1 OVERVIEW OF COVERAGE B REBECCA DIMASI Van Osselaer & Buchanan LLP 9600 Great Hills Trail, Suite 300 West Austin, Texas State Bar of Texas 9 th ANNUAL ADVANCED INSURANCE LAW COURSE April 12-13, 2012 Dallas CHAPTER 14
3 REBECCA DIMASI VAN OSSELAER & BUCHANAN LLP 9600 Great Hills Trail, Suite 300 West Austin, Texas Fax Ms. DiMasi is a partner in the firm of Van Osselaer & Buchanan in Austin, Texas, and concentrates her litigation practice in insurance coverage. She routinely counsels carriers, policyholders and their counsel in complex coverage litigation and in connection with other suits where coverage issues affect strategy or outcome. Ms. DiMasi is a 1998 cum laude graduate of Baylor University School of Law, and received her B.A., with honors, from the University of Texas in While in law school, she was a Member of the Order of the Barristers and the Baylor Moot Court team, and served as Managing Editor of the Baylor Law Review. From , Ms. DiMasi was a law clerk to the Honorable Sam D. Johnson of the United States Court of Appeals for the Fifth Circuit. In addition to all courts of the State of Texas, she is admitted to practice in all federal districts in Texas, as well as the U.S. Court of Appeals for the Fifth Circuit, and the U.S. Supreme Court. Ms. DiMasi has been named a Rising Star in insurance coverage by Law and Politics and Texas Monthly magazines every year from 2006 through the present.
5 TABLE OF CONTENTS I. RELEVANT POLICY PROVISIONS... 1 II. COMMON PERSONAL AND ADVERTISING INJURY CLAIMS... 2 A. Publication of Material that Slanders, Libels or Disparages Disparagement Defamation Slander of Title... 3 B. Violation of Right of Privacy... 3 C. Use of Another s Advertising Idea Trademark Infringement Patent Infringement Misappropriation of Trade Secrets... 4 D. Copyright, Trade Dress or Slogan Infringement Copyright Infringement Trade Dress Infringement... 4 III. COMMONLY APPLIED EXCLUSIONS... 5 A. Knowing Violation of Rights of Another... 5 B. Material Published With Knowledge of Falsity... 5 C. First Publication... 6 D. Criminal Acts... 6 E. Breach of Contract... 7 F. Infringement of Copyright, Patent, Trademark or Trade Secret... 7 G. Insureds in Media and Internet Type Businesses... 7 IV. EMERGING ISSUES... 8 V. CONCLUSION... 8 i
7 OVERVIEW OF COVERAGE B Since the late 1990 s, the internet has had a dramatic impact on the way companies conduct their business, and has allowed them to engage in nearly instantaneous dissemination of information about their products and services. It has also made spreading information about a competitor, or taking a competitor s intellectual property, as easy as clicking a mouse. As a result, the need for insurance for claims involving internet related liabilities and intellectual property claims is on the rise. Coverage for such claims, to the extent available under a Commercial General Liability ( CGL ) policy, is addressed under Coverage B. Unlike Coverage A, Coverage B does not require an occurrence, property damage, or bodily injury. Instead of providing coverage for an accident, Coverage B addresses a laundry list of seemingly intentional conduct. More specifically, Coverage B addresses personal and advertising injury, and deals with financial damages the insured causes to another person or entity as a result of various offences such as disparagement, defamation, violation of privacy rights, use of another s advertising ideas, and various forms of infringement. This paper will analyze the types of claims generally covered, the exclusions which may apply, as well as trends in new cases where coverage may be available. I. RELEVANT POLICY PROVISIONS The coverage grant for Coverage B in a standard CGL policy (ISO Form CG ) 1 provides as follows: COVERAGE B PERSONAL AND ADVERTISING INJURY LIABILITY 1. Insuring Agreement 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 the insured against 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. Form CG Thus, like Coverage A, Coverage B provides for the defense of a suit alleging covered damages in the coverage territory during the policy period. However, under Coverage B, the term occurrence does not appear, and personal and advertising injury, includes the following: a. False arrest, detention or imprisonment; b. Malicious prosecution; c. 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; d. 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; e. Oral or written publication, in any manner, of material that violates a person s right of privacy; f. The use of another s advertising idea in your advertisement ; 2 or g. Infringing upon another s copyright, trade dress or slogan in your advertisement. Id. Paragraphs d through g are generally implicated in business disputes, and will be addressed below. Advertisement is currently 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 For the purposes of this definition: 1 The 2001 CGL ISO form is currently the most commonly used policy form. The 2004 version is substantially similar to the 2001 form with respect to the provisions addressed herein. Prior ISO forms (before 1998) included separate definitions of personal injury and advertising injury, and did not define the term advertisement. 1 a. Notices that are published include material placed on the Internet or on 2 This portion of the definition was changed in the 1998 ISO form. The prior definition included misappropriation of advertising ideas or style of doing business.
