinite period. The tenants sued me as their landlord
for wrongful eviction. No coverage is afforded for this claim as it
arose out of the actual escape of pollutants.
To the extent that a covered offense arises out of war, Coverage B does not
In the above example, the landlord's apartment is damaged when the
National Guard is called in to put down an attempt to overthrow the
state's governor. The tenants sue the landlord for wrongful eviction,
as they cannot occupy their apartments due to the extensive damage.
While it is unlikely the landlord would have liability for such an event,
there is no coverage even for defense of the landlord due to the war
While not included in the December 2004 edition of the ISO CGL, it is likely
that at least two other exclusions will be added to the policy that will affect
Coverage B does include coverage for "oral or written publication, in any
manner, of material that violates a person's right of privacy." The CGL policy,
absent the above exclusion, does not exclude coverage for claims made by employees
against the named insured, for employment-related invasion of privacy. The Employment
Related Practices Exclusion endorsement unequivocally eliminates coverage for
personal and advertising injury claims arising out of employment related practices,
policies, acts, or omissions.
This endorsement, which is a mandatory ISO exclusion, is intended to eliminate
coverage for claims made under the:
Telephone Consumer Protection Act
CAN-SPAM Act of 2003
And any statute, ordinance, or regulation that prohibits or limits the
sending, transmitting, communicating, or distribution of material or information
In short, in the wake of several federal and state "do not call" type laws,
businesses and organizations have been sued over the violation of such statutes,
which allow for civil damages against businesses. Whether an unsolicited phone
call, fax, or e-mail that violates such laws is to be considered an invasion
of the right of privacy and thus a covered offense under Coverage B has been
litigated, with mixed results, and is far from a settled issue.
ISO has mandated this exclusionary endorsement to remove coverage entirely
and to avoid future litigation as to whether such acts constitute a covered
offense under Coverage B—all coverage is now excluded.
Personal and advertising injury coverage is undoubtedly complex and often
difficult to understand, in part because such claims are relatively uncommon.
Nonetheless, a basic understanding of the concept of a covered "offense," recognizing
that only specifically listed offenses are covered, and that coverage for such
offenses may be excluded under given circumstances, is necessary to properly
advise clients of the coverage they have—and do not have—in the commercial general
1Peter J. Kalis, Thomas M. Reiter,
and James R. Segerdahl, Policyholders Guide to
the Law of Insurance Coverage, § 8.03[C] Aspen Law & Business, New York,
2002 Supplement, pp. 8-37
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