Lawsuits involving business or commercial disputes often trigger the coverage provisions of standard form Commercial General Liability ("CGL") policies.
In lawsuits involving claims of infringement, misappropriation or the violation of the right of privacy, the key portion of a CGL policy is the "personal injury" or "advertising injury" coverage found in Coverage B of the current CGL policy form [Insurance Services Office Commercial General Liability Insurance Policy Form, Section I Coverage B (2001)]. That language provides as follows:

a.  We 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. We will have the right and duty to defend any "suit" seeking those damages…
 b.  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.
 This article explores the scope of, and recent developments concerning, this aspect of CGL coverage.

This article explores the scope of, and recent developments concerning, this aspect of CGL coverage. Practitioners should note that coverage for business torts may also be provided under Coverage A of CGL policies.  See, e.g., Ericsson, Inc. v. St. Paul Fire & Marine Ins. Co., 423 F. Supp. 2d 587 (N.D. Tex. 2006) (class action claims against cell phone manufacturer for injuries caused by radio frequency radiation fall within Coverage A for "bodily injury"); Prime TV, LLC v. Travelers Ins. Co., 223 F. Supp. 2d 744 (M.D. N.C. 2002) (insurer required to defend insured in class action suit because sending unsolicited faxes constituted "property damage").

Enumerated Offenses

Unlike Coverage A in a GCL policy (see fn. 1, infra), coverage for personal or advertising injury does not depend on the existence of an “occurrence,” which typically is defined in terms of “accidental” conduct. See, e.g., General Accident Ins. Co. v. West American Ins. Co., 42 Cal. App. 4th 95, 103 (1996). Thus, coverage for personal and advertising injury is not limited to negligence and may even cover intentional torts. See, e.g., David Kleis, Inc. v. Superior Court, 37 Cal. App. 4th 1035, 1047 (1995).

There is another key distinction between the Coverages A and B. While the insuring clause of Coverage A is expressed in general terms (“insurer will pay damages which an insured. . . becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence. . .”), Coverage B is limited to enumerated “offenses.” Thus, in the 2001 version of the Coverage B, the triggering offenses are described as follows:

• False arrest, detention or imprisonment;
• Malicious prosecution;
• 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 idea in your “advertisement;” or
• Infringing upon another’s copyright, trade dress or slogan in your “advertisement.”

The enumerated offenses in a policy define the scope of coverage under Coverage B. And because policy language has evolved over time, with variations in the above-cited language in those policies pre-dating the 2001 revisions, it is critical to examine how those offenses were described in a policy that is the subject of litigation. For example, policies before 1986 may, unlike later versions, include the offenses of “piracy”, “unfair competition” and “infringement of copyright, title or slogan.” Other iterations of the coverage form may cover “misappropriation of advertising ideas or style of doing business,” another offense which is not found in the current form.

Offenses Committed During the Course of Advertising

In order for a claim arising out of one of the cited offenses to be covered, the claim must arise out of the insured’s advertising activities.  Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1258 (1992). This requirement embraces two aspects—first, the activities in question must involve “advertising;” and second, there must be a causal connection between the “advertising” and the underlying claim or injury.

The question of what constitutes “advertising” has been frequently litigated and was recently addressed by the California Supreme Court in Hameid v. National Fire Ins. of Hartford, 31 Cal. 4th 16 (2003).  Hameid involved two competing beauty salons. The suit arose when two employees of the policyholder’s competitor joined the policyholder’s operation. Those two employees then utilized the competitor’s customer list to solicit customers for the policyholder’s operation.

Characterizing the case as one involving “solicitation,” rather than “advertising”, the Court found that the employees’ one-on-one solicitation of the competitor’s customers would not be treated as “advertising” for purposes of insurance coverage. The Court interpreted the term “advertising” as used in the CGL policies to mean “widespread promotional activities usually directed to the public at large.” Id. at 24. The Court also noted that a majority of other jurisdictions that had considered this question had come to a similar conclusion.  Id.