8 similar electronic means of communication; and b. Regarding web-sites, only that part of a web-site that is about your goods, products or services for the purposes of attracting customers or supporters is considered an advertisement. Id. In versions of the ISO CGL form prior to 1998, a definition of advertisement was not included, and courts struggled with the scope of the term advertising. Noting that the Texas Supreme Court had required some sort of public notice to find that a party had engaged in advertising, the Fifth Circuit held that the prior policy form required a measure of public dissemination. Continental Cas. Co. v. Consolidated Graphics, Inc., 646 F.3d 210, (5 th Cir. 2011). Similarly, the Fifth Circuit has held that the term advertising refers to a public announcement (such as on a billboard, in a newspaper, on a signpost, or in a television or radio commercial) that induce[s] the public to patronize a particular establishment or to buy a particular product. See Sport Supply Group, Inc. v. Columbia Cas. Co., 335 F.3d 453, 464 (5th Cir. 2003); see also Gemmy Indus. Corp. v. Alliance Gen l Ins. Co., 190 F. Supp. 2d 915, 919 (N.D. Tex. 1998) (defining advertising in part as calling public attention to one s product). In addition to defining the term advertisement, the newer policy forms have included specific references to use in your advertisement for certain acts, thereby requiring a connection between the offence and the advertisement. However, even before the revisions, where pleadings failed to reference advertising in relation to the insured s liability, courts had found that the causal nexus requirement was not satisfied. In Sentry Insurance v. R.J. Weber Company, Inc., for example, the pleadings alleged copyright infringement by copying, publishing, distributing and selling copies of [parts books] but stated nothing about advertising. 2 F.3d 554, 557 (5 th Cir. 1993). The Fifth Circuit concluded that the insured had not demonstrated a connection between advertising activities and the plaintiff s claim and, therefore, no coverage was available. Id.; see also Delta Computer Corp. v. Frank, 196 F.3d 589 (5 th Cir. 1999) (La. law) (claim that insured misappropriated plaintiff s copyrighted computer software, with no reference to advertising, failed to establish causal connection). 2 II. COMMON PERSONAL AND ADVERTISING INJURY CLAIMS A. Publication of Material that Slanders, Libels or Disparages 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 Claims for defamation and disparagement are generally included under paragraph d of the definition of personal and advertising injury. Notably, the provision does not contain the in your advertisement requirement that is contained in paragraphs f and g of the definition. Moreover, the coverage grant, which in older policy forms stated that advertising injury had to be caused by an offence in the course of advertising your goods, products and services, now states that personal and advertising injury must be caused by an offense arising out of your business. Thus, it appears that under the new policy forms, analysis of whether the defamation or disparagement occurred in the course of advertising may no longer be necessary. See, e.g., KLN Steep Products, Co., Ltd. v. CNA Ins. Cos., 278 S.W.3d 429, 438 (Tex. App. San Antonio 2008, pet. denied) (noting that in newer policies, publication must arise from the insured s business, and in older policies, the advertising injury provision required disparagement in the course of the insured s advertising). 1. Disparagement The San Antonio Court of Appeals addressed the meaning of the term disparages, and held that CGL policies do not incorporate the elements of the business tort of disparagement, in determining whether Coverage B applies. KLN Steel Products Co., 278 S.W.3d at 438. Recognizing that the plain meaning must be ascribed to an undefined term, the court noted that the dictionary defines disparage as to lower in rank or reputation; DEGRADE or speak slightingly about. Id. (citations omitted). The court found allegations that the insured stole or copied the plaintiff s design did not support a disparagement claim because the insured did not make any negative remarks about the plaintiff s product. Id. Other courts have defined disparage, in the context of coverage for an advertising injury as a statement about a competitor s goods which is untrue or misleading and is made to influence the public not to buy. Winklevoss Consultants, Inc. v. Federal Ins. Co., 11 F. Supp.2d 995, 999 (N.D. Ill. 1998) (citing DecisionOne Corp. v. ITT Hartford Ins. Group, 942 F. Supp. 1038, 1043 (E.D. Pa. 1996)). In the Winklevoss
