Chapter 11: Advertisement Offenses. Joanna M. Roberto. Goldberg Segalla

Chapter 11: Advertisement Offenses Joanna M. Roberto Goldberg Segalla 100 Garden City Plaza Suite 225 Garden City, NY 11530 (516) 281-9820 jroberto@goldbergsegalla.com

Joanna M. Roberto, a New York-based partner in Goldberg Segalla s Global Insurance Services Practice Group, concentrates her practice in complex insurance coverage and commercial litigation. She serves as coverage counsel for multinational insurance carriers in numerous matters pending throughout the country. Joanna has litigated all phases of declaratory judgment actions and arbitrations, and she has counseled large insurers on underwriting procedures, policy rewriting and claims practices. She is multi-lingual and well-versed in international claimshandling practices. She is a member of DRI s Insurance Law Committee, service as chair of its Expert Witness Database Subcommittee, and is chair of the NYSBA s TICL Section for Insurance Coverage.

Chapter 11: Advertisement Offenses Table of Contents I. The Meaning of Advertising : How Widespread Must the Target Audience of the Advertisement Be?...165 A. The Strict Approach: Promotion to the General Public...165 B. The Liberal Approach: Dissemination to the Insured s Limited Target Audience...166 II. The Meaning of Advertising: What Are the Acceptable Forms or Media for Promotion?...167 A. The Manufactured or Sold Product...168 B. Packaging and Labels...168 C. Business Identifiers...168 D. Providing Professional Services...168 Chapter 11: Advertisement Offenses Roberto 163

Chapter 11: Advertisement Offenses One of the critical concepts with respect to personal and advertising injury coverage is what constitutes advertising or advertising activities. Many CGL policies define advertising injury as an offense committed in the course of an insured s advertising activities or in the course of advertising the insured s goods, products, or services. Since the advent of personal and advertising injury coverage, courts have been confronted with the question of how widespread the advertising or advertisement must be. As an initial matter, courts require that an advertisement promote the insured s own goods, products, or services. See Stenbock v. Hartford Fire Ins. Co., 217 F.3d 846, 2000 U.S. App. LEXIS 9036, at *3 (9th Cir. May 4, 2000) (an insured cannot claim an advertising injury when the advertisement promotes another business unrelated to the insured or the promotion of their products or services); State Farm Fire & Cas. Co. v. Housing Auth. of Crisfield, 1995 U.S. Dist. LEXIS 3684, at *7 (D. Md. Feb. 7, 1995). Further, advertising must bring attention to and proclaim the qualities or advantages of a product, good, or service, for the purpose of increasing sales. See Charter Oak Fire Ins. Co. v. Hedeen & Cos., 280 F.3d 730, 736 (7th Cir. 2002). I. The Meaning of Advertising : How Widespread Must the Target Audience of the Advertisement Be? A. The Strict Approach: Promotion to the General Public Many courts interpret advertising strictly to mean widespread promotional activity directed to the public at large. E.g., Teletronics Int l, Inc. v. CNA Ins. Co./Transp. Ins. Co., 120 F. App x 440, 444 (4th Cir. 2005) (collecting cases and identifying majority rule); USX Corp. v. Adriatic Ins. Co., 99 F. Supp. 2d 593, 618 (W.D. Pa. 2000) ( The overwhelming majority of reported cases have interpreted the plain and ordinary meaning of advertising to mean the widespread distribution of promotional material to the public for the purpose of generating business. ); R.C. Bigelow, Inc. v. Liberty Mut. Ins. Co., 287 F.3d 242, 247 (2d Cir. 2002) (following Connecticut Supreme Court s narrow definition of advertise as to announce publicly especially by a printed notice or a broadcast; [and] to call public attention by emphasizing desirable qualities so as to arouse a desire to buy or patronize ); Select Design, Ltd. v. Union Mut. Fire Ins. Co., 165 Vt. 69, 674 A.2d 798, 801-03 (1996) (the narrow definition of advertising, excluding customer solicitations, is in accord with the plain and ordinary meaning of the term and is not undercut by disagreement among courts as to its proper meaning); Playboy Enters., Inc. v. St. Paul Fire & Marine Ins. Co., 769 F.2d 425, 428-29 (7th Cir. 1985); Zurich Ins. Co. v. Amcor Sunclipse N. Am., 241 F.3d 605, 607 (7th Cir. 2001) (the dissemination of prefabricated promotion material to the public constitutes advertising ). These courts further hold that the advertising must be of a public nature, as opposed to one-to-one communications, in order to distinguish advertising from mere solicitation. Walk v. Hartford Cas. Ins. Co., 852 A.2d 98, 108, 382 Md. 1 (2004); Hameid v. Nat l Fire Ins. Co. of Hartford, 31 Cal. 4th 16, 19, 23, 71 P.3d 761, 1 Cal. Rptr. 3d 401 (2003) (insured s solicitation to a few customers does not qualify as advertising ); Peerless Lighting Corp. v. Am. Motorists Ins. Co., 82 Cal. App. 4th 995, 1009, 98 Cal. Rptr. 2d 753 (1st Dist. 2000) ( advertising does not include an effort to sell, through a competitive bidding process, a product that was specifically manufactured for a single customer to meet the needs of a specific project); ANR Prod. Co. v. Am. Guar. & Liab. Ins. Co., 981 S.W.2d 889, 891-92 (Tex. App.-Houston 1st Dist. 1998) (finding that advertising Chapter 11: Advertisement Offenses Roberto 165