Prior to the California Supreme Court’s decision in Hameid, there had been some case authority for the proposition that “advertising” embraced rather limited, even one-on-one, solicitations.  See, e.g., New Hampshire Ins. Co. v. Foxfire, Inc., 820 F. Supp. 489 (N.D. Cal. 1993); American States Ins. Co. v. Canyon Creek, 786 F. Supp. 821, 828 (N.D. Cal. 1991) (“even one-on-one oral representations have been found to constitute advertising”).

With the advent of the Hameid decision, however, California joins the majority view that “advertising” must involve broadcasting or other widespread public distribution. See, e.g., EKCO Group, Inc. v. Travelers Indem. Co., 273 F.3d 409, 415 (1st Cir. 2001); Playboy Enterprises, Inc. v. St. Paul Fire & Marine Ins. Co., 769 F.2d 425, 428-29 (7th Cir. 1985) (widespread distribution to public at large); American Home Assur. Co. v. The Selective Group Inc., 2006 Mich. App. LEXIS 1946 (June 20, 2006) (filing of subdivision plans with township is not directed to the public at large or prospective purchasers so it is not advertising). A minority of courts hold otherwise.   See, e.g., John Deere Ins. Co. v. Shamrock Industries, 696 F. Supp. 434, 440 (D. Minn. 1988).

Forms of Advertising

Because of the variety of ways in which “advertising” can be communicated, coverage has been found in cases of TV, radio, newspaper and magazine advertising; displays and brochures at trade shows (Fireman’s Fund Ins. Co. v. Bradley Corp., 660 N.W.2d 666 (Wis. 2003)); catalogues (El-Com Hardware, Inc. v. Fireman’s Fund Ins. Co., 92 Cal. App. 4th 205 (2001)); and Internet sites (State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co., 343 F.3d 249 (4^th Cir. 2003)).

But not all marketing activities have been found to constitute “advertising.” Thus, the distribution of electronic product samples (IDG, Inc. v. Continental Cas. Co., 275 F.3d 916 (10th Cir. 2001)), business manuals (Sentry Ins. Co. v. R.J. Weber Co., 2 F.3d 554 (5th Cir. 1993)) or press releases (Walk v. Hartford Cas. Ins. Co., 852 A.2d 98, 108-09 (Md. 2004)) have generally not been deemed to constitute “advertising.” Similarly, a premises decoration (Ziman v. Fireman’s Fund Ins. Co., 73 Cal. App. 4th 1382 (1999)), price lists (A. Meyers & Sons Corp. v. Zurich American Ins. Group, 545 N.E.2d 1206 (N.Y. 1989)), product packaging and product labels have been characterized as not constituting “advertising.” But see Flodine v. State Farm Ins. Co., 2001 U.S. Dist. LEXIS 2204 (N.D. Ill. 2001) (tags attached to products that described items as made by Native Americans served to promote the items and were thus mini-ads); Hewlett Packard Co. v. ACE Prop. & Cas. Co., 2003 U.S. Dist. LEXIS 3586 (N.D. Cal. 2003) (inkjet refill package inserts are advertising).

Causal Connection

In order for “advertising injury” claims to be covered, there must be a causal relationship between the advertising and the underlying claim or injury. As interpreted by the California Supreme Court, this requirement means that the promotion of the product or service at issue must constitute “advertising” within the meaning of the policy language; and additionally, the advertising activities must have in some sense caused the advertising injuries.  Bank of the West, supra, 2 Cal. 4th at 1277.

Similar language appears in other cases. See , e.g., Novell, Inc. v. Federal Ins. Co., 141 F.3d 983, 988-90 (10th Cir. 1998); Microtec Research v. Nationwide Mut. Ins. Co., 40 F.3d 968, 971 (9th Cir. 1994); El-Com Hardware Inc., supra, 92 Cal. App. 4th at 215-216.