9 case, the court held that false statements made about a competitor s goods, which were made in an attempt to steer customers away, constituted disparagement. 3 Winklevoss, 11 F.Supp.2d at 999. The DecisionOne court held that allegations that the insured had falsely designated the origin and source of its ability to maintain certain equipment and had falsely promoted its maintenance of the equipment fell within the advertising injury definition of disparagement. DecisionOne, 942 F.Supp. at Defamation Under Texas law, to maintain a cause of action for defamation, the plaintiff must prove that the defendant (1) published a statement to a third party, (2) that was defamatory concerning the plaintiff, (3) while acting with either actual malice, if the plaintiff was a public figure, or negligence, if the plaintiff was a private individual, regarding the truth of the statement. WFAA-TV, Inc. v. McLemore, 978 S.W.2d 568, 571 (Tex. 1998). Based on these elements, a defamation claim can qualify as an [o]ral or written publication, in any manner, of material that slanders or libels a person or organization.... For example, a letter characterizing a plaintiff s work as sloppy, callous, unacceptable, impersonal and indifferent, and stating that his conduct was outrageous and the basis of a multi-million dollar settlement, fell within the term advertising injury. Atlantic Lloyd s Ins. Co. v. Susman Godfrey, L.L.P., 982 S.W.2d 472 (Tex. App. Dallas 1998, pet. denied). Further, because a statement that a company is out of business or bankrupt is defamatory, such allegations fell within the scope of personal and advertising injury, subject to the potential application of exclusions. Burlington Ins. Co. v. Superior Nationwide Logistics, Ltd., 783 F.Supp.2d 958 (S.D. Tex. 2010). 3. Slander of Title Slander of title pertains only to real property; therefore, it does not apply to a person organization, good, product or service. See Nationwide Mut. Ins. Co. v. Lake Caroline, Inc., 551 F.3d 414, 421 (5 th Cir. 2008) (Mississippi law). Therefore, slander of title is not included in the definition of personal and advertising injury. Id. 3 The allegations included claims that the insured s software could perform certain functions that the plaintiff s software could not, false statements about the speed of its software relative to its competitors, and misleading statements regarding both parties products. Winklevoss, 11 F.Supp.2d. at B. Violation of Right of Privacy Oral or written publication, in any manner, of material that violates a person s right of privacy A federal district court in Texas held that allegations regarding blast faxes can support a claim for advertising injury as a violation of the right of privacy. See Western Rim Invest. Advisors, Inc. v. Gulf Ins. Co., 269 F.Supp.2d 836, (N.D. Tex. 2003). In the Western Rim case, the plaintiffs alleged that the insured violated their rights of privacy when they faxed unsolicited advertisements to plaintiffs. Id. at 846. The court held that the publication requirement was satisfied when the faxes were sent to the plaintiffs. Id. Further, the unwanted advertisement constituted material that was offensive and violated the plaintiffs right to privacy. Id. In 2005, ISO promulgated an endorsement which adds an exclusion of coverage for violations of statutes governing s, faxes, phone calls or other methods of sending information. See Form CG C. Use of Another s Advertising Idea 4 The use of another s advertising idea in your advertisement 1. Trademark Infringement Insureds have argued that trademark infringement constitutes either misappropriation of advertising ideas or infringement of copyright, title or slogan. See Sport Supply Group, Inc. v. Columbia Cas. Co., 335 F.3d 453, 457 (5 th Cir. 2003). The Fifth Circuit has held that a trademark, standing alone, generally will not constitute advertising. Id. at Interpreting an exception to an exclusion (which allowed coverage for misappropriation of advertising ideas under an implied contract), the court held that trademark infringement could qualify as misappropriation, thereby specifically disagreeing with the Sixth Circuit in Advance Watch Co. v. Kemper Nat l Ins. Co., 99 F.3d 795 (6 th Cir. 1996). However, because trademarks are generally labels which serve to identify and distinguish rather than market, the trademark, in and of itself, was not advertising. Id. at 463. Citing Sport Supply Group, the court again recently held that the definition of advertising does not include trademarks; therefore, trademark infringement claims do not involve misappropriation of advertising ideas. America s 4 As noted above, this provision replaced the former language including misappropriation of advertising ideas.
