ATTORNEY ADVERTISING PURSUANT TO NEW YORK DR 2 101(F).

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2 This article is for general information only and is not intended to give, and should not be relied on for, legal advice in any particular circumstance or fact situation. The reader is advised to consult with an attorney to address any particular situation. The opinions expressed herein are those of the authors and do not reflect the views of Tressler LLP or any of its clients. ATTORNEY ADVERTISING PURSUANT TO NEW YORK DR 2 101(F). 2 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

3 PERSONAL AND ADVERTISING INJURY LIABILITY COVERAGE: AN ANALYTICAL APPROACH TO CLAIMS UPDATE COVERING CASES FROM JANUARY 2012 THROUGH JANUARY 2013 I. GENERAL REQUIREMENTS OF THE PERSONAL AND ADVERTISING INJURY COVERAGE A. THE INJURY MUST ARISE OUT OF ONE OF THE ENUMERATED OFFENSES In Wilson Works, Inc. v. Great Am. Ins. Group, No , 2012 U.S. App. Lexis (4th Cir. Oct. 23, 2012) (applying West Virginia law), the insured was alleged to have manufactured, sold, and marketed tools that infringed upon the claimant s patents. With little discussion, the Fourth Circuit held that the insurer had no duty to defend or indemnify the insured because the allegations did not fall within any of the policies advertising injury offenses. In USF Ins. Co. v. Guin, No. 7:10 cv 00464, 2012 U.S. Dist. Lexis (N.D. Ala. May 3, 2012) (applying Alabama law), the insured was sued for promissory fraud, fraudulent misrepresentation, and breach of contract. The claims were based on allegations that the insured breached a binding estimate to move the claimants household goods across the state by demanding the claimants sign a bill of lading that was more than double the estimate after it had already loaded moving trucks with the claimants goods. The court summarily concluded that the claims did not fall within one of the policy s enumerated as personal and advertising injury offenses and, thus, the insurer had no duty to defend or indemnify. In State Auto Prop. & Cas. Ins. Co. v. Wohlfeil, No. 5:11cv100, 2012 U.S. Dist. Lexis (N.D.W.V. Aug. 27, 2012) (applying West Virginia law), the insured, a restaurant owner, was alleged to have assaulted and wrongfully terminated his employee. The court concluded that the alleged conduct did not fall within any of the offenses defined as personal and advertising injury. Because the insured s conduct was allegedly committed with the knowledge that it would violate the claimant s rights, the court held that knowing violation exclusion further precluded any defense or indemnity obligation. B. THE OFFENSE MUST BE COMMITTED DURING THE POLICY PERIOD In Chicago Ins. Co. v. The City of Council Bluffs, IA., 859 F.Supp.2d 967 (S.D. Ia. 2012) and Genesis Ins. Co. v. City of Council Bluffs, 677 F.3d 806 (8th Cir. 2012) (an appeal of a related case) (applying Iowa law), the claimants were exonerated for the 1977 murder of a police officer and were released from prison in The claimants then sued the insured city, alleging that it had wrongfully instituted legal process against them in violation of their constitutional rights. At issue was whether the personal injury coverage for malicious prosecution was triggered under policies in effect from 1978 through The court first found that the trigger of coverage for the personal injury offense of malicious prosecution is when the claimants injuries became manifest. In doing so, the court rejected a continuous 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 3

4 trigger theory as being contrary to Iowa law and the majority of case law addressing malicious prosecution claims. The court concluded that because the claimant s injuries became apparent no later than when they were convicted and incarcerated in 1978, only the policies in effect during that year were implicated. In Alticor, Inc. v. National Union Fire Ins. Co. of Pennsylvania, No. 1:07 cv 1079, 2013 U.S. Dist. Lexis 5407 (W.D. Mich. Jan. 4, 2013) (applying Michigan law), the insured was sued for certain antitrust violations, tortious interference, civil conspiracy and injurious falsehood. The insurer argued that, although the disparagement offense was alleged, the underlying complaint did not allege that the insured made any false statements during the policy period of the subject policy. The court agreed. However, the court noted that the interrogatory answers in the underlying suit revealed that the allegedly false statements occurred during the policy period. Therefore, the court found that the insurer had a duty to defend. In Employers Mut. Cas. Co. v. Raddin, No. 5:10 cv 137, 2012 U.S.Dist.Lexis (S.D. Miss. Mar. 30, 2012) (applying Mississippi law), the insured medical clinic faced claims including invasion of privacy and negligent supervision and entrustment based on allegations that a primary school s dean and football coach sexually molested students at the clinic from 1995 through The complaint alleged that the claimants first discovered the coach s improper conduct at the medical center in The court held that the clinic s policies in effect from 2005 through 2008 were not triggered by the claims and, thus, the insurer had no duty to defend or indemnify the clinic. The court reasoned that the trigger of coverage for the personal and advertising injury offense of invasion of the right of private occupancy is when the plaintiffs discovered or reasonably should have discovered the injury because that is when a tort claim for invasion of privacy accrues. At issue in American Family Mut. Ins. Co. v. Beasley, No. 2:10 cv 2090, 2012 U.S. Dist. Lexis (D. Nev. Feb. 6, 2012) (applying Nevada law), was whether a policy which incepted in November of 2010 provided coverage to the insured under the personal and advertising injury offense of use of another s advertising idea in your advertisement. The insured was a former insurance agent of the claimant, American Family Insurance, who created her own agency. From February through March of 2009, the insured allegedly used improperly retained customer information to induce American Family policyholders to transfer their business. The court found that while the complaint alleged an ongoing injury to American Family Insurance, the insured s wrongful conduct occurred completely before the policy s inception. Thus, the court held the complaint failed to allege any personal and advertising injury committed during the policy period and the insurer had no duty to defend or indemnify. 4 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

5 C. THE OFFENSE MUST OCCUR IN THE NAMED INSURED S BUSINESS D. CERTAIN OFFENSES MUST BE COMMITTED IN THE NAMED INSURED S ADVERTISEMENT In Feldman Law Group, P.C. v. Liberty Mut. Ins. Co., No cv, 2012 U.S. Dist. Lexis 7787 (2d Cir. Apr. 18, 2012) (unpublished) (applying New York law), the insured was alleged to have designed, manufactured, and sold jewelry that infringed upon the claimant s copyright and trade dress in its jewelry designs. The Second Circuit held that the allegations did not fall within the scope of the policy s advertising injury coverage for copyright and trade dress infringement because they did not allege infringement resulting from the insured s advertisement. In so doing, the court rejected the insured s argument that because the complaint s prayer for relief sought the destruction of advertisements promoting the infringing jewelry the complaint also alleged infringement separate and apart from the insured s sale of jewelry. In Hartford Cas. Ins. v. Softwaremedia.com, No. 2:10 CV 01098, 2012 U.S. Dist. Lexis (D. Utah Mar. 20, 2012) (applying Utah law), the insured was alleged to have intentionally engaged in a fraudulent bait and switch scheme in which it switched customer orders for Microsoft software licenses with a less expensive Software Assurance, which was not a license and did not create any license rights. The court found that the complaint did not seek damages because of personal and advertising injury because the insured s alleged conduct did not occur in its advertisement and the claimant s injuries were not caused by an advertisement. Rather, the claimant s injuries were caused by the insured s fraudulent baitand switch scheme, which led buyers to use Microsoft s software without valid licenses. In Agrakey Solutions, LLC v. Mid Cont l Cas. Co., No. 1:10 CV S EJL, 2012 U.S. Dist. Lexis (D. Idaho Mar. 14, 2012) (applying Idaho law), the insured was alleged to have wrongfully manufactured, marketed and sold the claimant s proprietary products after termination of an exclusive license to do so. The claimant also alleged that the insured wrongfully represented that it held proprietary rights in the claimant s products and that the insured s continued unauthorized sale of the products created confusion in the marketplace. With respect to allegations that the insured used certain customer testimonials on its website and represented that its product was the subject of certain research and field trials, the court concluded there was no alleged use of another s advertising idea in the insured s advertisement. Rather, the court found that the testimonials were being used by the insured to demonstrate that the product it was currently selling was the same as the one it sold under the licensing agreement. The court further reasoned that there was no causal connection between the insured s advertising and the claimant s alleged injuries, as the underlying claim was based on the insured s sale of the claimant s products, not the insured s advertisement of those products Tressler LLP The Personal And Advertising Injury Liability Coverage 5

6 In Tool Touring, Inc. v. The American Ins. Co., B230136, 2012 Cal. App. Unpub. Lexis 3461 (Cal. App. May 8, 2012) (unpublished) (applying California law), the band Tool sought a defense and indemnity for claims of copyright infringement and defamation asserted by a graphic designer who created many pieces of artwork for the band. The complaint alleged that Tool only held a license in the copyrighted works, which the claimant revoked in Tool allegedly continued to use the artwork on its merchandise, products, promotional flyers, and its website after the license was revoked. The court concluded that, by using the artwork on its merchandise and website, Tool was alleged to have infringed upon the claimant s copyright in the band s advertisement, which was defined in the policy as a notice that is broadcast or published to the general public... about your goods, products or services for the purpose of attracting customers or supporters. Thus, the court held the insurer must defend the band. In Air Engineering, Inc. v. Industrial Air Power, LLC, No. 2012AP103, 2013 Wisc. App. Lexis 9 (Wis. App. Jan. 3, 2013) (applying Wisconsin law), the insured was sued for trade secret misappropriation, breach of contract, breach of fiduciary duty and unjust enrichment for allegedly using the same website source code and content as found on the claimant s website and for misappropriating an Internet Advertising System ( IAS ). This IAS was allegedly developed by the claimant to advertise its products to the public in order to facilitate sales. The IAS was designed to direct persons to the claimant s advertising and links detailing product information, based on certain Google search terms entered by such persons. The court first determined that the complaint alleged the use of another s advertising idea, based on the allegations that the insured misappropriated the claimant s IAS and the claimant s website source code and content. The court then determined that such misappropriation occurred in the insured s advertisement because the IAS and the insured s website gave potential customers notice about the insured s goods, products and services. The court further determined that there was a causal connection between the insured s advertising activity and the claimant s advertising injury, as the complaint alleged that the insured s conduct drew present and prospective customers away from the claimant. Accordingly, the court found that the insurer had a duty to defend. (PRE 1998 FORMS) CERTAIN OFFENSES MUST BE COMMITTED IN THE COURSE OF ADVERTISING 1. What Is Advertising? In State Farm Fire & Cas. Co. v. Wier, No. A127243, 2012 Cal. App. Unpub. Lexis 7842 (Cal. App. Oct. 26, 2012) (unpublished) (applying California law), the insureds were sued for misappropriation of trade secrets, conversion and breach of contract for allegedly using policyholder lists from their former employer and soliciting those policyholders to purchase insurance from their new employer. The insureds were alleged to have engaged in a "mass mailing" to the policyholders through extensive broadcast and print advertising in various media, including thousands of direct mail advertisements." The court found such conduct did not constitute "advertising" because the "mass mailings" were not issued to the general public. The mass mailings were individual solicitations personalized to each policyholder based on 6 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

7 the confidential information that the insureds took from their former employer. Accordingly, the court concluded that the insurer did not have a duty to defend or indemnify. 2. In The Course Of Advertising In Comprehensive Microfilm and Scanning Servs., Inc. v. The Main Street Am. Group, No. 3:11 cv 498, 2012 U.S. Dist. Lexis (M.D. Penn. Apr. 18, 2012) (applying Pennsylvania law), the insured was alleged to have unlawfully copied and sold microfilm versions of journals published by the claimant without its permission. The policy provided coverage for infringement of copyright, title or slogan, committed in the course of advertising [the insured s] goods, products, or services. The court held that the complaint failed to allege conduct falling within the advertising injury coverage because the insured was only alleged to have copied journals on microfilm and to have sold them. It was not alleged to have advertised the microfilm, let alone to have done so in a manner that infringed upon the claimant s copyrights. Thus, the court held the insurer had no defense or indemnity obligation. In State Farm Fire & Cas. Co. v. Wier, No. A127243, 2012 Cal. App. Unpub. Lexis 7842 (Cal. App. Oct. 26, 2012) (unpublished) (applying California law), the insureds were sued for misappropriation of trade secrets, conversion and breach of contract, for allegedly using policyholder lists from their former employer to solicit those policyholders to purchase insurance from their new employer. The court found that the policy's requirement that "advertising injury" be committed "in the course of advertising" was not satisfied. According to the court, the insureds were sued for misappropriating proprietary information (i.e., customer lists and coverage information), not for causing injury in the course of the insureds' advertising. Accordingly, the court concluded that the insurer did not have a duty to defend or indemnify. E. THE OFFENSE MUST BE COMMITTED IN THE COVERAGE TERRITORY F. THE SUIT MUST SEEK DAMAGES In Standard Mut. Ins. Co. v. Lay, 975 N.E.2d 1099 (Ill. App. 2012), appeal granted, 2012 Ill. Lexis 1408 (Ill., Sept. 26, 2012) (applying Illinois law), the Illinois Appellate Court held that the Telephone Consumer Protection Act s ( TCPA ) $500 statutory damages are not insurable as a matter of Illinois public policy. The insured was alleged to have sent unsolicited facsimile advertisements in violation of the TCPA, for which the complaint sought statutory damages of $500 per violation and treble damages. The court first found that the $500 liquidated damages provided by the TCPA are penal because the damages are imposed automatically, are predetermined, and are imposed without regard to any actual damages suffered by the plaintiff. The court further reasoned that the $500 penalty is far in excess of the actual cost to a recipient of an unwanted fax. Because insurance coverage for punitive damage and penalties is prohibited by Illinois public policy, the court concluded that the insurer had no duty to defend or indemnify. In reaching its decision, the court noted that the insured and others would have little incentive to comply with the TCPA if they knew that any fines resulting therefrom could be shifted to their insurers Tressler LLP The Personal And Advertising Injury Liability Coverage 7

