by Linda A. Galella, Esq.
Commercial general liability (“CGL”) policies commonly provide coverage for bodily injury and property damage. However, these policies also cover “advertising injury.” Advertising injury coverage applies to damages from specified torts that arise out of advertising. Advertising injury is not “all risk” coverage. It is “named peril” coverage. The covered “perils” vary by policy. Typical torts include: (1) Libel, slander or business disparagement; (2) Violation of right of privacy; (3) Misappropriation of advertising ideas or styles of doing business; and (4) Infringement of copyright, title or slogan. Because the covered “perils” or torts vary, it is necessary to check the individual policy in order to determine whether there is coverage.
“Advertisement” is defined as:
A notice that is broadcast or published to the general public or specific market segments about your goods, products, or services for the purpose of attracting customers or supporters. FileNet v. Chubb, 324 N.J. Super. 476 (Law Div. 1997), aff’d 324 N.J. Super. 419 (App. Div. 1999).
Issues regarding coverage arise over whether the insured’s alleged misconduct occurred in the course of “advertising”; whether the misconduct falls within the definition of advertising injuries; and whether a causal connection exists between the advertisement and the alleged injury. Advertising injury coverage has been at issue in only two reported cases in New Jersey, FileNet, and Tradesoft Technologies, Inc. v. The Franklin Mutual Insurance Company, Inc., 329 N.J. Super. 137 (App. Div. 2000). In the case of FileNet, the Court held that advertising injury provisions do not provide coverage for claims of patent infringement or inducement of infringement. The case of Tradesoft Technologies, further affirms this opinion. Therefore, New Jersey courts do not find coverage for patent infringement under the advertising injury provisions of CGL policies.
The recent Appellate Division case of Tradesoft Technologies appears to continue the trend that indemnification and defense for torts or perils under this provision are difficult to obtain. Tradesoft Technologies involved a declaratory judgment action arising out of the advertising injury coverage of the casualty and general liability policy issued by defendant, The Franklin Mutual Insurance Co., Inc. to plaintiff, Tradesoft Technologies Inc. Defendant appealed from a partial summary judgment declaring its obligation to defend and indemnify plaintiff with respect to a separate action brought against Tradesoft by EBS Dealing Resources Inc. (“EBS”) which alleged patent and trademark infringement, misappropriation of trade secrets, breach of contract, tortious interference with contract and unfair competition.
In that case, the advertising injury coverage was contained in Section 11 of Part II B of the policy, titled “Supplemental Coverages.” The policy provided that supplemental coverage applies only to:
Advertising injury arising out of an offense committed in the course of advertising goods, products, or services of your business-operations coverage year.”
The policy further provides:
Advertising injury means solely the following:
- Infringement of copyright, slogan, or title.
- Misappropriation of advertising ideas or style of doing business.
- Oral or written publication of material that: slanders or libels a person or organization; 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.
The coverage expressly excludes “(i)njury arising out of oral or written publication of material which first publication took place prior to the beginning of this policy or such coverage under this policy.” Another exclusion is for “(i)njury arising out of breach of contract, other than misappropriation of advertising ideas under implied contract.” Finally, the coverage provides that “(a) covered defense must take place within the policy term…”
The issue was whether the allegations in the complaint filed by EBS triggered Franklin’s duty to defend Tradesoft under the advertising injury coverage of the policy.
The court held that a patent infringement, either by way of manufacture, use or sale of the patented invention or by way of an offer to sell or otherwise, is not within the commonly understood meaning of “advertising ideas” or “styles of doing business covered by the infringement and misappropriation definitions of the policy.” The court further addressed whether the common law tort counts are covered by the policy. The court found that the two breach of contract counts are excluded from coverage by the specific exclusion of “injury arising out of breach of contract, other than misappropriation of advertising and ideas under implied contract.”
The remaining common law counts were namely: misappropriation of trade secrets and other proprietary information, tortious interference with contractual relationships and common law unfair competition. In determining whether these torts are within the coverage, the court must look to the basic policy meaning of an “advertising injury.” The policy defines it as an injury “arising out of an offense committed in a course of advertising goods, products or services…” Not every injury is covered – the only covered injuries are copyright, slogan or title infringement, misappropriation of advertising ideas or style of doing business, defamation and invasion of privacy. Moreover, the injury must result from an offense committed in the course of advertising. In other words, in order for there to be coverage, there must be a causal connection between the advertising and the injury must fall within one of the four categories defined by the policy. Thus, the import of advertising injury coverage was to afford protection to the insured for offenses committed while undertaking advertising activities that caused specifically defined injuries. The court found that the tortious interference claims alleged by EBS do not allege an advertising injury within the meaning of the policy. With respect to the claim of misappropriation of trade secrets, the court held that this may be covered provided the first publication exclusion does not otherwise bar the coverage and provided that the offense was committed after the effective date of the policy. As for the unfair competition count of the Complaint, this was alleged in broad terms and encompassed all the other allegations in the Complaint. As such, it did not create a separate cause of action.
Not all general liability policies have the same standard form of advertising injury coverage. Therefore, one must review the advertising injury coverage with the injury in question in order to determine whether there is available coverage. The impact of Tradesoft Technologies is that indemnification and cost of defense for advertising injuries remain difficult to obtain due to the narrow scope of the coverage.
This article was written by Linda A. Galella
© 2000 Capehart & Scatchard, P.A.