10 Recommended Mailers, Inc. v. Maryland Cas. Co., No , 2009 WL at *2 (5 th Cir. 2009). 2. Patent Infringement At least one Texas state court has held that while the term advertising injury could cover patent infringement in some circumstances, the injury still must result from advertising activities. Cigna Lloyds Ins. Co. v. Bradley s Elec., Inc., 33 S.W.3d 102, (Tex. App. Corpus Christi 2000, pet. denied). Although many practitioners generally believed that no coverage was available for patent infringement claims, two recent cases from the Ninth Circuit and the Tenth Circuit have found advertising activities in connection with patent infringement claims. Dish Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010, 1017 (10 th Cir. 2011); Hyundai Motor Am. v. Nat l Union Fire Ins. Co., 600 F.3d 1092, 1098 (9 th Cir. 2010). In Hyundai, the court found that a patented build your own vehicle feature on a web page constituted advertising. 600 F.3d at Because the patent concerned the method of advertising, the required causal connection existed. Id. at Thus, the use of the BYO feature in the website is itself an infringement of the patent because it is the use of the BYO feature that violates the patent.... Furthermore, and critically, it is that use that caused the injuries.... Id. at Similarly, in Dish Network, the insured allegedly committed patent infringement by using the plaintiff s technology to sell its own products and services. 659 F.3d at Following the Hyundai rationale, the court held that patent infringement can qualify as advertising injury if the patent itself involves a process or invention that could be considered an advertising idea. Id. at Thus, under narrow circumstances, patent infringement may be covered, unless otherwise excluded. However, an exclusion (which will be addressed below) was added to the 2001 ISO form which specifically bars coverage for patent infringement claims. 3. Misappropriation of Trade Secrets Insureds have attempted to find coverage for misappropriation of trade secrets under the prior ISO form s provision for misappropriation of advertising ideas or style of doing business. Texas courts have generally held that misappropriation of trade secrets does not involve advertising. Continental Cas. Co. v. Consolidated Graphics, Inc., 646 F.3d 210, 214 (5 th Cir. 2011); Pennsylvania Pulp & Paper Co. v. Nationwide Mut. Ins. Co., 100 S.W.3d 566, 572 (Tex. App. Houston [14 th Dist.] 2003, pet. denied). D. Copyright, Trade Dress or Slogan Infringement Infringing upon another s copyright, trade dress or slogan in your advertisement 1. Copyright Infringement Copyright Infringement is included in the definition of personal and advertising injury; however it is also included in a specific exclusion. Consistent with both the definition requiring that the infringement be in an advertisement, and the exception to the exclusion pertaining to advertising, courts applying Texas law have held that the policy covers a copyright infringement suit only if [the insured] infringes someone s copyright in the course of its advertising. If [the insured] infringes a copyright in another context, there is no coverage under the terms of the policy. Sentry Ins. Co. v. R.J. Weber Co., 2 F.3d 554, 556 (5th Cir. 1993); Cigna Lloyds Ins. Co. v. Bradley s Elec., Inc., 33 S.W.3d 102, 106 (Tex. App. Corpus Christi 2000, pet. denied) (for suit to trigger coverage, must allege that insured s advertising activities are responsible, directly or indirectly, for infringement). 2. Trade Dress Infringement Trade Dress Infringement is now specifically included in the definition of personal and advertising injury, when it is done in an advertisement. 5 In order to determine the meaning of trade dress infringement under a CGL policy, the San Antonio Court of Appeals looked to the elements of the federal Lanham Act, as well as cases interpreting the act. KLN Steel Products Co., Ltd. v. CNA Ins. Cos., 278 S.W.3d 429, 441 (Tex. App. San Antonio 2008, pet. denied). The court noted that trade dress involves the overall image of a product in the marketplace, including its specific features, packaging and labeling. Id. When a trade dress is nonfunctional and distinctive, it may be entitled to protection. Id. Trade dress protection is implicated when the design or packaging of a product acquires a distinctiveness which serves to identify the product with its manufacturer or source. Id. (citing TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 28, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001)). Recognizing the Supreme Court s admonishment that copying goods 5 Under the prior ISO form, trade dress infringement was generally held to be a misappropriation of advertising ideas or style of doing business. See Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co., 61 F.Supp.2d 611, 618 (S.D. Tex. 1999). 4