8 In TNI Packaging, Inc. v. Hanover Ins. Co., No , 2012 Ill. App. Unpub. Lexis 2330 (Ill. App. Sept. 21, 2012) (unpublished) (applying Illinois law), the insured was sued for allegedly passing off the claimant's products as its own by including photographs of those products in the insured's advertising. The insured and the claimant entered into a settlement agreement, which was incorporated into a consent order. The terms of the consent order required the insured to desist from infringing the claimant's trademark and patent. However, the insured continued to use the infringing photographs in its advertising. The claimant filed a motion for civil contempt seeking attorneys fees, costs, $200 per day from the date of infringement to the date when the insured ceased distribution of the offending advertisement, and $2,500 per day for the 30 day period during which the insured's offending advertisement had run. The court rejected the insurer s argument that it had no duty to defend against the motion for civil contempt because contempt sanctions are uninsurable under Illinois law and are not "damages" as the term is used in the policy. The court found that attorneys fees, costs and the request for $2,500 per day for the 30 day period of infringement constituted compensatory not punitive damages and thus are damages covered under the policy. In Olsen v. American Family Mut. Ins. Co. 371 S.W.3d 93 (Mo. App. 2012) (applying Missouri law), the Missouri Court of Appeals held that the $500 statutory damages provided under the Telephone Consumer Protection Act ( TCPA ) are not sums payable as damages as that term is used in liability policies. The court reasoned that the TCPA s $500 statutory damages are not compensatory but, rather, are penal in nature, while the term damages as used in insurance policies does not incorporate fines or penalties. The court explained that the TCPA gives a recipient of an unsolicited facsimile two options: it can seek to recover damages for actual monetary loss or statutory damages in the amount of $500 per violation. To the extent that a claimant only seeks to recover its actual pecuniary loss, the statute is remedial and provides recovery for damages as used in liability policies. However, when a claimant seeks statutory damages of $500 per violation, the statute is penal in nature. For this reason, the court held that the insurer had no duty to defend or indemnify the insured against claims seeking statutory damages under the TCPA. G. THE CLAIM MUST FALL OUTSIDE THE EXCLUSIONS FOR PERSONAL AND ADVERTISING INJURY 1. The Exclusions Contained In The 1998 And Post 1998 CGL Policy Forms (a) Knowing Violation Of Another s Rights In Colony Ins. Co. v. Mid Atlantic Youth Servs. Corp., 485 Fed. Appx. 536 (3d Cir. 2012) (unpublished), and Alea London v. W. PA Child Care, LLC, No. 3:09 CV 2256, 2012 U.S. Dist. Lexis (M.D. Pa. Mar. 19, 2012), the insureds, the manager and owner of several juvenile detention facilities in the state of Pennsylvania, were accused of paying millions of dollars in bribes to two state judges in exchange for committing juveniles to the insured s detention facilities. The complaint brought a claim for false imprisonment against the insureds, an 8 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

9 enumerated personal injury offense in the insureds policies. The courts held that the knowing violation exclusion precluded a defense and indemnity because the insureds were alleged to have knowingly conspired to violate the minors constitutional rights in order to ensure maximum profit. In Navigators Specialty Ins. Co. v. Beltman, No. 11 cv 00715, 2012 U.S. Dist. Lexis (D. Colo. Nov. 1, 2012) (applying Colorado law), the insured was allegedly involved in a criminal conspiracy to extort money from the claimant, Chevron. Chevron alleged that the insured filed environmental litigation against it in Ecuador based on fabricated evidence concerning an oil spill and groundwater contamination. The insured allegedly intimidated Ecuadorian court officials, colluded with the Ecuadorian government, and conducted a public relations campaign designed to spread false and misleading information about Chevron. The insured also allegedly fabricated studies concluding that Chevron had caused environmental damage which it then presented to the Ecuadorian courts as the findings of an independent expert. The court concluded that a defense and indemnity were precluded by the knowing violation exclusions, because the insured was alleged to have committed fraud and to have acted with the intent to mislead. The insured in Markel Int'l Ins. Co. v. W. PA Child Care, LLC, No. 3:10 cv 1156, 2012 U.S. Dist. Lexis (M.D. Penn. Mar. 8, 2012) (applying Pennsylvania law), owned and operated juvenile detention centers in the state of Pennsylvania. The insureds were alleged to have participated in a conspiracy to pay judges kickbacks for maintaining high rates of occupancy at their detention facilities. The insureds were sued for violations of the RICO act, deprivation of the juveniles constitutional rights, and false imprisonment. The court held that there was no duty to defend the claims under the personal injury offense of false arrest because the claims implicated the knowing violation exclusion. In reaching its decision, the court found that the individual owners of the insured corporations were acting as agents of the corporations and, thus, their intent could be imputed to the insured corporations. In State Auto Prop. & Cas. Ins. Co. v. Lagrotta, No. 2:11 cv 00457, 2012 U.S. Dist. Lexis (W.D. Penn. Aug. 14, 2012) (Magistrate report and recommendations), adopted at 2012 U.S. Dist. Lexis (Sept. 12, 2012) (applying Pennsylvania law), the insured, a member of the Pennsylvania House of Representatives, faced claims of tortious interference with contract and prospective business relations arising out of the state s failed sale of a nursing home. The state health department rescinded its preliminary approval of the sale to the claimant after the congressman s office released two press releases stating that the claimant had improper relations with organized crime. The statements in the press releases were allegedly made maliciously and with intent to harm the claimant and to convince the county not to consummate the sale. The court held that based on the intentional conduct alleged, coupled with the fact that an element of the causes of action alleged is the intent to harm, the knowing violation and knowledge of falsity exclusions precluded both a duty to defend and indemnify the congressman Tressler LLP The Personal And Advertising Injury Liability Coverage 9

10 In Regent Ins. Co. v. Strausser Enterps., Inc., No. 09 cv 03434, 2012 U.S. Dist. Lexis (E.D. Penn. Sept. 28, 2012) (applying Pennsylvania law), the insured filed the underlying suit to stop the transfer of property to the claimant based on a purported contractual right of first refusal. The claimant filed suit against the insured alleging the insured s action constituted a wrongful use of civil proceedings in violation of the Dragonetti Act, 42 Pa.C.S.A The complaint alleged that the insured s action was filed without probable cause because it knew it did not have a right to first refusal and that their contract was subject to mandatory arbitration. Finding that the policy was ambiguous as to whether the knowing violation exclusion precluded coverage for the wrongful use of civil proceeding claim against the insured, the Court held that the insurer had a duty to defend because the claim implicated the personal and advertising injury offense of malicious prosecution. The court reasoned that in order to violate the Dragonetti Act, a defendant must have an improper motive in filing legal proceedings. If such an intent were sufficient to fall within the scope of the knowing violation exclusion, a claim for malicious prosecution under Pennsylvania law would automatically be barred from coverage by the exclusion, making the coverage for malicious prosecution illusory. In State Auto Prop. & Cas. Ins. Co. v. Wohlfeil, No. 5:11cv100, 2012 U.S. Dist. Lexis (N.D.W.V. Aug. 27, 2012) (applying West Virginia law), the insured, a restaurant owner, was alleged to have assaulted and wrongfully terminated his employee. With little discussion, the court concluded that the alleged conduct did not fall within any of the offenses defined as personal and advertising injury. Because the insured s conduct was allegedly committed with the knowledge that it would violate the claimant s rights, the court also held that knowing violation exclusion additionally barred a defense and indemnity. In Federal Ins. Co. v. Steadfast Ins. Co., 209 Cal. App. 4th 668 (2012) (applying California law), the insureds were sued by the United States for allegedly violating the Fair Housing Act by engaging in discrimination relating to the rental of certain dwellings. Because the underlying suit included a claim for vicarious liability, the court found that the "knowing violation" exclusion in the Liberty policy did not apply to preclude a duty to defend. Ultimately however, the Court determined that Liberty did not have a duty to defend because: (1) the Liberty policy's definition of "personal and advertising injury" did not expressly include a claim for discrimination; and (2) the wrongful eviction, wrongful entry and invasion of the right of private occupancy offenses in the definition of "personal and advertising injury" required that a tenant assert such claims whereas in this case the United States asserted housing discrimination in violation of the Fair Housing Act. The insured landlord in Freedman v. U.S. Liab. Ins. Co., 972 N.E.2d 1059 (Mass. App. 2012) (applying Massachusetts law), allegedly harassed its tenant, threatened to do her bodily harm, and yelled at her in front of customers. The tenant brought suit alleging claims for intentional infliction of emotional distress and interference with business relations. In addition to concluding that the alleged conduct did not constitute personal and advertising injury, the court held that the knowing violation exclusion precluded a defense and indemnity obligation under the policy. The court reasoned the allegations that the landlord made incessant calls to 10 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

11 the tenant s home, threatened to do her bodily harm, and yelled at her all constituted intentional conduct within the scope of the exclusion. In Sawyer v. West Bend Mut. Ins. Co., 821 N.W.2d 250 (Wis. App. 2012) (applying Wisconsin law), the insured sought a defense for claims that it sent unsolicited facsimile advertisements in violation of the Telephone Consumer Protection Act ( TCPA ). The court held there was a duty to defend the TCPA claims under the personal and advertising injury coverage for oral or written publication, in any manner, of material that violates a person s right of privacy. Concluding that the knowing violation exclusion did not preclude coverage, the court reasoned that even though the insured intended to send the facsimiles, it was alleged to have known or should have known that it did not have permission to send them. Thus, it could be found liable even if it was negligent. In Air Engineering, Inc. v. Industrial Air Power, LLC, No. 2012AP103, 2013 Wisc. App. Lexis 9 (Wis. App. Jan. 3, 2013) (applying Wisconsin law), the insured was sued for trade secret misappropriation, breach of contract, breach of fiduciary duty and unjust enrichment for allegedly using the same website source code and content as found on the claimant s website and for misappropriating an Internet Advertising System. The court determined that the underlying suit alleged the use of another s advertising idea offense. The court found that the knowing violation exclusion did not apply to preclude a defense obligation because the underlying suit included claims for trade secret misappropriation, breach of fiduciary duty and unjust enrichment, which do not require a showing of actual knowledge or intent. Accordingly, the court found that the insurer had a duty to defend. (b) Knowing Publication Of Falsehoods In Pennsylvania Nat l Mut. Cas. Ins. Co. v. Sharpe Images, Inc., No. 3:11 cv 150, 2012 U.S. Dist. Lexis (W.D.N.C. Sept. 11, 2012) (applying North Carolina law), the insured was alleged to have conspired to obtain proprietary information concerning the claimant s business, which it then provided to the claimant s competitor so it could make a competing product. The insured was also alleged to have marketed and advertised the product for the claimant s competitor. Each of the claims in the complaint alleged that the insured committed intentional conduct, including making knowing misrepresentations about the claimant s product, stealing the claimant s proprietary information, and intending to deceive customers and harm the claimant through its promotional and advertising materials. Based on these allegations, the court held that the knowledge of falsity exclusion precluded a defense and indemnity. In so doing, the court rejected the insured s argument that there was coverage because the claim for unfair trade practices could be proven without intent or knowledge of the material s falsity. According to the Court, the insured s argument ignored the fact that the complaint only alleged intentional conduct. In State Auto Prop. & Cas. Ins. Co. v. Lagrotta, No. 2:11 cv 00457, 2012 U.S. Dist. Lexis (W.D. Penn. Aug. 14, 2012) (Magistrate report and recommendations), adopted at 2012 U.S. Dist. Lexis (Sept. 12, 2012) (applying Pennsylvania law), the insured, a member of 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 11

12 the Pennsylvania of the House of Representatives, faced claims of tortious interference with contract and prospective business relations arising out of the state s failed sale of a nursing home. The state health department rescinded its preliminary approval of the sale to the claimant after the congressman s office released two press releases stating that the claimant had improper relations with organized crime. The statements in the press releases were allegedly made maliciously and with intent to harm the claimant and to convince the county not to consummate the sale. The court held that based on the intentional conduct alleged, along with the fact that an element of the causes of action alleged is the intent to harm, the knowing violation and knowledge of falsity exclusions precluded both a duty to defend and indemnify the congressman. (c) Publication Of Material Before Inception Of Policy The insured in C.R. Bard, Inc. v. Liberty Mut. Ins. Co., 437 Fed. Appx. 128 (3d Cir. 2012) (unpublished) (applying New Jersey law), sought coverage for claims that it disparaged its competitor s hospital catheter products by telling prospective customers the catheters could foster the spread of antibiotic resistant pathogens. At issue was whether coverage under the disparagement offense was barred by the prior publication exclusion due to the fact that the insured began making statements concerning the catheters in 1997, while the policies at issue incepted in The Third Circuit predicted that the New Jersey Supreme Court would interpret the prior publication exclusion as requiring the insured to publish material during the policy period that is substantively similar, but not identical, to material published prior to the policy period. Because the disparaging statements allegedly made by the insured prior to 2003 and after 2003 both referred to the lack of effectiveness of the competitor s catheter in preventing the spreading of disease, the court found that the statements were substantively similar. The exclusion thus precluded both a defense and indemnity. In Tudor Ins. Co. v. First Advantage Litig. Consulting, LLC, 11 Civ 3567, 8923, 2012 U.S. Dist. Lexis (S.D.N.Y. Aug. 21, 2012) (applying California law), the insured, a company that conducts background investigations of hedge funds and other businesses for potential investors, was alleged to have made defamatory statements concerning the claimant s employees. The insured first made the alleged statements in a 2002 interview, a transcript of which was included in reports sent to investors from 2002 through The court held that the prior publication exclusion precluded a defense against the allegations under the policy in effect from In so doing, the court rejected the insured s argument that the exclusion should not apply because the reports made in 2005 and 2006 included material different than those sent prior to the policy period. The court found that the alleged defamatory statements included in the report were the same as those made in previous reports. The fact that the reports also contained new material that was not alleged to be defamatory was inconsequential. 12 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

