To the extent businesses worry about the risk of being sued for copyright or trademark infringement in their marketing materials, they may assume that they are protected by their business liability insurance, the same insurance that covers liability for slips and falls and damage to property. However, many business liability policies that include coverage for advertising injury (commonly called personal and advertising injury coverage) are so diluted by restrictive definitions and broad exclusions as to render the coverage illusory.
A Few General Points
- If you are in a media business of any kind (such as publishing or advertising, whether in print or online), you should know that your business liability policy will specifically exclude any coverage for advertising injury, and you will need to purchase a special media errors and omissions policy that covers claims for defamation, invasion of privacy, copyright infringement and similar offenses.
- An insurer’s duty to defend (to pay attorneys’ fees and other litigation expenses, which can greatly exceed liability for actual financial liability for an infringement) is broader than its duty to indemnify (to pay the costs of a settlement or a judgment). Therefore, where there is ambiguity, the insurer may determine it has a duty to defend.
Advertising Injury Coverage in Business Liability Policies
The Insurance Services Office (ISO), an insurance advisory organization, provides standard policy forms that are typically used by insurers. These forms have evolved over time, and whether there is coverage in a particular case may depend on the version of the ISO form that is being used in the relevant policy or policies. In addition, courts have interpreted the ISO forms inconsistently, with the end result that there is little clear guidance in the area as to when a particular claim is covered. As a general statement, as courts have become more liberal in interpreting the coverage, ISO forms have become more restrictive.
Typical coverage clauses define personal and advertising injury to include, among other things, injury that arises from the insured’s (your):
- Copying, in your advertisement, a person’s or organization’s advertising idea or style of advertisement,
- Infringement of copyright, slogan, or title of any literary or artistic work, in your advertisement.
In order to be covered, the infringement must occur in the context of advertising, generally a defined term in the policy, and there must be a causal connection between the advertising and the alleged injury. Newer policies specifically include coverage for dissemination of information about the insured’s product via the Internet.
Typically, the policy will contain what is known as an intellectual property exclusion. It might read like this:
[Personal and advertising injury does not include injury] arising out of any actual or alleged infringement or violation of any intellectual property rights, such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity.
And then, in a twist worthy of the Internal Revenue Code, many policies continue:
However, this exclusion does not apply if the only allegation in the claim or suit involving any intellectual property right is limited to:
Infringement in your advertisement, of
- Title of any literary or artistic work; or
- Copying in your advertisement, a person’s or organization’s advertising idea or style of advertisement.
In the trademark area, much of the confusion has revolved around the word “slogan.” Courts are divided as to whether a trademarked phrase can fit within the exception to the exclusion carved out for slogans. Here is one example: The federal district court in Massachusetts, interpreting similar language, recently held that a complaint alleging infringement of a company’s registered trademark OSSEAN by the insured’s OSSEO marks could not be construed as a claim for slogan infringement, and that, therefore, the insurer had no duty to defend the claim. That court distinguished between a phrase used to promote or advertise a house mark or product and a trademark functioning as a source identifier of products or services. (Sterngold Dental, LLC v, HDI Global Ins. Co., 2018 U.S. Dist LEXIS 169196 at *9 (D. Mass. September 29, 2018), aff’d 929 F.3d 1 (1st Cir. 2019), citing Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608 (2d Cir. 2001)).
With respect to claims of copyright infringement, ambiguity also prevails. Unlike trademark infringement claims, which, by their nature, involve advertising (see Poof Toy Prods. v. United States Fld. & Guar. Co., 891 F. Supp. 1228 (E.D. Mich. 1995), the relationship between a copyright claim and advertising is not automatic. Further, the term “in your advertisement” in the newer ISO language such as that quoted above is arguably more restrictive than a prior ISO formulation of “in the course of advertising.”
In addition to the intellectual property exclusion, other exclusions may lead an insurer to deny coverage — for example, policies typically exclude coverage for acts of the insured that are intended to, or could reasonably be expected to, cause injury or for material first published before the beginning of the policy period.
Note that, even if your current policy does not cover an alleged infringement, it is worth checking your prior policies as well, since they may be implicated depending on the period to which the claim relates. We saved a client substantial legal fees in just that situation — its current policy specifically excluded claims for advertising injury, but an older policy included the coverage. Because the complaint did not specify when the alleged infringements occurred, the prior insurer found it had a duty to defend the claims.
The Bottom Line
Do not assume that advertising injury provisions of your general liability policy provide adequate IP coverage. Narrow definitions, myriad exclusions, ambiguous policy language and inconsistent legal interpretations suggest that you might want to consider a specialized IP policy. These policies, which cover defense and indemnity costs if you are sued for infringement of a third party’s intellectual property, are specifically underwritten, and premiums and coverage are determined with reference to such factors as the size of the company, the extent of products created, the insured’s IP practices, and the litigiousness of the particular industry. Premiums for policies covering trademarks, copyrights and trade secrets are typically 1-3 % of the policy limits, with retention (similar to deductible) and co-insurance requirements. Patent infringement coverage is more expensive.
This discussion has been limited to insurance for defending IP claims. There is also an insurance product called enforcement (or abatement or pursuit) insurance that pays your costs of pursuing infringers. These plaintiffs’ policies require you to reimburse the insurer for funds it has advanced if you have a successful outcome. Unlike other litigation funding arrangements, you pay zero interest and no other share of the recovery. Enforcement policies are typically less costly than defensive insurance.
A Final Note
It’s important to take a hard look at your insurance policy and understand where the gaps are. We are available to consult with you about the various options, so don’t hesitate to ask. Of course, thorough searching and analysis BEFORE you invest in your IP is the first and most important risk management measure.