11 and products is, in many cases, not prohibited, the court held that copying a product is not equivalent to infringing a product s trade dress. Id. Trade dress infringement generally is composed of two elements: (1) the trade dress must be valid, in that the public recognizes the non-functional design as distinguishable from other products; and (2) the trade dress must be infringed, i.e. the defendant s product is so similar to the plaintiff s product that confusion will likely result. Id. In the KLN Steel case, allegations that the insured misappropriated the dimensions and other design features of the plaintiff s product, and marketed its equivalent product did not state a covered claim for trade dress infringement. Id. at 442. First, there was no feature of the product that was alleged to be distinctive or nonfunctional. Id. Second, the complaint did not allege that the insured copied and supplied the product, but rather that it intended to create a similar product. Id. The court held that a product that does not yet exist cannot infringe trade dress. Id. Therefore, there was no allegation of trade dress infringement against the insured to trigger coverage under the policy. The Fifth Circuit also addressed a request for coverage based on trade dress claims in a Lanham Act suit. America s Recommended Mailers, Inc. v. Maryland Casualty Company, No , 2009 WL at *1 (5 th Cir. 2009) (not designated for publication). The court noted that it had defined trade dress as the design or packaging of a product which serves to identify the product s source, and that it can include advertising materials and marketing techniques. Id. at *2 (citations omitted). Because the plaintiff alleged only that the insured inappropriately used its trademark in a deceptive manner (and had not challenged any aesthetic aspect of the advertisements), it did not constitute a covered trade dress claim. Id. III. COMMONLY APPLIED EXCLUSIONS Several exclusions limit coverage for personal and advertising injury. Many of the exclusions are geared toward restricting coverage where the act causing the claim was an intentional act or knowing violation of the law. Others address the timing and nature of the insured s alleged offense, and the insured s type of business generally. The typical policy exclusions are addressed below. A. Knowing Violation of Rights of Another Personal and advertising injury caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury 5 The Knowing Violation exclusion will bar coverage if the factual allegations establish that the plaintiff is relying exclusively on allegations of intentional conduct. See Ryland Group, Inc. v. Travelers Indemn. Co., No. Civ.A-00-CA-233, 2000 WL at *10-11 (W.D. Tex. 2000) (not designated for publication) (holding that the issue presented was whether the complaint relies exclusively on allegations of intentional conduct, or whether a fair reading of [the complaint] shows that [the plaintiff] was pleading the claims of intentional infringement in the alternative to allegations that [the insured] infringed [the plaintiff s] copyrights by some means less than an intentional state of mind. ); The exclusion will apply if the insured (1) knows that the statement would violate another s rights, and (2) knows that the statement would inflict damage to another s reputation. Burlington Ins. Co. v. Superior Nationwide Logistics, Ltd., 783 F.Supp.2d 958, 964 (S.D. Tex. 2010). Thus, defamatory statements that the plaintiff was out of business, which were part of a scheme to attack and destroy... by using deception and confusion, were made with the defendant s knowledge that (1) the statements were false, (2) the statements would violate the rights of the plaintiff, and (3) the statements would damage the plaintiff s reputation. Id. at 965. Therefore, the exclusion applied to the duty to defend. Id. B. Material Published With Knowledge of Falsity Personal and advertising injury arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity Application of the Knowledge of Falsity exclusion also depends on whether the claimant s causes of action can be proven without establishing that the insured acted with the knowledge that its statements were false. If the factual allegations establish that the plaintiff is relying exclusively on allegations of intentional conduct, the exclusion will apply. Potomac Ins. Co. v. Peppers, 890 F. Supp. 634, 644 (S.D. Tex. 1995) (holding that [t]o the extent that [the plaintiff] alleged in his Fifth Amended Petition that all defamatory statements made by [the insured] were known by [the insured] to be false, the Policy s knowledge of falsity exclusion applies. ); American Guar. And Liab. Ins. Co. v. Shel-Ray Underwriters, Inc., 844 F. Supp. 325, 331 (S.D. Tex. 1993) (holding that where the original petition was replete with allegations that [the insured] knowingly made statements that it knew were false, no coverage was available). If, however, the plaintiff alleges that the insured acted knowingly, but states, in the alternative, that the