13 (d) (e) Criminal Acts Contractual Liability In FLM, LLC v. Daimler Chrysler Corp., 973 N.E.2d 1167 (Ind. App. 2012) (applying Indiana law), the insured stored foundry sand on the claimant s ( FLM ) property which began to migrate onto a neighbor s property after the insured s lease with FLM terminated. FLM and the insured both received Notices of Violation ( NOVs ) from the city and state government ordering the parties to remove the sand. FLM sought indemnity for the NOV from the insured pursuant to the parties lease agreement. The insured, in turn, sought a defense and indemnity for both NOVs under the personal and advertising injury coverage of its policy. First, the court held that the NOVs fell within the scope of the wrongful entry offense. It then concluded that the exclusion for injury for which the insured had assumed liability in a contract or agreement, did not preclude a duty to defend the insured. The court reasoned that while FLM s claim against the insured for indemnity was based on the liability assumed in the parties contract, the insured also faced liability for the NOV in which it was named independent of any contractual obligations owed to FLM. In Columbia Cas. Co. v. HIAR Holdings, LLC, No. ED98253, 2012 Mo. App. Lexis 1334 (Mo. App. Oct. 23, 2012) (applying Missouri law), the insured settled a claim for violation of the Telephone Consumer Protection Act ( TCPA ) for an amount less than what the claimant could have fully recovered under the TCPA. The insured argued that the settlement amount constituted covered damages under the Columbia policy and did not constitute statutory damages or a penalty. The court determined that even if such settlement amount did not constitute a penalty and was otherwise covered under the Columbia policy, the contractual liability exclusion would apply to preclude coverage. In making this determination, the court found that the exception to the contractual liability exclusion did not apply because TCPA statutory damages are penalties, not "damages" covered by the policy, and therefore the liability assumed by the insured by virtue of the settlement contract was for something other than "damages" that it would have had absent the settlement agreement. (f) Breach Of Contract In Looney Ricks Kiss Architects, Inc. v. State Farm & Cas. Co., 677 F.3d 250 (5th Cir. 2012) (applying Louisiana law), the insured entered into a contract with the claimant architecture firm to build an apartment complex, but then allegedly used the claimant s designs to build other apartment complexes without the claimant s permission. Based on these allegations, the insured was sued for copyright infringement and breach of contract. The insured s carriers denied a defense and indemnity based on the exclusion for personal and advertising injury... arising out of a breach of contract. The Fifth Circuit held that the exclusion did not preclude a duty to defend because the insured s alleged conduct would have infringed upon the claimant s copyrights even in the absence of the parties contractual agreement. In so doing, the court predicted that the Louisiana Supreme Court would interpret the exclusion as being limited to personal and advertising injury that would not have arisen but for a breach of contract Tressler LLP The Personal And Advertising Injury Liability Coverage 13

14 In Tower Ins. Co. v. Capurro Enters. Inc., No. C , 2012 U.S. Dist. Lexis (N.D. Cal. Apr ) (applying California law), the insured faced claims including trademark infringement, unfair competition, breach of contract, and unjust enrichment. The claims alleged that although the insured s franchise agreement had terminated, the insured continued to use the franchisor s proprietary marks in the promotion of its painting business. For example, the insured represented itself on its website, e mail address, and telephone greeting as a former franchisee who had received training from the franchisor. The court held that the breach of contract exclusion did not preclude a duty to defend the claims because the insured s alleged conduct would constitute trade dress infringement even if a contract between the parties never existed. The court reasoned that the arising out of language in the exclusion should be interpreted narrowly and the infringement claims at issue made no mention of the franchise agreement. In Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp., No. 11 cv 4736, 2012 U.S. Dist. Lexis (N.D. Ill. June 21, 2012) (applying Illinois law), the insured, an insurance program administrator, was sued several times by one of its competitors for allegedly disseminating false information about the competitor s financial condition in an attempt to siphon the competitor s business. One of the underlying complaints alleged only a breach of contact claim based on allegations that the insured breached a 2010 settlement in which the parties agreed not to disparage one another. The complaint sought liquidated damages and attorneys fees pursuant to the terms of the settlement agreement. Because the claims alleged in the complaint and damages sought were based solely upon the insured s alleged breach of settlement agreement, the court held that a defense and indemnity for the suit was barred by the breach of contract exclusion. The insured in Hartford Fire Ins. Co. v. Vita Craft Corp., No , 2012 U.S. Dist. Lexis (D. Kan. Dec. 3, 2012) (applying Kansas law), a licensee of the claimant s patented cookware technology, allegedly infringed upon the claimant s patents and breached the parties licensing agreements by applying for its own patents in the same technology. The court held that allegations that the insured also spread false rumors concerning other licensees of the claimant s technology implicated a duty to defend under the policy s personal and advertising injury coverage for libel, slander and disparagement. The court further held that the disparagement claims did not fall within the exclusion for injury arising out of a breach of contract. The court reasoned that the arising out of language in the exclusion must be interpreted narrowly. The disparagement claims would exist regardless of the licensing agreements between the insured and the claimant and thus did not arise out of the agreements. In TNI Packaging, Inc. v. Hanover Ins. Co., No , 2012 Ill. App. Unpub. Lexis 2330 (Ill. App. Sept. 21, 2012) (unpublished) (applying Illinois law), the insured was sued for allegedly passing off the claimant's products as its own by including photographs of the claimant's products in its advertising. The insured and the claimant entered into a settlement agreement, which was incorporated into a consent order, the terms of which required the insured to desist from infringing the claimant's trademark and patent. However, the insured 14 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

15 continued to publish infringing photographs in its advertising. The claimant filed a motion for civil contempt. In addressing the Breach of Contract exclusion, the court noted that consent orders entered by courts to effectuate settlements are considered contracts. The court also found that the exclusion precluded a defense obligation because the motion for civil contempt sought recovery based on the insured's breach of the consent order. In Natural Organics, Inc. v. OneBeacon America Ins. Co., No , 2013 N.Y. App. Div. Lexis 202 (N.Y. App. Jan. 16, 2013), the insured was sued for unfair competition under the Lanham Act. The underlying complaint alleged that the insured, after wrongfully terminating an exclusive distributorship agreement with the claimant, issued a press release announcing that a third party was the exclusive distributor of the insured s products. The complaint alleged that the press release caused confusion, mistake and deception as to the claimant s distribution of the insured s products. The court determined that the allegations constituted the written publication of material that disparages a person s or organization s goods, products or services, because the press release could be construed as implying that the claimant s inventory of the insured s products was unauthorized. The court held that the breach of contract exclusion did not apply because the product disparagement claim did not necessarily arise out of the insured s alleged breach of the exclusive distributorship agreement. The court noted that the claimant can establish a product disparagement claim under the Lanham Act by relying on the press release and without reference to the exclusive distributorship agreement. Accordingly, the court found that the insurer had a duty to defend. (g) Quality Of Goods In Westfield Ins. Co. v. Robinson Outdoors, Inc., No , 2012 U.S. App. Lexis (8th Cir. Nov. 30, 2012) (applying Minnesota law), the insured sought a defense and indemnity for class action claims that it misled customers into purchasing hunting clothes that did not perform as advertised. Specifically, the claimants alleged that the insured falsely marketed its camouflage products as eliminating human scent so that wild game would not detect a hunter s presence. The court did not address whether the claims fell within the scope of the policy s personal and advertising injury coverage in the first instance because it concluded that they were precluded by the exclusion for injury arising out the failure of goods... to conform with any statement of quality or performance made in [the insured s] advertisement. The Eighth Circuit found that the exclusion was unambiguous and directly applied to the advertised performance of the insured s hunting clothing. In AMCO Ins. Co. v. Inspired Techs., Inc., No , 2012 U.S. Dist. Lexis (D. Minn. June 25, 2012), on remand from 648 F.3d 875 (8th Cir. 2011) (applying Minnesota law), the insured was alleged to have misled customers by falsely depicting its tape products to be of superior quality to those of its competitor s. The allegations included the insured s overstatement of the width of its tape and its false claim that its tape had a clean release. The district court concluded that these allegations fell within the exclusion for the failure of goods, products or services to conform with any statement of quality or performance made in your advertisement. Because the district court and Eighth Circuit had previously ruled that all of 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 15

16 the other allegations in the complaint were precluded from coverage by the policies personal and advertising injury exclusions, the district court concluded that the insurer had no duty to defend or indemnify. (h) Infringement Of Copyright, Patent, Trademark Or Trade Secret ( IP Exclusion ) The insured in Hartford Fire Ins. Co. v. Vita Craft Corp., No , 2012 U.S. Dist. Lexis (D. Kan. Dec. 3, 2012) (applying Kansas law), a licensee of the claimant s patented cookware technology, allegedly infringed upon the claimant s patents and breached their licensing agreements by applying for its own patents in the same technology. The insured also allegedly spread false rumors concerning other licensees of the claimant s technology, which the court found implicated a duty to defend under the policy s personal and advertising injury coverage for libel, slander, and disparagement. The court further concluded that the disparagement allegations did not fall within the exclusion for injury arising out of any violation of intellectual property rights such as... patent. In doing so, the court rejected the insurer s argument that the exclusion applied to the disparagement allegations because they were set forth under a claim for unfair competition, which the insurer argued is a cause of action limited to traditional intellectual property infringement under Kansas law. In Comprehensive Microfilm and Scanning Services, Inc. v. The Main Street Am. Group, No. 3:11 cv 498, 2012 U.S. Dist. Lexis (M.D. Penn. Apr. 18, 2012) (applying Pennsylvania law), the insured faced claims of copyright infringement, trademark infringement, and unfair competition based on allegations that it copied and sold microfilm versions of journals published by the claimant without its permission. The court held that there was no defense or indemnity owing under the advertising injury coverage for infringement of copyright, title or slogan because the insured was not alleged to have infringed upon the claimant s copyrights in the course of advertising [the insured s] goods, products, or services. The court also held that the policy s broad IP exclusion, which applied to any suit seeking damages arising, in whole or in part, out of any allegation of infringement or violation of copyright, patent, trademark or other intellectual property law, additionally precluded any coverage obligation. The court reasoned that the exclusion barred coverage for a suit if it included a claim of copyright infringement regardless of whether the suit also included allegations that did not fall within one of the exclusion s enumerated categories of conduct. (i) (j) (k) (l) Media And Internet Business Exclusion (Publishing, Advertising) Electronic Chat Rooms Or Bulletin Boards Unauthorized Use Of Another s Name Pollution Exclusion 16 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

17 2. Other Exclusions or Provisions (a) Willful Violation Of A Penal Statute In Colony Ins. Co. v. Mid Atlantic Youth Servs. Corp., Nos & , 2012 U.S. App. Lexis (3d Cir. June 21, 2012) (applying Pennsylvania law), the insured, a manager of several juvenile detention facilities in the state of Pennsylvania, was accused of paying millions of dollars in bribes to two state judges in exchange for committing juveniles to the insured s detention facilities. The Third Circuit held that while the allegations potentially fell within the policies personal and advertising injury coverage for false arrest, detention, or imprisonment, the knowing violation and penal statute exclusions precluded any defense and indemnity obligation. The court explained that the exclusion for injury arising out of the willful violation of a penal statute applied because the complaint alleged a causal link between the minors injuries and the insured s alleged criminal conduct, which included wire fraud, criminal conspiracy, and other criminal acts. In Suwannee Am. Cement LLC v. Zurich Ins. Co., Ltd., 11 Civ. 3899, 2012 U.S. Dist. Lexis (S.D.N.Y. Aug. 2, 2012) (applying New York law), the insured sought a defense and indemnity for claims that it conspired to fix the price of concrete in the state of Florida. The insured allegedly carried out the price fixing conspiracy by making false statements to customers that the high cost of concrete was the result of increasing fuel costs and reduced supply. The court held that the antitrust claims did not fall within the scope of the policies personal and advertising injury coverage in the first instance. It further held that coverage was precluded by the exclusion for injury arising out of willful violation of criminal or penal statute, regulation or ordinance committed by or with the knowledge or consent of the insured. The court reasoned that participation in a conspiracy to violate federal antitrust laws is both deliberate and criminal. While the antitrust claims against the insured were only pursued in civil litigation, the conspiracy alleged constituted a felony under the Sherman Act. In Alea London v. W. PA Child Care, LLC, No. 3:09 CV 2256, 2012 U.S. Dist. Lexis (M.D. Pa. Mar. 19, 2012) (applying Pennsylvania law), the insureds were alleged to have participated in a conspiracy to pay judges kickbacks in exchange for maintaining high rates of occupancy in juvenile detention facilities owned and operated by the insureds. Concluding that the willful violation of a penal statute exclusion precluded a duty to defend, the court explained that the insured s alleged actions violated penal statutes forbidding the giving or taking of compensation to public officials in an attempt to influence their decisions. (b) Employment Related Practices Exclusion In Firemen s Ins. Co. of D.C. v. Wenventure, Inc., No. 3:10 cv 185, 2012 U.S. Dist. Lexis (W.D. Penn. Mar. 29, 2012) (applying Pennsylvania law), the insured, a Wendy s franchisee, was alleged to have negligently hired employees who falsely imprisoned and raped the claimant in a bathroom and walk in cooler. The court held that the claims triggered a duty to defend under the personal and advertising injury offense of false imprisonment. The 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 17

18 court rejected the insurer s argument that coverage was precluded by the policy s exclusion for injury to a person arising out of any... employment related practices, policies, acts or omissions,... directed at that person. The court concluded that the exclusion applied only to policies and practices of the insured concerning the conduct of the injured person, while at issue was the conduct of the employees that caused the injury. In George S. May Int'l Co. v. Arrowpoint Capital Corp., 97 So. 3d 1167 (La. App. Aug. 10, 2012) (applying Louisiana law), the insured was hired by Commercial Flooring to provide management consulting services, which included the interviewing of Commercial Flooring s employees to determine the best position for them at the company. During and after one of the interviews the insured allegedly made unwanted sexual advances to a Commercial Flooring employee, which she refused. The complaint alleged that as a result, the employee received a negative evaluation and failed to receive a deserved promotion. Without determining whether the insured s conduct fell within the scope of the personal and advertising injury coverage in the first instance, the court held that both a defense and indemnity were precluded by the exclusion for injury arising out of employment related practices, or acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, or discrimination directed at that person. The court found that the interviewer s conduct clearly concerned the claimant s employment at Commercial Flooring and, therefore, was employment related. It further noted that under the plain language of the exclusion, which stated that it applied whether the insured may be liable as an employer or in any other capacity, it did not matter that the claimant was not an employee of the insured. (c) Professional Services Exclusion In Navigators Specialty Ins. Co. v. Beltman, No. 11 cv 00715, 2012 U.S. Dist. Lexis (D. Colo. Nov. 1, 2012) (applying Colorado law), the insured was allegedly involved in a criminal conspiracy to extort money from the claimant, Chevron. Chevron alleged that the insured filed environmental litigation against it in Ecuador based on fabricated evidence concerning an oil spill and groundwater contamination. The insured allegedly intimidated Ecuadorian court officials, colluded with the Ecuadorian government, conducted a public relations campaign designed to spread false and misleading information about Chevron, and fabricated a study it presented to the Ecuadorian courts as that of an independent expert. The court found that the knowing violation and knowledge of falsity exclusions precluded a coverage obligation. The policy also contained an exclusion for injury arising out of the rendering or failure to render any professional services. The court concluded that this professional services exclusion also precluded any coverage obligation because the allegations arose out of the conduct of the insured s lawyer in the Ecuadorian lawsuit and thus the rendering of professional services. In Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp., No. 11 cv 4736, 2012 U.S. Dist. Lexis (N.D. Ill. June 21, 2012) (applying Illinois law), the insured, an insurance program administrator, was sued several times by one of its competitors for allegedly disseminating false information about the competitor s financial condition in an attempt to 18 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