Importantly, certain offenses, such as trademark and trade dress infringement, have been held by some courts to be so inherently related to an insured’s advertising activity that the causal nexus requirement will be automatically met. See, e.g., Houbigant, Inc. v. Federal Ins. Co., 374 F.3d 192, 200-02 (3rd Cir. 2004) (equating use of trademarks with advertising); Massachusetts Bay Ins. Co. v. Preville, Inc., 1996 U.S. Dist. LEXIS 9671 (S.D.N.Y. 1996) (trade dress); but see Peerless Lighting Corporation v. American Motorists Ins. Co., 82 Cal. App. 4th 995 (2000) (rejecting policyholder’s argument that advertising was “inherent” in allegation of trade dress infringement).

Key Business Torts Potentially Covered Under Advertising Injury Coverage

As noted above, the scope of coverage available under “advertising injury” coverage is determined, in the first instance, by the description of the particular offenses contained in the pertinent policy. Because policy language may vary, the following list is a sample of possible business torts which, depending on the language of the policy in question, could potentially be covered:

• Trademark infringement. The current CGL form excludes liability based on infringement of trademarks, trade secrets or other intellectual property. However, earlier CGL forms were ambiguous regarding coverage for trademark infringement, and the 1986 CGL form added coverage for “misappropriation of advertising ideas or style of doing business” which some courts interpreted to include coverage for trademark infringement. See Central Mutual Ins. Co. v. StunFence, Inc., 292 F. Supp. 2d 1072, 1078-79 (N.D. Ill. 2003); Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group, 50 Cal. App. 4th 548, 562-563 (1996) (a trademark can reasonably be considered an integral part of an entity’s style of doing business). Courts have also found coverage for trademark infringement when the policy provides coverage for infringement of slogans or titles and the trademark is part of a slogan or title . J.A. Brundage Plumbing & Roto-Rooter, Inc. v. Massachusetts Bay Ins. Co., 818 F. Supp. 553 (W.D.N.Y. 1993).
• Trade dress infringement. At least one court has held that trade dress infringement is a species of trademark infringement and is covered when trademark infringement is an enumerated offense.  El-Com Hardware Inc., supra, 92 Cal. App. 4th at 215. When trademark infringement is not a covered offense, a majority of courts consider “style of doing business” the same as trade dress. See, e.g. , Dogloo, Inc. v. Northern Ins. Co. of New York, 907 F. Supp. 1383, 1389 (C.D. Cal. 1995). However, the current CGL form provides coverage for trade dress only if it is part of the policyholder’s advertising.  Although some courts have held that trade dress inherently constitutes advertising (e.g., Poof Toy Products, Inc. v. United States Fidelity & Guar. Co., 891 F. Supp. 1228, 1235-36 (E.D. Mich. 1995)), a majority of courts have held that the trade dress infringement must occur in the policy holder’s advertising.  See, e.g., R. C. Bigelow, Inc. v. Liberty Mutual Ins. Co., 287 F.3d 242, 247 (2d Cir. 2002).
• Copyright infringement. In the current CGl form, coverage for copyright infringement is provided when the infringement is part of the insured’s advertising; the issue in these cases is usually whether the insured can show the required nexus between the infringement and its advertising. See, e.g., Sentry Ins. v. R.J. Weber Co., 2 F.3d 554 (5th Cir. 1993) (publishing, distributing, and selling opponent's copyrighted works does not bear sufficient causal connection to sustain coverage for advertising injury); Robert Bowden, Inc. v. Aetna Cas. & Sur. Co., 977 F. Supp. 1475 (N.D. Ga. 1997) (no nexus found when insured claimed it was induced to copy software in order to create its advertising campaign).
• Patent infringement. Where patent infringement is not a specified policy offense, the majority view is that it will not be covered under “advertising injury” coverage. See, e.g., Iolab Corp. v. Seaboard Surety Co., 15 F.3d 1500 (9th Cir. 1994); New Hampshire Ins. Co. v. R.I. Chaides, 847 F. Supp. 1452 (N.D. Cal. 1994). But see Amazon.com International, Inc. v. American Dynasty Surplus Lines Ins. Co., 120 Wash. App. 610 (2004) (patent infringement covered under “misappropriation of advertising ideas” offense where infringed software itself constituted or embodied advertising technique).
• Misappropriation of trade secrets. The majority view is that there is no coverage for theft or misappropriation of trade secrets. See, e.g., Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219 (9th Cir. 1996); Hameid, supra, 31 Cal. 4th at 20 (noting that lower court had found no duty to defend “because the underlying lawsuit claimed misappropriation of trade secrets, and not advertising injury”). But see Sentex Systems, Inc. v. Hartford Accident & Indem. Co., 93 F.3d 578, 580 (9th Cir. 1996) (distinguishing Simply Fresh on the ground that the claims for misappropriation of trade secrets related to marketing and sales and not to secrets relating to the manufacture and production of the underlying products).
• Libel, slander and defamation. Because libel, slander and defamation are often listed as enumerated offenses, the issue often addressed by the cases is whether a complaint which does not expressly allege one of these torts may nonetheless give rise to a “potential for liability.” See, e.g., American Guarantee and Liability Ins. Co. v. Vista Medical Supply, 699 F. Supp. 787, 793-94 (N.D. Cal. 1988) (there was potential for defamation claim in wrongful termination lawsuit); CNA Cas. of California v. Seaboard Surety Co., 176 Cal. App. 3d 598 (1986) (antitrust claim included allegations that the insured made misrepresentations; those allegations created potential liability under policy coverage for libel, slander or other defamatory material). Both American Guarantee and Seaboard were decided before the California Supreme Court decision in Buss v. Superior Court, 16 Cal. 4th 35 (1997). In Buss, the Court held that in a “mixed action,” where both covered and uncovered claims are alleged, the insurer must defend the entire action and may not “parse” or apportion its defense allegations. Id. at 49. Inasmuch as only a “potential for coverage” will trigger this duty, there may often be a potential for coverage in cases involving business torts — even where one of enumerated offenses is not expressly alleged.
• Violation of right of privacy. The right of privacy encompasses the following four torts: public disclosure of private facts; intrusion into private places, conversations, or other private affairs; presentation to the public in a false light; and misappropriation of one’s image or personality. The right of privacy belongs only to individuals, so business entities cannot sue for violation of the right of privacy. Fibreboard Corp. v. Hartford Accident. & Indem. Co., 16 Cal. App. 4th 492, 515-516 (1993).