12 conduct was negligent or reckless, a duty to defend would exist. Nationwide Mut. Ins. Co. v. Lake Caroline, Inc., 515 F.3d 414, 420 (5 th Cir. 2008) (Mississippi law) (where malice has been alleged in the alternative and is defined to include reckless disregard for the truth, the knowledge of the falsity exclusion does not apply); Travelers Indemn. Co. v. Presbyterian Healthcare Resources, No. Civ.A.3:02- CV-1881, 2004 WL at *7 (N.D. Tex. Feb. 25, 2004) (not designated for publication) (where the plaintiff alleged that defamatory statements were made knowingly or recklessly, the knowledge of falsity exclusion did not apply). Applying Texas law, the Fifth Circuit has held that even where allegations involve false statements, if liability can be imposed without proving that the false statements were made with the knowledge that they were false, the knowledge of falsity exclusion will not apply to preclude coverage. 6 American Home Assurance Co. v. United Space Alliance, L.L.C., 378 F.3d 482, 488 (5th Cir. 2004). By way of example, under Texas law, malice is an element of a common law disparagement claim. See Hurlbut v. Gulf Atlantic Life Ins. Co., 749 S.W.2d 762, 766 (Tex. 1987). At least one Texas federal district court held that the malice requirement can be met without showing that the defendant knew its statement was false. OneBeacon Lloyds v. SA Discount Liquors, Inc., No. Civ. A. SA04CA0857FBNN, 2005 WL , slip op. at *4 (W.D. Tex. Sept. 1, 2005). Therefore, the court held that the knowledge of falsity exclusion did not apply. Id. Notably, the OneBeacon Lloyds court recognized that the underlying plaintiff in its case did not allege that the defendants knew the materials they published were false. Id. While a plaintiff s inability to prove a cause of action without showing that the defendant had knowledge of [the] falsity, is certainly a basis to establish that there is no duty to defend, courts also look further to determine whether the underlying plaintiff s allegations leave open the possibility that the insured acted without knowledge of the falsity of its conduct. Finger Furniture Co., Inc. v. Travelers Indemn. Co., No. Civ.A.H , 2002 WL at *13 (S.D. Tex., Aug. 19, 2002) (not designated for publication). 6 In American Home, the court indicated that some of the causes of action and allegations of conduct, such as breach and repudiation of contracts, as well as disparagement, are not types based on and do not involve knowingly fraudulent statements. 378 F.3d at C. First Publication Personal and advertising injury arising out of oral or written publication of material whose first publication took place before the beginning of the policy period The first publication exclusion addresses damages for infringement of material that was first published prior to the policy period. A Texas federal district court applied the exclusion to bar coverage in the trademark infringement context. Matagorda Ventures, Inc. v. Travelers Lloyds Ins. Co., 203 F.Supp.2d 704, 716 (S.D. Tex. 2000). In the Matagorda case, the insured advertised and sold wristwatches over the internet using a site called wristwatch.com. Id. at 706. The Modavo Group accused Matagorda of infringing its trademarks and copyrights on its website, alleging that the site falsely associated itself with Modavo in violation of the Lanham Act. Id. at 707. In particular, the Modavo Group alleged that Matagorda used its copyrighted photographs and published misleading text on the website. Id. at 710. The court held that the placement of the material on the wristwatch.com site constituted written publication of material within the meaning of the first publication exclusion. Id. at 714. Because the complaint s allegations made clear that the material on the website was first published before the inception date of the policy, the exclusion applied. Id. at In contrast, the Western District of Texas has held that the first publication exclusion may not apply where a complaint alleges the insured committed a large number of individual and separate offenses. Ryland Group, Inc. v. Travelers Indemn. Co., No. A-00-CA-233-JRN, 2000 WL at *8 (W.D. Tex. Oct. 25, 2000) (not designated for publication). In the Ryland case, the underlying plaintiff alleged that the insured made numerous individual and distinct advertisements of different copyrighted architectural plans. Id. The complaint further alleged that the insured has infringed and is infringing the copyrights. Id. Noting that each act of copyright infringement gave rise to an independent claim for relief, the court held that the complaint did not exclude the possibility that Ryland s allegedly infringing activities occurred during the Lumbermens policy period. Id. D. Criminal Acts Personal and advertising injury arising out a criminal act committed by or at the direction of the insured