does not include oral representations made to one potential customer during contract negotiations); Citizens Ins. Co. v. Pro-Seal Serv. Grp. Inc., 477 Mich. 75, 730 N.W.2d 682 (2007) (a single transaction with a specific customer does not constitute advertising ); Tschimperle v. Aetna Cas. & Sur. Co., 529 N.W.2d 421 (Minn. Ct. App. 1995) (advertising means to make public announcement or or to call the attention of the public to a product and does not include in-person sales talks); MGM Inc. v. Liberty Mut. Ins. Co., 839 P.2d 537, 540, 17 Kan. App. 2d 492 (1992); Fox Chem. Co. v. Great Am. Ins. Co., 264 N.W.2d 385 (Minn. 1978) (distributing 400 pamphlets to a company s sales team to solicit purchase orders does not constitute widespread distribution ). B. The Liberal Approach: Dissemination to the Insured s Limited Target Audience A growing number of courts interpret advertising broadly to include any activity that promotes an insured s business or product, whether distributed to the general public or solicited to a single or limited target audience. See e.g., Acuity v. Bagadia, 302 Wis. 2d 228, 734 N.W.2d 464, 467 (Wis. Ct. App. 2007); Copart, Inc. v. Travelers Ins. Co., 11 F. App x 815, 816-17 (9th Cir. 2001) (one-on-one solicitation, including mailing solicitation letters to a targeted audience, constitutes advertising ); John Deere Ins. Co. v. Shamrock Indus., 696 F. Supp. 434, 439-40 (D. Minn. 1988); United States Fid. & Guar. Co. v. Star Techs., 935 F. Supp. 1110, 1114-15 (D. Or. 1996); Sentex Sys., Inc. v. Hartford Accident & Indem. Co., 882 F. Supp. 930, 939 (C.D. Cal. 1995) (defining advertising as any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business ); Merchants Co. v. Am. Motorists Ins. Co., 794 F. Supp. 611, 619 (S.D. Miss. 1992) (advertising encompasses the solicitation of individual customers). In interpreting the terms, advertising or advertisement, these courts hone in on the nature of the product or service being advertised, the size of the company advertising the product or service, and the size of the target market being solicited. Cf. Solers, Inc. v. Hartford Cas. Ins. Co., 146 F. Supp. 2d 785, 795 (E.D. Va. 2001), aff d on other grounds, 36 F. App x 740 (4th Cir. 2002) (the distribution of a promotional communication is sufficiently widespread when it is addressed to a small audience that comprises all or a significant number of the promoter s client base; however, where the insured, which was formed by two individuals who left their previous employment at a company that assisted government contractors, was alleged to have submitted to two contractors proposals based on information taken from the insured founders previous employer, the court concluded that the insured s prepared proposals did not constitute advertising and instead were one-to-one solicitations); Vickers, Inc. v. Seabaord Sur. Co., 1996 U.S. Dist. LEXIS 19689, at *19 (D.N.J. Feb. 5, 1996), aff d, 107 F.3d 9 (3d Cir. 1997) ( advertising requirement satisfied where the advertising audience is small, but nonetheless constitutes all or a significant portion of the insured s client base). For instance, in John Deere Insurance Co. v. Shamrock Industries, the insured sent three letters to a single customer and demonstrated the product for the customer s sales staff. 696 F. Supp at 439-40. The insured s competitor sued for patent infringement, misappropriation of trade secrets, and unfair competition based on the design of the product that the insured demonstrated. Id. at 436. Although the solicitation was to one potential customer, the court held that the product demonstration constituted an advertising activity within the meaning of the insured s liability policy. Id. at 440. Since Black s Law Dictionary defines advertise as encompassing any form of solicitation, the court reasoned that solicitation to a single person would constitute advertising activity, and thus, the insured s solicitation to one potential customer was enough to satisfy that policy requirement. Id. at 439-40. Next, in Farmington Casualty Co. v. Cyberlogic Technologies, Inc., 996 F. Supp. 695, 698 (E.D. Mich. 1998), the court held that if the advertising activity reaches every potential customer through means of targeted distribution, then the advertising requirement is satisfied. Id. at 701 (distribution to a small but well 166 Coverage B: Personal and Advertising Injury Compendium 2014