19 siphon the competitor s business. The complaints alleged claims of defamation, tortious interference with business relationships, disparagement, civil conspiracy, and violations of the Texas Insurance Code. The policy contained an exclusion which precluded coverage for claims arising out of professional services, including advising, inspecting, reporting or making of recommendations in the insured s capacity as an insurance company or effecting insurance, reinsurance, or suretyship coverages. While the court held that most of the insured s alleged conduct fell within the scope of the exclusion, it found that the exclusion did not apply to allegations that the insured told a New York Times reporter that the claimant had committed fraud. The court concluded that because the professional services and all other applicable exclusions did not preclude coverage for all of the claims, the insurer had a duty to defend the suits. In Employers Mut. Cas. Co. v. Raddin, No. 5:10 cv 137, 2012 U.S. Dist. Lexis (S.D. Miss. Mar. 30, 2012) (applying Mississippi law), a dean and football coach of a primary school was alleged to have sexually molested students at the insured s medical clinic. The complaint alleged that the clinic allowed the dean to perform professional medical services without being properly licensed. The policy contained a professional services exclusion, which applied to injury caused by the rendering or failure to render any professional services including medical treatment and physical therapy. With little discussion, the court concluded that the exclusion precluded a defense and indemnity obligation owing to the clinic. In Heaven Massage and Wellness Ctr. v. Continental Cas. Co., No. B237987, 2012 Cal. App. Unpub. Lexis 4653 (Cal. App. June 21, 2012) (unpublished) (applying California law), the insured faced claims that it was vicariously liable for an assault, battery, and false imprisonment committed by one of its employees a masseuse who was alleged to have sexually assaulted the claimant during a massage. The court held that the exclusion for personal and advertising injury caused by the rendering or failure to render any professional services, including health and therapeutic services, did not preclude a duty to defend. While the parties agreed that a massage constitutes a professional service, the court concluded that the claimant s injuries were not caused by the massage but, rather, inappropriate conduct which took place during the massage. (d) Distribution of Material in Violation of Statute In Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp., No. 11 cv 4736, 2012 U.S. Dist. Lexis (N.D. Ill. June 21, 2012) (applying Illinois law), the insured, an insurance program administrator, was sued several times by one of its competitors for allegedly disseminating false information about the competitor s financial condition in an attempt to siphon the competitor s business. The complaints alleged claims of defamation, tortious interference with business relationships, disparagement, civil conspiracy, and violations of the Texas Insurance Code. The court held that the policy s exclusion for personal and advertising injury arising out of a violation of any statute, ordinance or regulation... that prohibits the sending, transmitting, communicating or distribution of material information, applied to the Texas Insurance Code claims but not the defamation claim. While the defamation claim was 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 19

20 based on the same conduct as the Texas Insurance Code claim, the court stated that it was not aware of any case law supporting the proposition that the exclusion may apply to non statutory claims based on conduct which violates a statute concerning the transmission of material information. The court concluded the insurer had a duty to defend the underlying suits. In Collective Brands, Inc. v. National Union Fire Ins. Co. of Pittsburgh, P.A., No JTM, 2013 U.S. Dist. Lexis 1338 (D. Kan. Jan. 4, 2013) (applying Kansas law), the insured was sued for violation of the Telephone Consumer Protection Act ( TCPA ) for allegedly sending unauthorized pre recorded telephone messages and text messages that advertised the insured s products. The court found that the allegations triggered the oral or written publication, in any manner, of material that violates a person s right of privacy offense. However, the court determined that the insurer did not have a duty to defend or indemnify because the claims fell within the policy s exclusion for liability arising out of any act that violates any statute, ordinance or regulation of any federal, state or local government that prohibits or limits the sending, transmitting or communicating of material or information. In MDC Acquisition Co. v. North River Ins. Co., No. 5:10 cv 2855, 2012 U.S. Dist. Lexis (N.D. Ohio May 15, 2012) (Magistrate's report and recommendations), adopted by 2012 U.S. Dist. Lexis (Sept. 27, 2012) (applying Ohio law), the insured sought coverage for claims that it sent unsolicited facsimile advertisements in violation of the Telephone Consumer Protection Act ( TCPA ). The policies contained an Unsolicited Communications Endorsement, precluding coverage for personal injury and advertising injury arising out of unsolicited communications by or on behalf of any insured, including facsimiles which are made in violation of the [TCPA] and any amendments and or local or state statutes that bar, prohibit, or penalize such communications. The court held that the exclusion barred a defense and indemnity obligation for the suit. It rejected the insured s argument that the exclusion did not apply to claims asserted pursuant to the 2006 Junk Fax Act, which amended the TCPA, and the FCC s codified rules and regulations implementing the TCPA. In GM Sign, Inc. v. Auto Owners Ins. Co., No , 2012 Mich. App. Lexis 1983 (Mich. App. Oct. 11, 2012) (applying Michigan and Illinois law), the insured was alleged to have sent unsolicited fax advertisements and was sued for conversion, violation of the Telephone Consumer Protection Act, and violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act. The court found that the policy s exclusion for the personal and advertising injury arising out of the distribution of material that violates the Telephone Consumer Protection Act or any statute ordinance or regulation that prohibits or limits the sending, transmitting, communicating or distribution of material or information applied to preclude coverage for all claims, not just the TCPA cause of action. The court explained that the conversion and consumer fraud claims arose from the same conduct that underlies the TCPA claim and, therefore, the exclusion applied to also preclude coverage for those claims. In Oregon Mut. Ins. Co. v. Rain City Pizza, LLC, No , 2013 Wash. App. Lexis 46 (Wash. App. Jan. 14, 2013), the insured was sued for violation of the Telephone Consumer Protection Act, violation of Washington statutes relating to unsolicited text messages, and 20 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

21 negligence. The insured was in the business of operating various Papa John s pizza stores. The insured allegedly hired a third party marketing company, which compiled the names and phone numbers of the insured s customers and then sent text messages to those customers advertising the insured s Papa John s stores. The underlying suit alleged that the insured was responsible for the claimants injuries because the insured negligently allowed the text messages to be sent and/or were vicariously liable for their transmission. The court agreed with the insurer s argument that the exclusion for personal and advertising injury arising out of any act or omission that violates or is alleged to violate the Telephone Consumer Protection Act or any statute, ordinance or regulation that prohibits or limits the sending, transmitting, communicating or distribution of material or information, applied to any act or omission that violates the foregoing laws, regardless of whether the insured actually committed such act or omission. In other words, although the insured was not alleged to have actually sent the text messages, the court construed the exclusion as applying to the underlying claims for negligent supervision and vicarious liability. Therefore, the court found that the insurer did not owe any duty to defend or indemnify the insured. (e) Defects or Errors in Testing In Navigators Specialty Ins. Co. v. Beltman, No. 11 cv 00715, 2012 U.S. Dist. Lexis (D. Colo. Nov. 1, 2012) (applying Colorado law), the insured was allegedly involved in a criminal conspiracy to extort money from the claimant, Chevron. Chevron alleged that the insured filed environmental litigation against it in Ecuador based on fabricated evidence concerning an oil spill and groundwater contamination. The insured allegedly intimidated Ecuadorian court officials, colluded with the Ecuadorian government, conducted a public relations campaign designed to spread false and misleading information about Chevron, and fabricated a study it presented to the Ecuadorian courts as that of an independent expert. The court found a defense and indemnity for the claims was precluded by the knowing violation and knowledge of falsity exclusions. The policy also contained an exclusion for injury arising out of an error, omission, defect or deficiency in any test performed or evaluation, consultation or advice given. The court held that because the allegations arose out of an evaluation or consultation the fraudulent expert s report the exclusion additionally precluded any coverage obligation. In AMCO Ins. Co. v. Inspired Techs., Inc., No , 2012 U.S. Dist. Lexis (D. Minn. June 25, 2012), on remand from 648 F.3d 875 (8th Cir. 2011) (applying Minnesota law), the insured allegedly misled customers by making it appear as if its tape products were of superior quality to those of its competitor s. The insured allegedly did so by manipulating photographs used in product packaging and promotional materials and by reporting results of unreliable and faulty tests comparing the parties products. On remand, the district court held that the claims based on the insured s alleged faulty testing were precluded from coverage by the exclusion in the Subject Policy for an error, omission, defect or deficiency in any test performed, or any evaluation, consultation or advice given by or on behalf of you... or in experimental data or the insured s interpretation of that data. The court explained that the claims were based on the insured s overstatement of test results as well as unreliable testing 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 21

22 methods, each of which fell within the scope of the exclusion. The Eighth Circuit previously held that the claims based on manipulation of photographs were precluded from coverage by the knowledge of falsity exclusion. Because all of the claims fell within exclusions in the policy, the court held the insurer had no duty to defend or indemnify. (f) Entertainment Industry Exclusion In Tool Touring, Inc. v. The American Ins. Co., B230136, 2012 Cal. App. Unpub. Lexis 3461 (Cal. App. May 8, 2012) (unpublished) (applying California law), the band Tool sought a defense and indemnity for claims of copyright infringement and defamation asserted by a graphic designer who created artwork for the band. The complaint alleged that after a license issued to Tool to use the artwork was revoked, the band continued to use the works on its merchandise, products, promotional flyers, and website. The policy contained an exclusion for personal and advertising injury arising out of the development, pre production, postproduction, distribution, exploitation, or exhibit of.... music, musical records... or other similar materials and properties. The court concluded the exclusion did not preclude a defense for the claims of copyright infringement at issue. Interpreting the arising out of language in the exclusion narrowly, the court concluded that the exclusion was limited to an injury caused by Tool s music, not its sale of merchandise. The court explained that if the exclusion was applied to any injury having a minimal causal or incidental relationship to the insured s music, such as its sale of merchandise, the personal and advertising injury coverage would be rendered illusory. (g) Section 533 of the California Insurance Code In Federal Ins. Co. v. Steadfast Ins. Co., 209 Cal. App. 4th 668 (2012) (applying California law), the insureds were sued by the United States for allegedly violating the Fair Housing Act by engaging in discrimination relating to the rental of certain dwellings. The court determined that Section 533 of the California Insurance Code did not apply to preclude a duty to defend because the underlying suit included a claim for vicarious liability. However, the court ultimately determined that there was no duty to defend because: (1) the Liberty policy's definition of "personal and advertising injury" did not expressly include a claim for discrimination; and (2) the wrongful eviction, wrongful entry and invasion of the right of private occupancy offenses in the definition of "personal and advertising injury" required that a tenant assert such claims (whereas in this case the United States asserted housing discrimination in violation of the Fair Housing Act). (h) Specific Intent to Cause Harm Exclusion In Finger v. State Farm Fire & Cas. Ins. Co., No , 459 Fed. Appx. 828 (11th Cir. 2012) (unpublished) (applying Alabama law), the insured was found liable in the underlying action for slander. He was also found to have acted with specific intent to harm the claimant. The insurer, who provided a defense under a personal liability umbrella policy, denied indemnity after the verdict, citing the exclusion in its policy for personal injury when you act with specific intent to cause harm or injury. The district court found that the specific intent 22 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

23 exclusion made coverage for slander claims ambiguous or illusory. On appeal, the Eleventh Circuit disagreed. It found that a slander claim includes an element of intent regarding the falsity of the statement, but not regarding the harm or injury. Thus, the personal injury coverage for slander was not illusory because it covers liability for slander if the insured did not act with specific intent to harm or injure. II. ANALYSIS OF THE ENUMERATED OFFENSES IN THE DEFINITION OF PERSONAL AND ADVERTISING INJURY A. FALSE ARREST, IMPRISONMENT OR DETENTION In Firemen s Ins. Co. of D.C. v. Wenventure, Inc., No. 3:10 cv 185, 2012 U.S. Dist. Lexis (W.D. Penn. Mar. 29, 2012) (applying Pennsylvania law), the insured, a Wendy s franchisee, was alleged to have negligently hired employees who falsely imprisoned and raped the claimant in a bathroom and walk in cooler. The court found a duty to defend the insured under the personal and advertising injury offense of false imprisonment. The insurer argued that the offense was not implicated because the claims of false imprisonment were alleged against the insured franchisee s employees, not the insured itself. The court disagreed. It found that the claims against the franchisee could be said to arise out of the false imprisonment allegedly committed by its employees, which was all that was required under the language of the policy. In doing so, the court interpreted the arising out of requirement broadly so as to require only a causal connection between the injury and the underlying tort. In Heaven Massage and Wellness Ctr. v. Continental Cas. Co., No. B237987, 2012 Cal. App. Unpub. Lexis 4653 (Cal. App. June 21, 2012) (unpublished) (applying California law), the insured faced claims that it was vicariously liable for an assault, battery, and false imprisonment committed by one of its employees a masseuse who was alleged to have sexually assaulted the claimant during a massage. The court held that the exclusion for personal and advertising injury caused by the rendering or failure to render any professional services, including health and therapeutic services, did not preclude a duty to defend. While the parties agreed that a massage constitutes a professional service, the court concluded that the claimant s injuries were not caused by the massage but, rather, inappropriate conduct which took place during the massage. B. MALICIOUS PROSECUTION In St. Paul Mercury Ins. Co. v. Tessera, Inc., No. 12 cv 01827, 2012 U.S. Dist. Lexis (N.D. Cal. Nov. 30, 2012) (applying California law), the insured sought coverage for claims including breach of contract, breach of implied covenant of good faith, and fraud asserted by a company to which the insured licensed patents. The company alleged that the insured had breached the parties licensing agreement by initiating a U.S. International Trade Commission (ITC) investigation and proceeding naming the claimant s customers. The insured argued that the claims involved allegations of defamation, disparagement, malicious prosecution and abuse of process, implicating the policies personal injury coverage. The court disagreed, and held 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 23

