Expert Commentary

Are Products Advertisements That Give Rise to Advertising Injury Coverage?

In determining whether a commercial general liability (CGL) policy responds to claims for "advertising injury" coverage, many courts apply a three-part test:


Liability Insurance
April 2006

(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

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:
  1. 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
  2. Oral or written publication of material that violates a person's right of privacy;
  3. Misappropriation of advertising ideas or style of doing business; or
  4. 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.


1See e.g., State Farm Fire and Casualty Co. v. Steinberg, F.3d 1226, 1231 (11th Cir. 2004), and RGP Dental Inc. v. Charter Oak Fire Ins. Co., 2005 WL 3003063, 3 (D. R.I. 2005).

2See e.g., Superformance Intern., Inc. v. Hartford Cas. Ins. Co., 203 F. Supp. 2d 587, 595 (E.D. Va. 2002) (defining
"advertisement" as "a dissemination of information or images that has the purpose of inducing the sale of goods, products or services through ... [any] publication that is given widespread public distribution").


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

Like This Article?

IRMI Update

Dive into thought-provoking industry commentary every other week, including links to free articles from industry experts. Discover practical risk management tips, insight on important case law and be the first to receive important news regarding IRMI products and events.

Learn More