defined market is sufficient because without a generous standard for small or specialized businesses, widespread dissemination would be virtually impossible). The court also explained as follows: [A]dvertising comes in many forms and may differ in scope from business to business, depending on the product, the size of the company, the company s marketing system, or the size of the target market. For example, a company such as Microsoft might use television, radio, newspaper, and magazine advertisements to sell its software to a huge potential market, whereas a company that produces specialized software..., with only a handful of customers, might find it most effective to reach its target market directly by letter and an in-person meeting to explain the benefits of the product. In both instances, the businesses are promoting their products to their potential customers. Id. at 701, quoting Amway Distrib. Benefits Ass n v. Fed. Ins. Co., 990 F. Supp. 936, 945 (W.D. Mich. 1997); see also Gen. Cas. Co. of Ill. v. Four Seasons Greetings LLC, 2004 Minn. App. LEXIS 1457 (Minn. App. Dec. 28, 2004) (requiring a small wholesale business, which frequently targets a specific audience, to engage in widespread distribution would essentially deprive it of advertising injury coverage). II. The Meaning of Advertising: What Are the Acceptable Forms or Media for Promotion? No matter which approach the court takes with respect to the meaning of advertising, some courts further restrict the definition to communications via the traditional media of print and broadcasting. David Polin, Cause of Action for Coverage Under Advertising Injury Clause of Commercial Liability Policy, 11 Cause of Action 2d 211 (1998). For instance, in Ziman v. Fireman s Fund Insurance Co., 73 Cal. App. 4th 1382, 87 Cal. Rptr. 2d 397 (2d Dist. 1999), a court rejected that the display of a pictorial or artistic piece of work, without any self-promotion or solicitation of the business involved, constituted advertising activity. Id. at 1389. The court found that the artwork displayed in an office building to attract potential tenants is not advertising activity because it did not promote vacancy or any self promotion for the building. Id. Although the artwork was aesthetically pleasing, it did not explicitly advertise to potential tenants that space was available or promoted any goods or services the building offered. Id. Other courts take a more liberal view of how advertising may be presented to the target audience. For example, in King v. Continental Western Insurance Co., 123 S.W.3d 259 (Mo. App. 2003), the court held a lawn sign advertising a contractor s construction job was an advertising activity. Id. at 266. The insured was sued for misappropriating the blueprints of a competitor s building plan, building a house using the misappropriated plans, and putting a sign outside the house with his name on it. Id. at 262. The insured argued that the sign, coupled with the under construction home, was an advertisement to the general public. Id. at 262-63. It argued that the contractor s sign clearly identified and advertised its product to the public. Id. The court agreed with the insured, reasoning that the sign, which was present throughout the construction of the house, was analogous to a highway billboard sign. Id. at 265. The sign was designed to garner business and aim the insured s message at the public. Id. Finally, some courts that have examined new or modern media interpret placement of promotional information about a business goods, products, or services on its website generally as constituting advertising under this definition. Ohio Cas. Ins. Co. v. Cloud Nine, LLC, 464 F. Supp. 2d 1161, 1167 (D. Utah 2006); see also Westfield Cos. v. O.K.L. Can Line, 155 Ohio App. 3d 747, 755, 804 N.E.2d 45 (2003) ( a web page is advertising under any definition ). Chapter 11: Advertisement Offenses Roberto 167