• Unfair competition. Where unfair competition is listed as an enumerated offense, coverage for such claims has been limited to common-law claims and not claims arising under particular statutes, such as Cal. Bus. & Prof. Code § 17200. Bank of the West, supra, 2 Cal. 4th at 1263. See also A-Mark Financial Corp. v. Cigna Property and Cas. Companies, 34 Cal. App. 4th 1179 (1995) (no coverage for unfair competition arising under foreign state’s statute, even though that statute allowed for recovery of damages).  Where unfair competition is not listed as an enumerated offense, there is no coverage even though an enforcement action alleging violation of a state unfair competition statute involves a policy holder’s advertising and marketing practices.  GPSC Charters Ltd. v. Fireman’s Fund Ins. Co., 2006 U.S. Dist. LEXIS 44716 (E.D. Pa. June 30, 2006). As noted above, the more recent policy forms have eliminated this tort as a specifically enumerated offense.

As the examples above indicate, courts have upheld coverage for a wide variety of business torts under the advertising injury provision of CGL policies. Although courts in different jurisdictions are not uniform in their interpretation of what constitutes advertising, it does appear that most courts broadly construe the advertising injury language to encompass activities beyond traditional commercials and print advertisements. This suggests that insureds will be more likely to notify their insurance carriers when confronted with complaints alleging business torts, which can lead to more litigation over the duty of insurance carrier to defend such actions.

Peter Selvin is a partner in Loeb & Loeb LLP's Litigation Department. He is a trial lawyer whose practice is focused on complex commercial, financial and corporate disputes; insurance coverage and bad faith litigation; and international litigation and arbitration.

This article is reprinted with permission from Volume XXIX No. 1 issue of the Fall 2006 edition of the Association of Business Trial Lawyers. © 2006 ABTL. All rights reserved.