24 the insurer had no duty to defend. With regard to the malicious prosecution offense, the court reasoned that the claimant was not named in or directly aggrieved by the ITC proceeding. In Navigators Specialty Ins. Co. v. Beltman, No. 11 cv 00715, 2012 U.S. Dist. Lexis (D. Colo. Nov. 1, 2012) (applying Colorado law), the insured was allegedly involved in a criminal conspiracy to extort money from the claimant, Chevron. Chevron alleged that the insured filed environmental litigation against it in Ecuador based on fabricated evidence concerning an oil spill and groundwater contamination. The insured allegedly intimidated Ecuadorian court officials, colluded with the Ecuadorian government, and conducted a public relations campaign designed to spread false and misleading information about Chevron. The court found there was no duty to defend or indemnify the insured under the policy s personal and advertising injury coverage. The court declined to find that the underlying suit fell within the malicious prosecution offense because the complaint failed to allege an essential element of a malicious prosecution claim litigation resolved in the plaintiff s favor. The court further concluded that to the extent the complaint alleged any potential personal and advertising injury, coverage was precluded by the knowing violation, right of privacy, and professional services, exclusions. In Chicago Ins. Co. v. The City of Council Bluffs, Ia., 859 F. Supp. 2d 967 (S.D. Ia. 2012) (applying Iowa law), the claimants were exonerated for the murder of a police officer and were released from prison in The claimants sued the insured city, alleging that it had wrongfully instituted legal process against them in violation of their constitutional rights. An excess policy in effect in 1978 (when the claimants were convicted) afforded coverage to the insured for personal injury caused by an occurrence. Personal injury was defined to include false arrest and malicious prosecution. An occurrence was defined as an accident... which results, during the policy period, in personal injury... neither expected nor intended from the standpoint of the insured. The court concluded that there was no coverage for the claims against the city because the injuries suffered by the claimants were not alleged to have been caused by an accident. In doing so, the court rejected the city s arguments that the definition of an occurrence made the coverage for malicious prosecution and other intentional torts illusory and conflicted with its reasonable expectations of coverage. The insured in Southern Snow Mfg. Co., Inc. v. Snowizard Holdings, Inc., No , 2012 U.S. Dist. Lexis (E.D. La. Sept. 25, 2012) (applying Louisiana law), sought coverage for RICO claims and claims of unfair trade practices, false designation of trademark and patent origin, trademark infringement, fraud and extortion. The claims were based on allegations that the insured monopolized the snowball making industry by fraudulent procurement of trademarks and patents and false assertions of nonexistent trademark and patent rights. The complaint also alleged that the insured made baseless claims and instigated abusive fraudulent litigation against its competitors. The court held that there was no duty to defend or indemnify the insured under the personal and advertising injury coverage for malicious prosecution. The court reasoned that a necessary element of a malicious prosecution claim under Louisiana law is termination of a wrongful judicial proceeding in the claimant s favor. While the underlying complaint did not identify whether the insured s litigation against the 24 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

25 claimant was ongoing, the court found the complaint s references to the insured s litigation in the present tense made the suggestion that the litigation could be finished untenable. In Regent Ins. Co. v. Strausser Enterps., Inc., No. 09 cv 03434, 2012 U.S. Dist. Lexis (E.D. Penn. Sept. 28, 2012) (applying Pennsylvania law), the insured filed suit to stop the transfer of property to the claimant based on a purported contractual right of first refusal. The claimant, in turn, filed suit against the insured alleging the insured s action constituted a wrongful use of civil proceedings in violation of the Dragonetti Act, 42 Pa.C.S.A The claimant s complaint alleged that the insured s suit was filed without probable cause because the insured knew it did not have a right to first refusal and that their contract was subject to mandatory arbitration. The court held that the policy was ambiguous as to whether the knowing violation exclusion precluded coverage for the claim and, thus, the insurer had a duty to defend under the policy s personal and advertising injury coverage for malicious prosecution. The court reasoned that in order to violate the Dragonetti Act, a defendant must have an improper motive in filing legal proceedings. If such an intent were sufficient to fall within the scope of the knowing violation exclusion, a claim for malicious prosecution under Pennsylvania law would automatically be barred from coverage by the exclusion, making the coverage for malicious prosecution illusory. In Sova v. The Cove Homeowner's Ass'n, No CA 2220, 2012 La. App. Lexis 1114 (La. App. Sept. 7, 2012) (applying Louisiana law), the insured, a homeowner's association, was sued by a lot owner alleging that the insured illegally imposed certain fines and penalties, unlawfully caused a lien to be placed on the claimant's property, harassed and abused the claimant, and violated the claimant's privacy. The claimant allegedly received notices regarding the violations and assessments of fines and penalties. In finding that the underlying petition could not be construed as potentially alleging malicious prosecution, the court determined that as a matter of law the claimant could not establish the malice element of a malicious prosecution claim because several of the complained of notices attached to the petition were issued to the claimant by the association's counsel and, thus, the underlying petition lacked any factual basis for a malicious prosecution claim. Therefore, the court concluded that the allegations did not trigger the malicious prosecution offense. C. WRONGFUL EVICTION, WRONGFUL ENTRY OR INVASION OF THE RIGHT OF PRIVATE OCCUPANCY In Sell v. Nationwide Mut. Ins. Co., No , 2012 U.S. App. Lexis (9th Cir. July 19, 2012) (applying California law) (unpublished), the trustee and primary beneficiary of a trust was sued by the trust s residual beneficiary for allegedly failing to comply with the trust s conditions. The residual beneficiary claimed he should receive possession and control of the trust property a ranch. The trustee sought a defense under the personal injury coverage of the trust s liability policy, claiming that the personal injury offense of the wrongful eviction from, wrongful entry into, or invasion of the right of private occupation of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor was implicated. It was undisputed that the residual beneficiary did not possess and was not 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 25

26 physically present on the ranch since the trust was established. However, the court found the language that a person occupies was ambiguous as to whether physical possession was required and, thus, concluded the offense was implicated for the purpose of a duty to defend. In doing so, the court rejected the insurer s argument that the offense s use of the language invasion of the right of private occupation and that a person occupies would be redundant unless the latter required physical possession. In The American Ins. Co. v. Liberty Surplus Ins. Corp., No. 5:11 cv 03159, 2012 U.S. Dist. Lexis (N.D. Cal. Aug. 13, 2012) (applying California law), the insureds, the manager and owner of an apartment complex, were alleged to have fraudulently induced their tenants into renewing leases by misleading them as to the scope of future renovations that disrupted the peace and serenity of the complex. Based on these allegations, the tenants asserted claims including breach of the covenant of quiet enjoyment, nuisance, fraud, and negligent misrepresentation. The defending insurer sought a declaration that another insurer owed a defense obligation for the claims under its policies personal and advertising injury coverage for 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. The court held that the claims of nuisance, which included allegations that the claimants were physically displaced from communal areas and that dust invaded their rental units, fell within the scope of the offense thereby triggering a duty to defend. The insured in Alco Iron & Metal Co. v. Am. Int'l Specialty Lines Ins. Co., No. C , 2012 U.S. Dist. Lexis (N.D. Cal. Nov. 21, 2012) (applying California law), was sued for trespass and conversion based on allegations that it entered the claimant s property, removed rail spurs, and sold them as scrap metal. The insured allegedly sought permission to enter the property from a commercial tenant who did not have the authority to grant a license to enter and remove the metal. The court held that these allegations did not fall within the personal and advertising injury offense of wrongful entry into... a room, dwelling, or premises that a person occupies.... The court reasoned that a person as the term is used in the offense refers unambiguously to a natural person only, while the occupier of the premises at issue, the commercial tenant, was a corporation. In support, the court noted that other parts of the policy referred to a person or organization, so that the term organization would be rendered superfluous if read to encompass a legal entity. In Lexington Ins. Co. v. St. Bernard Parish Government, No , 2013 U.S. Dist. Lexis 819 (E.D. La. Jan. 3, 2013), the insured was sued by property owners for inverse condemnation because the insured allegedly demolished certain structures on the claimants property without proper notice, hearing or due process. The court agreed with the insured s argument that the personal and advertising injury offense for wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor was ambiguous, such that the subject public entity liability policy afforded coverage for the underlying claims. The court determined that the phrase by or on behalf of its owner, landlord or lessor could be construed as modifying the phrase that a person occupies (as opposed to modifying the phrase wrongful 26 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

27 eviction from, wrongful entry into, or invasion of the right of private occupancy of a room ). Therefore, a personal and advertising injury occurs either when property owners are wrongfully evicted or when individuals who occupy a dwelling on behalf of an owner, landlord, or lessor are wrongfully evicted. Based on such ambiguity, the court construed the policy language against the insurer and determined that the public entity liability policy provided coverage for the underlying inverse condemnation claim. In Hartford Fire Ins. Co. v. Gandy Dancer, LLC, No. 864 F. Supp. 2d 1157 (D.N.M. 2012) (applying New Mexico law), BNSF Railway was alleged to have directed the insured to reconstruct a water diversion project on an easement owned by BNSF and located on the claimant s land. The project allegedly caused damage to the land. The claimant brought claims against the insured for trespass and nuisance. The court found the policy s personal and advertising injury offense of wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that person occupies committed by or on behalf of the owner, landlord, or lessor was implicated by the claims. Thus, a duty to defend was owed. In doing so, the court rejected the insurer s argument that the wrongful entry offense was limited to landlord/tenant disputes. It found that the alleged wrongful entry was committed on behalf of the owner because the insured was instructed to enter the land by BNSF, who held easement rights in the land. In Federal Ins. Co. v. Steadfast Ins. Co., 209 Cal. App. 4th 668 (2012) (applying California law), the insureds were sued by the United States under the Fair Housing Act for allegedly engaging in discrimination relating to the rental of certain dwellings. In determining that the allegations of the underlying action did not implicate the policy s wrongful eviction, wrongful entry or invasion of the right of private occupancy personal and advertising injury offenses, the court explained that only a tenant (not the United States) can assert a claim for wrongful eviction, wrongful entry and invasion of the right of private occupancy. The court also noted that while the underlying action alleged acts involving wrongful evictions, wrongful entries and invasions of the right of private occupancy, the gravamen of the underlying action was solely for housing discrimination under the Fair Housing Act. Accordingly, Steadfast and Liberty did not owe any defense obligation under their respective policies. In Pekin Ins. Co. v. Precision Dose, Inc., 968 N.E.2d 664 (Ill. App. 2012) (applying Illinois law), the minority shareholders of a pharmaceutical manufacturer, Xactdose, sued the majority shareholders for breach of fiduciary duty. The complaint alleged that the majority shareholders, informed the minority shareholders that Xactdose s business was faltering and the company should wind down, and then created another company in secret. The new company allegedly assumed the operations of Xactdose through the use of its factory to sell generic liquid medications similar to those sold by Xactdose. The insureds allegedly breached their obligation to Xactdose by failing to inform the minority shareholders of a potential new source of business and failing to share profits with them. The insureds sought coverage under the policy s personal injury coverage. The court found that the policy s personal injury offense of wrongful entry, eviction, and invasion of the right of private occupancy was not implicated and, thus, no duty to defend was owed. According to the court, the complaint did not allege 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 27

28 that the majority shareholders had wrongfully possessed the factory but, rather, that they had resumed operations in the factory after wrongfully withholding business information. In FLM, LLC v. Daimler Chrysler Corp., 973 N.E.2d 1167 (Ind. App. 2012) (applying Indiana law), foundry sand the insured had stored on the claimant s ( FLM ) property began to migrate onto a neighbor s property after the insured s lease with FLM terminated. FLM and the insured both received Notices of Violation ( NOVs ) from the city and state government ordering the parties to remove the sand. The court held that the insurer had a duty to defend the insured pursuant to its policy s personal and advertising injury coverage for wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises that a person occupies by or on behalf of its owner, landlord, or lessor. The court found the offense was ambiguous as to whether it applied to environmental claims. It also found the offense was ambiguous as to whether the owner, landlord or lessor occupy the property or be the one who committed the wrongful entry or invasion of the right of private occupancy. Because the neighbor s property was occupied by its owner, the court found that the allegations fell within a reasonable interpretation of the offense. The insured landlord in Freedman v. U.S. Liab. Ins. Co., 972 N.E.2d 1059 (Mass. App. 2012) (applying Massachusetts law), allegedly harassed its tenant, threatened to do her bodily harm, and yelled at her in front of customers. The claimant sued, alleging claims of intentional infliction of emotional distress and interference with business relations. The court held that there was no coverage for the tenant s claims under the policy s invasion of the right of private occupancy offense because they were based on the insured s harassment of the claimant, not a denial of her right to be on the property. D. DEFAMATION, LIBEL, SLANDER, DISPARAGEMENT In Prolink Holding Corp. v. Fed. Ins. Co., 688 F.3d 828 (7th Cir. 2012) (applying Illinois law), the insured sought coverage for claims of patent infringement, slander of title, and unfair competition based on allegations that it made false claims to investors that it owned the claimant s patented technology in GPS based equipment. The policy s personal injury offense concerning material that libels or slanders a person or organization contained an exception for disparagement of goods, products, property or services. The court found the offense required the insured to have slandered the claimant, as opposed to having disparaged the claimant s products. Because the allegations against the insured only disparaged the insured s GPS equipment, the Court concluded that the claims fell within the express exception to the offense and the insurer had no duty to defend or indemnify. In Finger v. State Farm Fire & Cas. Ins. Co., No , 459 Fed. Appx. 828 (11th Cir. 2012) (unpublished) (applying Alabama law), the jury found that the insured was liable for slander and that he had acted with the specific intent to harm the claimant. After the verdict, the insurer, who had provided a defense, denied indemnity coverage based on the policy s exclusion for personal injury with specific intent to cause harm or injury. In finding the exclusion applicable, the court rejected the notion that the specific intent exclusion made 28 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

