Advertising Injury Coverage Gaps Can Affect Non-Media Firms

Cyber Liability coverage

Cyber Liability insurance is required for intellectual infringement protection

The 1986 ISO General Liability policy form provided broad coverage for advertising injury for non-media companies. However, due to recent restrictions on advertising injury coverage under a General Liability policy, many non-media companies should  consider purchasing of a Media Liability (offline) or Cyber Liability (online) policy in order to close certain coverage gaps.

The 2001 ISO version of the General Liability form includes a new exclusion that eliminates coverage for “injury arising out of the infringement of copyright, patent, trademark, trade secret, or other intellectual property rights.” However, the new exclusion excepts “ infringement in your advertisement of copyright, trade dress, or slogan.” Therefore, coverage is now specifically excluded for all trademark and trade secret claims. In addition, coverage for the three remaining types of intellectual property claims (copyright, trade dress, or slogan) is dependent upon such offenses arising out of an advertisement.

Breaking the exclusion down

Within the definition of advertisement, only infringements that occur in the advertisement itself are covered. The new 2001 edition includes the following new restrictions on Internet activity:

  • Advertisement with respect to a website means only that part of the website that is about “your products, goods or services for the purposes of attracting customers or supporters.”
  • Coverage is eliminated for claims “rising out of an electronic chat room or bulletin board that the (insured) hosts, owns, or over which the (insured) exercises control.” It is likely that the use of blogs, Facebook, Twitter, and other social media fall under this exclusion.
  • Coverage is also eliminated for “unauthorized use of another’s name or product in the [insured’s] e-mail address, domain name or meta-tag, or any other similar tactics to mislead another’s potential customers.” One area of concern that has not yet been clarified by the courts is use of trademarked terms in meta-tags.

How this can affect your company

Below are some common situations where the above-mentioned restrictions can eliminate coverage for non-media companies:

  • Claims for copyright infringement arising out of text, photographs or other content that are not part of an online advertisement. The use generic photos in areas that are not actually part of a specific product advertisement on company  websites  is a common source of litigation. Providers of stock photos are using watermarking technology to search the Internet for instances of the unauthorized use of their photographs and many law firms are specializing in providing representation in this area.
  • Trade dress claims arising out the look and feel of a website, blog, social media, etc. that is not part of an online advertisement. These involve navigation (ex: buttons, bars), color schemes, hyper links, menus, etc.
  • Online comparative advertising where your product is represented as being bigger, better, faster, etc. as compared to the competition. These representations may result in claims for false or misleading advertising and unfair competition under the Lanham Act or various state statutes. However, if these representations are directed at a specific competitor, they may be covered under advertising injury.
  • Product packaging that too closely resembles a competitor’s may result in liability for trade dress infringement. These claims may be excluded because the courts may not consider the product packaging to be part of an advertisement.

If any of these instances of potential uncovered claims are a concern, a business should strongly consider adding Media Liability  or Cyber Liability policies.

Source: Elizabeth C. Kock and Jay Ward Brown, Levine Sullivan Koch & Shultz, LLP; Risk & Insurance; December 2011.

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