A. The Manufactured or Sold Product Most courts hold that selling or manufacturing products does not constitute advertising if there is no accompanying self promotion or solicitation of business. Erie Ins. Grp. v. Sear Corp., 102 F.3d 889, 894 (7th Cir. 1996). In Ekco Group, Inc. v. Travelers Indemnity Co. of Illinois, 273 F.3d 409 (1st Cir. 2001), the First Circuit found that merely selling a product, itself, cannot constitute advertising. There, the insured was sued, under theories of trade dress and unfair competition, for manufacturing a tea kettle that resembled the design of a competitor s best selling tea kettle. Id. at 410-11. The First Circuit held that merely inviting the public s attention to a product through product distribution, is too generous a threshold for an advertising injury. Id. at 414; see also Pa. Gen. Ins. Co. v. Disctronics, 5 F.3d 538, 1993 WL 341021, at *2-3 (9th Cir. Sept., 8, 1993) (products that speak for themselves are not advertisements because otherwise, insurance companies would be liable for every injury resulting from the manufacture or sale of products). B. Packaging and Labels Some courts find the advertising requirement satisfied based on the product s label or packaging. See, e.g., Adolfo House Dist. Corp. v. Travelers Prop. and Cas. Ins. Co., 165 F. Supp. 2d 1332, 1339 (S.D. Fla. 2001). In particular, product packaging labels may satisfy the definition of advertising activity if they contain an oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business. Fid. & Guar. Ins. Co. v. Kocolene Mktg. Corp., 2002 U.S. Dist. LEXIS 8518, at *35-36 (S.D. Ind. Mar. 26, 2002). C. Business Identifiers Some courts interpret the misappropriation of unique business identifiers used to identify and distinguish products as advertising. Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179 (11th Cir. 2002) (a manufacturer allegedly used a system for identifying products by model numbers that were confusingly similar to a competitor s identifying system). Id. at 1183-84, 1193-94. However, other courts have been less accepting of business identifiers as advertising. See, e.g., Sport Supply Grp., Inc. v. Columbia Cas. Co., 335 F.3d 453, 464 (5th Cir. 2003) (construing advertising to refer to a public announcement, i.e., billboard, newspaper, or sign post, that induces the public to patronize a particular establishment or to buy a particular product). In Sport Supply, the Fifth Circuit rejected a trademark as advertising because it was not a marketing device. Id. at 464. Sport Supply had entered into a licensing agreement with MacMark, which allowed Sport Supply to use MacMark s Macgregor trademark on certain sporting goods. Id. at 456. Sport Supply allegedly breached its licensing agreement by selling products with the Macgregor trademark. Id. The Fifth Circuit found that the trademark was not advertising but merely a business identifier that only identified or distinguished the product from others. Id. at 465. D. Providing Professional Services Some courts have held that providing professional services, by itself and without affirmative selfpromotion, is not advertising activity. Sear, 102 F.3d at 895. In Sear, the insured reported negative findings on a company s asbestos removal project. Id. at 891. The removal company sued the insured for defamation resulting from the negative report. Id. The Seventh Circuit concluded that merely fulfilling job requirements or ensuring client satisfaction does not constitute advertising. Id. at 895. The court noted that negative statements against competitors do not qualify as advertising, absent direct evidence that they were made in the context of direct business solicitation. Id. 168 Coverage B: Personal and Advertising Injury Compendium 2014