29 coverage for slander claims ambiguous or illusory. The court explained that a slander claim includes an element of intent regarding the falsity of the statement, but not regarding the harm or injury. Thus, the policy s personal injury coverage for slander was not illusory because it covers liability for slander if the insured did not act with specific intent to harm or injure. In Tower Ins. Co. v. Capurro Enters. Inc., No. C , 2012 U.S. Dist. Lexis (N.D. Cal. Apr ) (applying California law), the insured faced claims including trademark infringement, unfair competition, breach of contract, and unjust enrichment. The claims were based on allegations, that after the insured s franchise agreement terminated, the insured continued to use the franchisor s proprietary marks in the promotion of its painting business. For example, the insured represented itself on its website, e mail address, and telephone greeting as a former franchisee who had received training from the franchisor. The court held that the insured was not entitled to a defense or indemnity for the claims under the personal and advertising injury coverage s disparagement offense, reasoning that the insured was not alleged to have made any false, injurious or derogatory statements about the franchisor or its products. Nor did the insured s alleged conduct suggest that the franchisor s products were inferior to his own. The court further noted that there was no suggestion in the complaint that the insured s use of the marks caused any damage to the claimant s reputation. The insured in Bullpen Distribution, Inc. v. Sentinel Ins. Co., Ltd., No. C , 2012 U.S. Dist. Lexis (N.D. Cal. June 1, 2012) (applying California law), stated on its website that it had experience and a working relationship with the U.S. military. The claimant alleged that the insured had no right to make such claims because the experience and relationship were gained by the insured s employees when they worked for the claimant. The claimant alleged the statements were part of a campaign to deliberately disrupt its business and steal its customers. The court held that there was no defense or indemnity for the claims under the personal and advertising injury coverage for oral, written, or electronic publication of material that slander or libels a person or organization or disparages a person s or organization s goods, products or services. The court reasoned that the offense covers claims for trade libel an intentional disparagement of the quality of property which, under the First Amendment, must refer specifically to the derogated person either directly or by reasonable implication. The insured s statements about its own achievements and relationships did not imply that the claimant did not also have the same achievements and relationships, nor did they make any direct or indirect comparison between the insured and the claimant. In St. Paul Mercury Ins. Co. v. Tessera, Inc., No. 12 cv 01827, 2012 U.S. Dist. Lexis (N.D. Cal. Nov. 30, 2012) (applying California law), the insured faced claims including breach of contract, breach of implied covenant of good faith, and fraud. The claimant alleged that the insured breached the parties licensing agreement by initiating a U.S. International Trade Commission (ITC) investigation and proceeding naming the claimant s customers. The insured argued that the claims involved allegations of defamation, disparagement, malicious prosecution and abuse of process, all of which fell within the scope of the personal injury offenses for disparagement and malicious prosecution. The court disagreed. It held that the insurer had no duty to defend. The court found that there was no potential for coverage under 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 29

30 the disparagement offense because the only published statements made by the insured to a third party were within the context of the ITC proceeding. The proceeding, however, was subject to the litigation privilege codified by California Civil Code 47(b), which the court found was a complete bar to potential liability for a claim of defamation. In Agrakey Solutions, LLC v. Mid Cont l Cas. Co., No. 1:10 CV 00570, 2012 U.S. Dist. Lexis (D. Idaho Mar. 14, 2012) (applying Idaho law), the insured was alleged to have wrongfully manufactured, marketed and sold the claimant s proprietary products after termination of an exclusive license to do so. The claimant alleged that the insured wrongfully represented that it held proprietary rights in the claimant s products and the insured s continued unauthorized sale of the products created confusion in the marketplace. The court determined that the personal and advertising injury coverage for disparagement was not implicated because the insured was only alleged to have wrongfully sold the claimant s product while representing it had non exclusive, proprietary rights to the product. Such conduct, the court explained, neither expressly nor impliedly disparaged the claimant or its products. In Axiom Ins. Managers, LLC v. Capitol Specialty Ins, Corp., No. 11 cv 4736, 2012 U.S. Dist. Lexis (N.D. Ill. June 21, 2012) (applying Illinois law), the insured filed suit against the claimant concerning an ongoing business dispute, the claimant filed a Rule 11 motion against the insured. The motion argued that allegations in the insured s complaint were indisputably false. The court found that the gravamen of the motion was the lack of legal and factual support for the insured s allegations, not whether the claimant was libeled or slandered by them. Thus, the court concluded the insurer had no duty to defend the Rule 11 motion under the policy s personal and advertising injury coverage for libel, slander, and disparagement. In National Union Fire Ins. Co. of Pitt., P.A. v. Mead Johnson & Co., 3:11 cv 161, 2012 U.S. Dist. Lexis (S.D. Ind. Dec. 19, 2012) (applying Indiana law), the insured faced class action lawsuits alleging that it falsely represented its infant formula was the only one on the market clinically proven to improve brain and eye development. The complaints alleged that, as a result of the statements, the claimants were misled into paying substantially more for the claimant s formula than they would have for comparable store brand or generic formula. The court held that there was no duty to defend or indemnify the insured under the personal and advertising injury offense of oral or written publication... that slanders or libels a person or organization or... disparages a person s or organizations goods, products or services. The court reasoned that in order to sketch a claim for libel, slander or disparagement, the claimants had to allege that the insured s false statements were about them. The insured s statements, however, potentially disparaged the makers of generic formula brands, not the claimantpurchasers. The court also noted that the claimants did not have Article III standing to bring a disparagement claim on behalf of the makers of generic formula in the first instance. In Hartford Fire Ins. Co. v. Vita Craft Corp., No , 2012 U.S. Dist. Lexis (D. Kan. Dec. 3, 2012) (applying Kansas law), the insured, a licensee of the claimant s patented cookware technology, allegedly infringed upon the claimant s patents and breached the parties licensing agreements by applying for its own patents in the same technology. At issue in the 30 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

31 coverage dispute was whether allegations that the insured spread false rumors concerning other licensees of the claimant s technology implicated a duty to defend under the policy s personal and advertising injury coverage for disparagement, libel, and slander. The court held that they did, reasoning that the insured s statements to others not to trust the licensee because they are fraud and are foolish and a very bad company were sufficient to set forth a potential claim for libel or disparagement. The court further concluded that it did not matter that the statements were about a third party because the claimant alleged it was injured by them. The court also rejected the insurer s contention that there was no coverage for the allegations because they were set forth in a claim for unfair competition, which the insured argued was limited to intellectual property claims under Kansas law. In Travelers Prop. Cas. Co. of Am. v. Charlotte Russe Holding, Inc., 207 Cal. App. 4th 969 (Cal. App. 2012) review denied by 2012 Cal. Lexis 9156 (Cal. Sept. 16, 2012) (applying California law), the insured, a retail clothing store, allegedly agreed to sell the claimant s People s Liberation brand of clothes at a high price point consistent with its status as a premium or high end brand. Sometime thereafter the insured allegedly held a sale in which it sold the claimant s clothing at a 70 85% discount. The claimant alleged that the fire sale of its products caused significant damage to and diminution in its brand and trademark. Based on the foregoing, the claimant alleged claims of breach of contract, fraudulent and negligent misrepresentations, and intentional interference with contractual relationships. The court held that the claims could be interpreted as alleging the insured s markdown of the claimant s apparel impugned the reputation of the clothing line, thus implicating the policy s coverage for disparagement for purposes of a duty to defend. The court reasoned that the price markdown carried with it an implication (i.e., the People s Liberation was not a luxury brand) that was allegedly false and derogated of the claimant s brand. The court rejected the insured s argument that the allegations failed to set forth a claim for trade libel, concluding that this was not necessary under the offense. In Hartford Cas. Ins. Co. v. Swift Dist., Inc., 210 Cal. App. 4th 915 (2012) (applying California law), the insured sought a defense and indemnity for claims of patent and trademark infringement, unfair competition and false advertising under the policy s personal and advertising injury offense for disparagement. The claims were based on the insured s sale of a motorized vehicle for transporting movie and sound equipment called the Ulti Cart, which the claimant alleged infringed upon the name and design of its own motorized vehicle called the Multi Cart. A theme running through each of the claims was that the insured s advertising misled the public into believing that the claimant s and insured s products were the same or related, thus damaging the claimant s reputation and goodwill. The court held that the allegations did not implicate the disparagement offense because the insured was not alleged to have made an injurious falsehood about the claimant or its products. While the court acknowledged that use of the Ulti Cart name could be seen as an indirect reference to the claimant s Multi Cart product, it concluded that the use of the name alone did not disparage the claimant s goods, products or services. The court distinguished the allegations from other cases in which insureds made statements implying that their competitor s products were inferior. In reaching its decision the court notably not only distinguished, but expressly 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 31

32 disagreed with, the recent decision in Travelers Property Cas. Co. of America v. Charlotte Russe Holding, Inc., 207 Cal. App. 4th 969 (2012), supra. In Southern Cal. Gold Prods., Inc. v. Zurich Am. Ins. Group., No. B234720, 2012 Cal. App. Unpub. Lexis 3355 (Cal. App. May 3, 2012) (unpublished) (applying California law), the insured was alleged to have falsely represented on its website that it had an affiliation with the U.S. military. The insured also included pictures of the claimant s products on its website and indicated they were its own. The site also stated that there was an affiliation between the insured and the claimant, which the claimant alleged did not exist. The court held that the claims did not implicate the personal and advertising injury offense of publication of material that slanders or libels a person or organization or disparages a person s or organization s goods, products or services. The court found that, at most, the allegations could be interpreted as claiming that the insured palmed off the claimant s products as its own, not that the insured s products were superior to the claimant s. Thus, the court concluded the insurer had no duty to defend or indemnify. In Tool Touring, Inc. v. The American Ins. Co., B230136, 2012 Cal. App. Unpub. Lexis 3461 (Cal. App. May 8, 2012) (unpublished) (applying California law), the band Tool sought a defense and indemnity for claims of copyright infringement and defamation asserted by a graphic designer who created many pieces of artwork for the band. The complaint alleged that Tool only held a license in the copyrighted works, which the claimant revoked in Tool allegedly continued to use the artwork on its merchandise, products, promotional flyers, and website after the license was revoked. Tool also allegedly made statements disparaging the claimant to third parties who ceased doing business with him as a result. The court concluded that the disparagement allegations fell within the policy s offense for libel, slander, and disparagement. The court also held that the insured was alleged to have infringed upon the claimant s copyright in its advertisement, implicating the policy s personal and advertising injury coverage for copyright infringement. Thus, the court held the insurer must defend the band. In State Farm Fire & Cas. Co. v. Wier, No. A127243, 2012 Cal. App. Unpub. Lexis 7842 (Cal. App. Oct. 26, 2012) (unpublished) (applying California law), the insureds were sued for misappropriation of trade secrets, conversion and breach of contract for allegedly using policyholder lists from their former employer (State Farm) and soliciting those policyholders to purchase insurance from their new employer (Mercury). The court found that these allegations did not trigger the policy s personal and advertising injury offense for disparagement. The solicitation letters the insureds sent to the policyholders did not assert or suggest anything negative about State Farm. Thus, the court found that not duty to defend or indemnify was owed. In Sova v. The Cove Homeowner's Ass'n, No CA 2220, 2012 La. App. Lexis 1114 (La. App. Sept. 7, 2012) (applying Louisiana law), the insured, a homeowner's association, was sued by a lot owner alleging that the insured illegally imposed certain fines and penalties, unlawfully caused a lien to be placed on the claimant's property, harassed and abused the claimant, and violated the claimant's privacy. The court determined that the policy s personal and 32 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

33 advertising injury offense for written publication of material that slanders or libels a person was not triggered by the complaint s allegations because the notices at issue regarding the violations and assessments of fines and penalties were sent only to the claimants themselves. Therefore, the publication element of a defamation claim could not be established. In Natural Organics, Inc. v. OneBeacon America Ins. Co., No , 2013 N.Y. App. Div. Lexis 202 (N.Y. App. Jan. 16, 2013), the insured was sued for unfair competition under the Lanham Act. The underlying suit alleged that the insured, after wrongfully terminating an exclusive distributorship agreement with the claimant, issued a press release announcing that a third party was the exclusive distributor of the insured s products. The underlying suit alleged that the press release caused confusion, mistake and deception as to the claimant s distribution of the insured s products. The court agreed with the insured s argument that the allegations constituted the written publication of material that disparages a person s or organization s goods, products or services, because the press release could be construed as implying that the claimant s inventory of the insured s products was unauthorized. Additionally, the court found that the breach of contract exclusion did not apply. Thus, the court determined that the insurer had a duty to defend. E. VIOLATION OF RIGHT OF PRIVACY In Owners Ins. Co. v. European Auto Works, Inc., 695 F.3d 814 (8th Cir. 2012) (applying Minnesota law), the Eighth Circuit held that the carrier had an obligation to indemnify the insured for claims that it violated the Telephone Consumer Protection Act ( TCPA ). The court concluded that the policy s advertising injury offense of oral or written publication of material that violates a person s right of privacy was broad enough to incorporate the allegations that the insured violated the claimants right to seclusion by sending unsolicited facsimile advertisements. The court rejected the carrier s contention that the right of privacy language in the offense unambiguously modifies material and not publication under the last antecedent rule so that the material in the faxes must violate the claimant s right of privacy in order to fall within the scope of the offense. The court also distinguished the language of the offense, which covered the publication of material, from policies covering an insured s making known material that violates a person s right of privacy. It found that the latter suggests disclosure of information to a third party while the former could mean the act of conveying material apart from its content. The insured in Maxum Indem. Co. v. Eclipse Mfg. Co., No. 06 C 4946, 848 F. Supp. 2d 871 (N.D. Ill. 2012) (applying Illinois law), sent unsolicited faxes advertising its event planning services in alleged violation of the Telephone Consumer Protection Act ( TCPA ). While the court originally held that only claims of faxes sent to individuals and not corporations fell within the scope of the right of privacy offense, on reconsideration, the court determined that under the Illinois Supreme Court s decision in Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill.2d 352 (2006), there was a duty to defend TCPA fax ad claims under the right of privacy offense brought by both business entities and individuals Tressler LLP The Personal And Advertising Injury Liability Coverage 33