13 Under the Policy, no coverage is available for personal and advertising injury arising out of the insured s criminal acts. This exclusion generally bars coverage for damages associated with an antitrust claim. See American Guar. And Liab. Ins. Co. v. Shel-Ray Underwriters, Inc., 844 F. Supp. 325, 331 n. 2 (S.D. Tex. 1993) E. Breach of Contract Personal and advertising injury arising out of a breach of contract, except an implied contract to use another s advertising idea in your advertisement Applying the Breach of Contract Exclusion, the Fifth Circuit has recognized that under Texas law, when an exclusion prevents coverage for injuries arising out of particular conduct, a claim need only bear an incidental relationship to the described conduct for the exclusion to apply. Sport Supply Group, Inc. v. Columbia Cas Co., 335 F.3d 453, 458 (5th Cir. 2003) (alteration in original) (quoting Scottsdale Ins. Co. v. Tex. Sec. Concepts & Investigation, 173 F.3d 941, 943 (5th Cir. 1999)). Such exclusions are given a broad, general, and comprehensive interpretation. Scottsdale Ins. Co., 173 F.3d at 943. In addition, [a]rising out of are words of much broader significance than caused by. They are ordinarily understood to mean originating from[,] having its origin in, growing out of[,] or flowing from, or in short, incident to, or having connection with... EMCASCO Ins. Co. v. Am. Int l Specialty Lines Ins. Co., 438 F.3d 519, (5th Cir. 2006). Gemini Ins. Co. v. The Andy Boyd Co., L.L.C., 243 Fed.Appx. 814, 815 (5th Cir. 2007). In Gemini, the underlying plaintiff alleged that a former employee, who worked for the insured, violated a non-disclosure agreement by allowing his new employer to use its confidential information. Id. at 814. The court held that even though the insured could have been liable under an unfair competition theory without having breached the agreement, the exclusion applied because the breach of contract had an incidental relationship to the injuries. Id. at 816; see also Yates Carpet, Inc. v. Travelers Lloyds Ins. Co., No CV, 2008 WL at *2 (Tex. App. Amarillo, June 19, 2008) (holding that it matters not that some of [the plaintiff s] claims implicate legal theories other than breached contract. ) F. Infringement of Copyright, Patent, Trademark or Trade Secret Personal and advertising injury arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. However, this exclusion does not apply to infringement, in your advertisement, of copyright, trade dress or slogan. This exclusion was added to the ISO CGL policy in To the extent coverage is available based on the definition of personal and advertising injury as interpreted by the courts, this exclusion specifically bars coverage for various types of infringement. The exception to the exclusion is consistent with the advertisement requirement in the definition of personal and advertising injury with respect to copyright, trade dress or slogan. Notably, patent and trademark infringement are not included in the exception. Therefore, while courts have indicated that there could be coverage for a patent claim if the infringement took place in an advertisement, this exclusion would bar such coverage. A federal district court in Illinois has held that even where claims other than trademark infringement are plead against an insured, if the claims arise from the trademark infringement allegations, the exclusion will apply. Citizens Ins. Co. v. Uncommon, LLC, No. 10C7764, 2001 WL at *4 (N.D. Ill. Aug. 31, 2011). Further, the insured s argument that the exception to the exclusion applied because its name was a slogan was unsuccessful. Id. at *5. The term uncommon was not a slogan where it was the central component of the company s name and brand, because the trademarked name of a brand, product or company is not itself a slogan. Id. (citations omitted). G. Insureds in Media and Internet Type Businesses Personal and advertising injury committed by an insured whose business is: (1) Advertising, broadcasting, publishing or telecasting; (2) Designing or determining content of web-sites for others; or (3) An Internet search, access, content or service provider. 7