34 In Collective Brands, Inc. v. National Union Fire Ins. Co. of Pittsburgh, P.A., No JTM, 2013 U.S. Dist. Lexis 1338 (D. Kan. Jan. 4, 2013) (applying Kansas law), the insured was sued for violation of the Telephone Consumer Protection Act ( TCPA ) for allegedly sending unauthorized pre recorded telephone messages and text messages, advertising the insured s products. The court found that the allegations triggered the oral or written publication, in any manner, of material that violates a person s right of privacy offense, even if such telephone messages and text messages did not reveal secrets of the recipient. However, the court determined that the insurer did not have a duty to defend because the policy excluded coverage for any liability arising out of any act that violates any statute, ordinance or regulation of any federal, state or local government that prohibits or limits the sending, transmitting or communicating of material or information. Therefore, the court determined that the insurer did not have any duty to defend or indemnify. In Employers Mut. Cas. Co. v. Raddin, No. 5:10 cv 137, 2012 U.S. Dist. Lexis (S.D. Miss. Mar. 30, 2012) (applying Mississippi law), a dean and football coach of a primary school was alleged to have sexually molested students by performing improper physical exams and to have administered improper drug tests at the insured s medical clinic. The clinic faced claims including invasion of privacy, negligent supervision and entrustment, and breach of fiduciary duty. The court found that the invasion of privacy claims did not implicate the policies invasion of privacy offense because the offense was expressly limited to an invasion of the right of privacy arising out of the oral or written publication of material. Neither the coach nor the clinic was alleged to have published any material relating to the claimants. In yet another case addressing coverage for claims brought under the Telephone Consumer Protection Act ( TCPA ), the court in Hartford Fire Ins. Co. v. Flagstaff Inds., Corp., No. 1:11 cv 1137, 2012 U.S. Dist. Lexis (N.D. Ohio May 10, 2012) (applying Pennsylvania law), held that there was no duty to defend or indemnify the insured under the policy s personal and advertising injury coverage for oral, written, or electronic publication of material that violates a person s right of privacy. The court reasoned that Pennsylvania case law made clear that TCPA claims do not fall within the scope of the right of privacy offense because the offense is limited to material that violates a person s right of secrecy i.e. material that contains private information the recipient has the right to be kept confidential. The purpose of the TCPA is not to protect the public from facsimiles containing private information but, rather, to stop people from being bothered by unwanted advertisements sent via facsimile. In Auto Owners Ins. Co. v. Tax Connection Worldwide, LLC, No , 2012 Mich. App. Lexis 2432 (Mich. App. Dec. 4, 2012) (unpublished) (applying Michigan law), the insured sought coverage for claims that it sent unsolicited facsimile advertisements to the claimants in violation of the Telephone Consumer Protection Act ( TCPA ). The court held that the claims fell within the scope of the advertising injury offense of written publication of material that violates a person s right of privacy thus implicating a defense and indemnity obligation under the policy. In doing so, the court found that a person as that term is used in the right of privacy offense could be reasonably interpreted to include a corporation and, thus, the offense 34 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

35 was ambiguous as to whether it applied to the corporate claimants. It also concluded that the phrase right of privacy could be reasonably interpreted to include the right to seclusion, which was allegedly violated by the insured s unsolicited facsimiles. In Sawyer v. West Bend Mut. Ins. Co., 821 N.W.2d 250 (Wis. App. 2012) (applying Wisconsin law), the insured sought coverage for claims that it sent unsolicited facsimile advertisements in violation of the Telephone Consumer Protection Act ( TCPA ). The court found there was a duty to defend the TCPA claims under the personal and advertising injury offense of oral or written publication, in any manner, of material that violates a person s right of privacy. The court found that the term person as used in the offense included the claimant corporations. The court also found that the offense affords coverage for alleged violations of a person s right to seclusion, which is protected by the TCPA. Finally, in reaching its holding, the court rejected the insured s argument that a publication, as that term is used in the offense, is limited to an announcement made to the public at large. F. USE OF ANOTHER S ADVERTISING IDEA 1 In Agrakey Solutions, LLC v. Mid Continental Cas. Co., No. 1:10 CV S EJL, 2012 U.S. Dist. Lexis (D. Idaho Mar. 14, 2012) (applying Idaho law), the insured was alleged to have wrongfully manufactured, marketed and sold the claimant s proprietary products after termination of an exclusive license to do so. The claimant alleged that the insured wrongfully represented that it held proprietary rights in the claimant s products and the insured s continued unauthorized sale of the products created confusion in the marketplace. With respect to allegations that the insured used certain customer testimonials on its website and represented that its product was the subject of certain research and field trials, the court concluded there was no alleged use of another s advertising idea in the insured s advertisement. Rather, the court found that the testimonials were being used by the insured to demonstrate that the product it was currently selling was the same as the one it sold under the licensing agreement. The court further reasoned that there was no causal connection between the insured s advertising and the claimant s alleged injuries, as the underlying claim was based on the insured s sale of the claimant s products not the insured s advertisement of those products. In American Family Mut. Ins. Co. v. Beasley, No. 2:10 cv 2090, 2012 U.S. Dist. Lexis (D. Nev. Feb. 6, 2012) (applying Nevada law), the insured was a former insurance agent of the claimant, American Family Insurance. After termination of the agency agreement the insured created her own agency and allegedly used improperly retained customer information to induce American Family policyholders to transfer their business. The court held that the personal and advertising injury offense of use of another s advertising idea in your advertisement was not implicated because the confidential customer lists allegedly used by 1 See analogous cases addressing the offense of misappropriation of advertising ideas or style of doing business in Section H, infra Tressler LLP The Personal And Advertising Injury Liability Coverage 35

36 the insured constituted trade secrets, not an advertising idea or idea for calling public attention to a product or business. In Suwannee Am. Cement LLC v. Zurich Ins. Co., Ltd., 11 Civ. 3899, 2012 U.S. Dist. Lexis (S.D.N.Y. Aug. 2, 2012) (applying New York law), the insured sought a defense and indemnity for claims it conspired to fix the price of concrete in the state of Florida. The insured allegedly carried out the price fixing conspiracy by making false statements to customers that the high cost of concrete was the result of increasing fuel costs and reduced supply. The insured sought coverage for the claims under the personal and advertising injury offense of use of another s advertising idea in your advertisement, claiming that its statements concerning the high price of concrete was the idea of one of its co conspirators. The court disagreed, finding that the offense requires an advertising idea to have been misappropriated by the insured i.e., wrongfully taken or made without authority or right. The insured made its statements with the permission of its co conspirator. Thus, the court found there was no duty to defend or indemnify the antitrust claims. In Air Engineering, Inc. v. Industrial Air Power, LLC, No. 2012AP103, 2013 Wisc. App. Lexis 9 (Wis. App. Jan. 3, 2013) (applying Wisconsin law), the insured was sued for trade secret misappropriation, breach of contract, breach of fiduciary duty and unjust enrichment for allegedly using the same website source code and content as found on the claimant s website and for misappropriating an Internet Advertising System ( IAS ). This IAS was allegedly developed by the claimant to advertise its products to the public in order to facilitate sales. The IAS was designed to direct persons to the claimant s advertising and links detailing product information, based on certain Google search terms entered by such persons. The court found that the alleged misappropriation of the IAS triggered the use of another s advertising idea offense because the system was an idea that called public attention to a product or business. With respect to the alleged misappropriation of the website source code and content, the court also found that such conduct triggered the use of another s advertising idea offense because the content of a website could be reasonably read as constituting or including an advertisement. As such, the court found that the insurer owe a duty to defend. G. INFRINGING UPON ANOTHER S COPYRIGHT, TRADE DRESS OR SLOGAN IN YOUR ADVERTISEMENT 1. Copyright Infringement In Feldman Law Group, P.C. v. Liberty Mut. Ins. Co., No cv, 2012 U.S. Dist. Lexis 7787 (2d Cir. Apr. 18, 2012) (unpublished) (applying New York law), the insured was alleged to have designed, manufactured, and sold jewelry that infringed upon the claimant s copyright and trade dress in its jewelry designs. The Second Circuit held that the allegations did not fall within the scope of the policy s advertising injury coverage for copyright and trade dress infringement because they did not allege infringement resulting from the insured s advertisement. In so doing, the court rejected the insured s argument that because the complaint s prayer for relief sought the destruction of catalogues promoting the infringing 36 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

37 jewelry, the complaint alleged a potential claim for infringement in its advertising separate and apart from its sale of jewelry. In Comprehensive Microfilm and Scanning Services, Inc. v. The Main Street Am. Group, No. 3:11 cv 498, 2012 U.S. Dist. Lexis (M.D. Penn. Apr. 18, 2012) (applying Pennsylvania law), the insured faced claims of copyright infringement, trademark infringement, and unfair competition. The claims were based on allegations that the insured unlawfully copied and sold microfilm versions of journals published by the claimant without its permission. At issue was the policy s coverage for infringement of copyright, title or slogan, committed in the course of advertising [the insured s] goods, products, or services. The court held that the complaint failed to allege an injury falling with the advertising injury coverage because the insured was only alleged to have copied journals on microfilm and to have sold them. It was not alleged to have advertised the microfilm, let alone to have done so in a manner that infringed upon the claimant s copyrights. Thus, the court held the insurer had no defense or indemnity obligation. In Tool Touring, Inc. v. The American Ins. Co., B230136, 2012 Cal. App. Unpub. Lexis 3461 (Cal. App. May 8, 2012) (unpublished) (applying California law), the band Tool sought a defense and indemnity for claims of copyright infringement and defamation asserted by a graphic designer who created many pieces of artwork for the band. The complaint alleged that Tool only held a license in the copyrighted works, which the claimant revoked in Tool allegedly continued to use the artwork on its merchandise, products, promotional flyers, and its website after the license was revoked. The court concluded that, by using the artwork on its merchandise and website, Tool was alleged to have infringed upon the claimant s copyright in the band s advertisement, which was defined in the policy as a notice that is broadcast or published to the general public... about your goods, products or services for the purpose of attracting customers or supporters. Thus, the court held the insurer must defend the band. 2. Trade Dress Infringement In Feldman Law Group, P.C. v. Liberty Mut. Ins. Co., No cv, 2012 U.S. Dist. Lexis 7787 (2d Cir. Apr. 18, 2012) (unpublished) (applying New York law), the insured was alleged to have designed, manufactured, and sold jewelry that infringed upon the claimant s copyright and trade dress in its jewelry designs. The Second Circuit held that the allegations did not fall within the scope of the policy s advertising injury coverage for copyright and trade dress infringement because they did not allege infringement resulting from the insured s advertisement. In so doing, the court rejected the insured s argument that, because the complaint s prayer for relief sought the destruction of catalogues promoting the infringing jewelry, the complaint alleged a potential claim for infringement in its advertising separate and apart from its sale of jewelry. 3. Infringement Of Slogan 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 37

38 H. PRE 1998 FORMS: MISAPPROPRIATION OF ADVERTISING IDEAS OR THE STYLE OF DOING BUSINESS 2 In Southern Cal. Gold Prods., Inc. v. Zurich Am. Ins. Group., No. B234720, 2012 Cal. App. Unpub. Lexis 3355 (Cal. App. May 3, 2012) (unpublished) (applying California law), the insured was alleged to have falsely represented on its website that it had an affiliation with the U.S. military. It was also alleged to have included pictures of the claimant s products on its website and claimed they were its own. The site also stated that there was an affiliation between the insured and the claimant which the claimant alleged did not exist. The court held that the allegations did not implicate the personal and advertising injury offense of misappropriation of style of doing business. The court found that the complaint only alleged that the insured made false claims concerning its own products and affiliations, not that it appropriated any elements of the claimant s style of doing business. Thus, the court concluded the insurer had no duty to defend or indemnify. In State Farm Fire & Cas. Co. v. Wier, No. A127243, 2012 Cal. App. Unpub. Lexis 7842 (Cal. App. Oct. 26, 2012) (unpublished) (applying California law), the insureds were sued for misappropriation of trade secrets, conversion and breach of contract for allegedly using policyholder lists from their former employer and soliciting those policyholders to purchase insurance from their new employer. The court rejected the argument that they were alleged to have misappropriated "advertising ideas," including sending out renewal notices, sponsoring youth sports teams, newspaper and radio ads, advertisements on billboards and shopping carts and "pretty much any kind of media you could think of." It found that the underlying complaint did not allege the "misappropriation of advertising ideas," because there was nothing unique about the alleged business promotion ideas. Thus, no proprietary advertising idea could have been misappropriated. The court concluded that the insurer did not have a duty to defend or indemnify the insureds. In Pekin Ins. Co. v. Precision Dose, Inc., 968 N.E.2d 664 (Ill. App. 2012) (applying Illinois law), the minority shareholders of a pharmaceutical manufacturer, Xactdose, sued the majority shareholders for breach of fiduciary duty. The complaint alleged that the majority shareholders, while informing the minority shareholders that Xactdose s business was faltering and the company should wind down, created another company in secret. The new company allegedly assumed the operations of Xactdose through the use of its factory to sell generic liquid medications similar to those previously sold by Xactdose. The court held there was no duty to defend the suit under the policy s advertising injury offense of misappropriation of another s advertising idea or style of doing business. The court reasoned that the complaint alleged that the insured took over the operations of the claimant s factory, which it could only reasonably infer concerned manufacturing operations, not that the insured had taken over the plaintiff s marketing or advertising schemes. 2 See analogous cases addressing the offense of use of another s advertising idea in your advertisement in Section F, supra. 38 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