14 However, this exclusions does not apply to Paragraphs 14. a., b. and c. of personal and advertising injury under the Definitions Section. For the purposes of this exclusion, the placing of frames, borders or links, or advertising, for you or others anywhere on the internet, is not by itself, considered the business of advertising, broadcasting, publishing or telecasting. The Insured in Media and Internet Type Businesses exclusion bars coverage for Personal and advertising injury committed by an insured whose business is any of the following: advertising, broadcasting, publishing or telecasting, or the insured is an internet search, access, content or service provider. Thus, internet service providers, website designers and publishers and advertising companies are generally excluded from coverage. Because cyber-related claims are becoming increasingly common, it appears that this exclusion was added to address claims related to websites and internet use. IV. EMERGING ISSUES Policy holders are increasingly attempting to find coverage under the right of privacy provision in the definition of personal and advertising injury. For example, insureds facing claims based on the use (or misuse) of personal information have sought coverage under that provision. In Zurich American Insurance Company v. Fieldstone Mortgage Co., a consumer sued the insured for using consumer credit reports to send pre-screened refinancing offers without permission. No. CCB , 2007 WL at *1 (D. Md. Oct. 26, 2007). The insured argued that the alleged injury arose out of the written publication of material that violated the plaintiff s right of privacy, thereby triggering a duty to defend. Id. Zurich contended that no right of privacy was implicated, and that publication must be to a third party. Id. at *4-5. The court held that a right of privacy existed, and that the offers were published under the terms of the policy, even though they were only sent to the person whose privacy was being violated. Id. at *3-6. Because the first publication exclusion did not apply, the carrier had a duty to defend. Id. at *7. Similarly, in Netscape Communications Corp. v. Federal Insurance Company, an underlying plaintiff alleged that AOL had intercepted and internally disseminated private online communications. 343 Fed.Appx. 271, 272 (9 th Cir. 2009). Noting that some cases required disclosure to a third party, the court held that the policy s language covering disclosure to any person was dispositive. Id. The policy 8 exclusion for providing internet access did not apply because [t]he SmartDownload utility does not provide an Internet connection, and, in fact, is useless without one; AOL therefore did not provide Internet access in making the SmartDownload utility available. Id. Another trend under the right of privacy provision may involve claims of data security breaches. Many companies today keep their customers confidential information online. This leaves the information susceptible to breaches from several sources, including employee negligence and theft by computer hackers. To the extent customer information is lost or stolen, the consumer is likely to attempt to hold the company responsible. In that instance, the company could seek a defense from its carrier under Coverage B, contending that the publication of the information constitutes an oral or written publication of material that violates a person s right to privacy. A good argument could be made that disclosure of consumer information would implicate a right of privacy. In response, the carrier would likely contend that a computer hacker s theft of information does not constitute a publication. However, if the term is read broadly, publication to the hacker could satisfy the requirement. V. CONCLUSION Coverage for certain types of claims is routinely sought under Coverage B of a CGL policy. Barring the application of an exclusion, courts in Texas generally allow coverage for disparagement and defamation claims, but have held that slander of title does not meet the definition of personal and advertising injury. Trade dress claims generally fit within the policy definition, and claims for trademark infringement do not involve advertising, according to the Fifth Circuit (and the newer policy forms include a specific exclusion for such claims). Patent infringement can arguably involve advertising, but is also specifically excluded (without exception) by the newer policy forms. In contrast, copyright infringement is included in the definition of personal and advertising injury, and falls within the exception to the intellectual property exclusion, so that it may be covered, if it involves advertising. As cyber related claims continue to be filed, insureds will no doubt attempt to find new ways to fit the claims into Coverage B, given that such claims likely will not involve property damage or bodily injury as required by Coverage A. Although the new policy forms have included exclusions geared toward internet related claims, creative arguments by insureds are sure to be made, and certain narrow categories of claims will likely remain covered.