39 I. PRE 1998 FORMS: INFRINGEMENT OF TITLE In Interstate Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539 (8th Cir. 2012) (applying Missouri law), the insured s use of the trademarks Nature s Pride and Nature s Choice in connection with the sale of packaged breads was alleged to infringe upon the claimant s Nature s Own trademark which the claimant also used to market bread products. Based on the foregoing, the insured faced claims of trademark infringement, unfair competition, and unfair and deceptive trade practices. The court held that the allegations in the complaint did not give rise to a potential claim under the advertising and personal injury liability offense for infringement of title or slogan and, thus, there was no duty to defend. The policy defined title as the caption or name of matter. The complaint only alleged that the insured s products were marketed under the Nature s Own trademark, not that the mark was the title or name of the product. The court found that without a description or depiction of the bread wrapper in the record, it could not infer that the mark was used as a title. The court further held that the Nature s Own mark was not allegedly used as a slogan, or a word or phrase used to express a characteristic position or brief attention getting phrase used in advertising or promoting. The court reasoned that there were no allegations in the complaint suggesting that Nature s Own was used by the insured to indicate a characteristic of the product. J. PRE 1996 FORM: PIRACY, UNFAIR COMPETITION III. ANALYSIS OF NON ENUMERATED OFFENSES A. ABUSE OF PROCESS; VEXATIOUS LITIGATION In St. Paul Mercury Ins. Co. v. Tessera, Inc., No. 12 cv 01827, 2012 U.S. Dist. Lexis (N.D. Cal. Nov. 30, 2012) (applying California law), the insured sought coverage for claims including breach of contract, breach of implied covenant of good faith, and fraud asserted by a company to which the insured licensed patents. The company alleged that the insured had breached the parties licensing agreement by initiating a U.S. International Trade Commission (ITC) investigation and proceeding naming the claimant s customers. The insured argued that the claims involved allegations of defamation, disparagement, malicious prosecution and abuse of process, implicating the policies personal injury coverage. The court disagreed, and held the insurer had no duty to defend. With regard to the malicious prosecution offense, the court reasoned that the claimant was not named in or directly aggrieved by the ITC proceeding. B. ANTITRUST VIOLATIONS In Suwannee Am. Cement LLC v. Zurich Ins. Co., Ltd., 11 Civ. 3899, 2012 U.S. Dist. Lexis (S.D.N.Y. Aug. 2, 2012) (applying New York law), the insured sought a defense and indemnity for claims it conspired to fix the price of concrete in the state of Florida. The insured allegedly carried out the price fixing conspiracy by making false statements to customers that the high cost of concrete was the result of increasing fuel costs and reduced supply. The insured sought coverage for the claims under the personal and advertising injury offense for use of 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 39

40 another s advertising idea in your advertisement, claiming that its statements concerning the high price of concrete was the idea of one of its co conspirators. The court found that the offense requires an advertising idea to have been misappropriated by the insured i.e., wrongfully taken or made without authority or right. The insured, however, made its statements with permission of its co conspirator. The court also found that the violation of a penal statute exclusion precluded coverage because the insured s conduct was alleged to have violated the Sherman Act. Thus, the court found there was no duty to defend or indemnify the antitrust claims. C. DISCRIMINATION AND HARASSMENT In Federal Ins. Co. v. Steadfast Ins. Co., 209 Cal. App. 4th 668 (2012) (applying California law), the insureds were sued by the United States under the Fair Housing Act for allegedly engaging in discrimination relating to the rental of certain dwellings. In determining that the allegations of the underlying action did not implicate the policy s wrongful eviction, wrongful entry or invasion of the right of private occupancy personal and advertising injury offenses, the court explained that only a tenant (not the United States) can assert a claim for wrongful eviction, wrongful entry and invasion of the right of private occupancy. The court also noted that while the underlying action alleged acts involving wrongful evictions, wrongful entries and invasions of the right of private occupancy, the gravamen of the underlying action was solely for housing discrimination under the Fair Housing Act. Accordingly, Steadfast and Liberty did not owe any defense obligation under their respective policies. D. HUMILIATION E. INTERFERENCE WITH PROSPECTIVE BUSINESS ADVANTAGE OR WITH CONTRACTUAL RELATIONS The insured in Bullpen Distribution, Inc. v. Sentinel Ins. Co., Ltd., No. C , 2012 U.S. Dist. Lexis (N.D. Cal. June 1, 2012) (applying California law), stated on its website that it had experience and a working relationship with the U.S. military. The claimant alleged that the insured had no right to claim the experience and relationship because they were gained by the insured s employees when they worked for the claimant. The claimant alleged the statements were part of a campaign to deliberately disrupt its business and steal its customers. Based on the foregoing, the insured faced claims including intentional interference with prospective economic advantage, false advertising, and unfair competition. The court held that there was no defense or indemnity for the claims under the personal and advertising injury coverage for oral, written, or electronic publication of material that slander or libels a person or organization or disparages a person s or organization s goods, products or services. The court reasoned that the offense covers claims for trade libel an intentional disparagement of the quality of property which, under the First Amendment must refer specifically to the derogated person either directly or by reasonable implication. The insured s statements about its own achievements and relationships did not imply that the claimant did not also have the 40 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

41 same achievements and relationships, nor did they make any direct or indirect comparison between the insured and the claimant. In State Auto Prop. & Cas. Ins. Co. v. Lagrotta, No. 2:11 cv 00457, 2012 U.S. Dist. Lexis (W.D. Penn. Aug. 14, 2012) (Magistrate report and recommendations), adopted at 2012 U.S. Dist. Lexis (Sept. 12, 2012) (applying Pennsylvania law), the insured, a member of the Pennsylvania House of Representatives, faced claims of tortious interference with contract and prospective business relations arising out of the state s failed sale of a nursing home. The state health department rescinded its preliminary approval of the sale to the claimant after the congressman s office released two press releases stating that the claimant had improper relations with organized crime. The statements in the press releases were allegedly made maliciously and with intent to harm the claimant and to convince the county not to consummate the sale. The court held that based on the intentional conduct alleged, coupled with the fact that an element of the causes of action alleged is the intent to harm, the knowing violation and knowledge of falsity exclusions precluded both a duty to defend and indemnify the congressman. F. UNFAIR COMPETITION In Interstate Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539 (8th Cir. 2012) (applying Missouri law), the insured s use of the trademarks Nature s Pride and Nature s Choice in connection with the sale of packaged breads was alleged to infringe upon the claimant s Nature s Own trademark which the claimant also used to market bread products. Based on the foregoing, the insured faced claims of trademark infringement, unfair competition, and unfair and deceptive trade practices. The court held that the allegations in the complaint did not give rise to a potential claim under the advertising and personal injury liability offense for infringement of title or slogan and, thus, there was no duty to defend. The policy defined title as the caption or name of matter. The complaint only alleged that the insured s products were marketed under the Nature s Own trademark, not that the mark was the title or name of the product. The court found that without a description or depiction of the bread wrapper in the record, it could not infer that the mark was used as a title. The court further held that the Nature s Own mark was not allegedly used as a slogan, or a word or phrase used to express a characteristic position or brief attention getting phrase used in advertising or promoting. The court reasoned that there were no allegations in the complaint suggesting that Nature s Own was used by the insured to indicate a characteristic of the product. The insured in Hartford Fire Ins. Co. v. Vita Craft Corp., No , 2012 U.S. Dist. Lexis (D. Kan. Dec. 3, 2012) (applying Kansas law), a licensee of the claimant s patented cookware technology, allegedly infringed upon the claimant s patents and breached their licensing agreements by applying for its own patents in the same technology. The insured also allegedly spread false rumors concerning other licensees of the claimant s cookware technology, which the court found implicated a duty to defend under the policy s personal and advertising injury coverage for libel, slander, and disparagement. The court further concluded 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 41

42 that these allegations did not fall within the exclusion for injury arising out any violation of intellectual property rights such as... patent. In doing so, the court rejected the insurer s argument that the IP exclusion applied to the disparagement allegations because they were set forth under the claim for unfair competition, which the insurer argued is a cause of action limited to traditional intellectual property infringement. G. PATENT INFRINGEMENT In Wilson Works, Inc. v. Great Am. Ins. Group, No , 2012 U.S. App. Lexis (4th Cir. Oct. 23, 2012) (applying West Virginia law), the insured sought coverage for claims of patent infringement, tortious interference with business relations, and conspiracy. The claims were based on allegations that the insured manufactured, sold, and marketed tools that infringed upon the claimant s patents. With little discussion, the court affirmed the district court s denial of coverage, concluding that the allegations did not fall within any of the policies advertising injury offenses. In Prolink Holding Corp. v. Fed. Ins. Co., 688 F.3d 828 (7th Cir. 2012) (applying Illinois law), the insured sought coverage for claims of patent infringement, slander of title, and unfair competition based on allegations that it made false claims to investors that it owned the claimant s patented technology in GPS based equipment. The policy s personal injury offense concerning material that libels or slanders a person or organization contained an exception for disparagement of goods, products, property or services. The court found the offense required the insured to have slandered the claimant, as opposed to having disparaged the claimant s products. Because the court found the allegations against the insured only disparaged the insured s GPS equipment, it concluded that the claims fell within the express exception to the offense and the insurer had no duty to defend or indemnify. H. TRADE SECRETS In American Family Mut. Ins. Co. v. Beasley, No. 2:10 cv 2090, 2012 U.S. Dist. Lexis (D. Nev. Feb. 6, 2012) (applying Nevada law), the insured was a former insurance agent of the claimant, American Family Insurance. After termination of the agency agreement the insured created her own agency and allegedly used improperly retained customer information to induce American Family policyholders to transfer their business. The court held that the personal and advertising injury offense of use of another s advertising idea in your advertisement was not implicated because the confidential customer lists allegedly used by the insured constituted trade secrets, not an advertising idea or idea for calling public attention to a product or business. In State Farm Fire & Cas. Co. v. Wier, No. A127243, 2012 Cal. App. Unpub. Lexis 7842 (Cal. App. Oct. 26, 2012) (unpublished) (applying California law), the insureds were sued for misappropriation of trade secrets, conversion and breach of contract for allegedly using policyholder lists from their former employer and soliciting those policyholders to purchase insurance from their new employer. The court rejected the argument that they were alleged to 42 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP

43 have misappropriated "advertising ideas," including sending out renewal notices, sponsoring youth sports teams, newspaper and radio ads, advertisements on billboards and shopping carts and "pretty much any kind of media you could think of." It found that the underlying complaint did not allege the "misappropriation of advertising ideas," because there was nothing unique about the alleged business promotion ideas. Thus, no proprietary advertising idea could have been misappropriated. The court concluded that the insurer did not have a duty to defend or indemnify the insureds. In Air Engineering, Inc. v. Industrial Air Power, LLC, No. 2012AP103, 2013 Wisc. App. Lexis 9 (Wis. App. Jan. 3, 2013) (applying Wisconsin law), the insured was sued for trade secret misappropriation, breach of contract, breach of fiduciary duty and unjust enrichment for allegedly using the same website source code and content as found on the claimant s website and for misappropriating an Internet Advertising System. The court first determined that the underlying suit alleged the use of another s advertising idea offense, based on the allegations that the insured misappropriated the claimant s Internet Advertising System and the claimant s website source code and content. The court held that the knowing violation exclusion did not apply to preclude a defense obligation because the underlying suit included claims for trade secret misappropriation, breach of fiduciary duty and unjust enrichment, which do not require a showing of actual knowledge or intent. Accordingly, the court found that the insurer had a duty to defend. I. TRADEMARK INFRINGEMENT In Interstate Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539 (8th Cir. 2012) (applying Missouri law), the insured s use of the trademarks Nature s Pride and Nature s Choice in connection with the sale of packaged breads was alleged to infringe upon the claimant s Nature s Own trademark which the claimant also used to market bread products. Based on the foregoing, the insured faced claims of trademark infringement, unfair competition, and unfair and deceptive trade practices. The court held that the allegations in the complaint did not give rise to a potential claim under the advertising and personal injury liability offense for infringement of title or slogan and, thus, there was no duty to defend. The policy defined title as the caption or name of matter. The complaint only alleged that the insured s products were marketed under the Nature s Own trademark, not that the mark was the title or name of the product. The court found that without a description or depiction of the bread wrapper in the record, it could not infer that the mark was used as a title. The court further held that the Nature s Own mark was not allegedly used as a slogan, or a word or phrase used to express a characteristic position or brief attention getting phrase used in advertising or promoting. The court reasoned that there were no allegations in the complaint suggesting that Nature s Own was used by the insured to indicate a characteristic of the product. In Comprehensive Microfilm and Scanning Services, Inc. v. The Main Street Am. Group, No. 3:11 cv 498, 2012 U.S. Dist. Lexis (M.D. Penn. Apr. 18, 2012) (applying Pennsylvania law), the insured faced claims of copyright infringement, trademark infringement, and unfair 2013 Tressler LLP The Personal And Advertising Injury Liability Coverage 43

44 competition. The claims were based on allegations that the insured unlawfully copied and sold microfilm versions of journals published by the claimant without its permission. At issue was the policy s coverage for infringement of copyright, title or slogan, committed in the course of advertising [the insured s] goods, products, or services. The court held that the complaint failed to allege an injury falling with the advertising injury coverage because the insured was only alleged to have copied journals on microfilm and to have sold them. It was not alleged to have advertised the microfilm, let alone to have done so in a manner that infringed upon the claimant s copyrights. Thus, the court held the insurer had no defense or indemnity obligation. In Hartford Cas. Ins. Co. v. Swift Dist., Inc., 210 Cal. App. 4th 915 (2012) (applying California law), the insured sought a defense and indemnity for claims of patent and trademark infringement, unfair competition and false advertising under the disparagement offense defined as personal and advertising injury. The claims were based on the insured s sale of a motorized vehicle for transporting movie and sound equipment called the Ulti Cart, which the claimant alleged infringed upon the name and design of its own motorized vehicle called the Multi Cart. A theme running through each of the claims was that the insured s advertising misled the public into believing that the claimant s and insured s products were the same or related, damaging the claimant s reputation and goodwill. The court held that the allegations did not implicate the disparagement offense because the insured was not alleged to have made an injurious falsehood about the claimant or its products. While the court acknowledged that use of the Ulti Cart name could be seen as an indirect reference to the claimant s Multi Cart product, it concluded that the use of the name alone did not impugn the quality of the claimant s goods, products or services. The court distinguished the allegations from other cases in which insureds made statements implying that their competitor s products were inferior, concluding that the use of the Ulti Cart name did not suggest that the product was superior to that of the claimant s. # End. 44 The Personal And Advertising Injury Liability Coverage 2013 Tressler LLP