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Marketing and Advertising Injuries –
Are You Covered?
January 22, 2014
Los Angeles, California
Sponsored by K&L Gates LLP
Panelists: Seth A. Gold and David P. Schack
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2014 ACC-SoCal In-House Counsel Conference
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Panelists
Seth A. Gold
– Partner
– K&L Gates LLP
– seth.gold@klgates.com
David P. Schack
– Partner
– K&L Gates LLP
– David.schack@klgates.com
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Agenda
False advertising/IP and the challenges for
coverage
CGL policies contain coverage for “personal and
advertising injury” (PI/AI)
– Disparagement Coverage
– Privacy Coverage
– Limited IP Coverage
PI/AI coverage can be in-house lawyer’s best friend
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Types of Coverage
False advertising
Media Liability Coverage—broader coverage for
media companies
Cyber Coverage—may offer broader coverage for
media type liability
CGL—typical basic liability policy
for businesses
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Coverage for “Personal and
Advertising Injury” (PI/AI)
Virtually all Commercial General Liability (CGL)
policies contain coverage for “personal and
advertising injury” (PI/AI)
PI/AI coverage includes:
1) Disparagement Coverage
2) Privacy Coverage
3) Limited IP Coverage
Without respect to the title of a particular claim.
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1) Disparagement Coverage
Covers oral/written publication of material that:
– Slanders or libels a person or organization
or
– Disparages a person’s or organization’s goods,
products or services
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1) Disparagement Coverage (cont.)
Powerful tool for triggering insurer’s duty to
defend for a variety of types of litigation
– Disparagement Coverage can be basis for coverage if
there is any allegation that defendant disparaged
plaintiff’s goods, products or services.
– It may not cover all false advertising claims.
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1) Disparagement Coverage (cont.)
 Disparagement is not defined in the CGL policy
 It can be construed very broadly to mean
1) “To lower in rank or reputation: degrade
2) To depreciate by indirect means (as invidious comparison):
speak slightingly about.”
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1) Disparagement Coverage (cont.)
 Duty to defend may be triggered in false advertising
types of cases if…
 There is any allegation defendant stated plaintiff’s products were
inferior to those of defendant.
 Types of claims:
 Lanham Act §43(a) claims
 Cal. Bus. & Prof. Code §17500 claims
 Unfair competition
 Example: Pharmaceutical companies “battling it out”
 Need a claim for “damages”
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1) Disparagement Coverage (cont.)
 May be basis for triggering duty to defend in other
types of business disputes:
1) Interference with contract/prospective economic advantage
 Plaintiff alleges defendant asserted it had a contract with a third
party in derogation of plaintiff’s rights.
2) Disputes over ownership rights
 Plaintiff alleges defendant improperly advised third parties that
defendant, rather than plaintiff, had ownership rights in real
property, intangible property, intellectual property, etc.
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1) Disparagement Coverage (cont.)
 May be basis for triggering duty to defend in other
types of business disputes:
3) “Badmouthing”
 Plaintiff makes isolated allegations in a complaint that defendant
engaged in “badmouthing” of plaintiff to third parties; took
incidental potshots.
 May trigger even if technical causes of action might otherwise not
be covered.
 Courts have found duty to defend even in antitrust suits, where
such allegations exist.
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1) Disparagement Coverage (cont.)
 May be basis for triggering duty to defend in other
types of business disputes:
4) Defamation
 Slander and libel causes of action clearly trigger duty to defend
under Disparagement Coverage.
 Definition of defamation
 Example: Drug companies “battling it out” with press releases and
communications to competitors
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Current Issue in Disparagement
Coverage
Travelers Prop. Cas. Co. of Am. v. Charlotte Russe Holding, Inc., 207
Cal.App.4th 969 (2012)
 Versatile alleges that Charlotte Russe’s “fire sale” of People’s
Liberation Branded apparel at “close-out prices” caused damage
to and diminished the People’s Liberation Brand.
 Charlotte Russe tendered to Travelers under the Disparagement
Coverage. Travelers denied coverage, and in coverage litigation,
the trial court granted summary judgment in Travelers’ favor.
 The Court of Appeal reversed finding a duty to defend and no need
for the underlying action to allege all elements of trade libel.
 The California Supreme Court declined to review.
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Current Issue in Disparagement
Coverage (con’d)
Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012).
 Dahl sued Swift Distribution, Inc. dba Ultimate Support Systems
(“Ultimate”) claiming that Ultimate’s “Ulti-Cart” infringed patents and
trademarks held by Dahl for its “Multi-Cart” and diluted Dahl’s trademark.
 Ultimate tendered defense of the Dahl action to Hartford arguing that,
inter alia, (i) Dahl had alleged Ultimate’s advertising misled the public to
believe that Ultimate’s inferior product was made by Dahl thus damaging
Dahl; and (ii) such allegations triggered Hartford’s duty to defend under
the Disparagement Coverage.
 The trial court granted summary judgment in favor Hartford and the Court
of Appeal affirmed finding no allegation of disparagement in the Dahl
Action and disagreeing with the decision in Charlotte Russe.
 The Court of Appeal found that Ultimate’s advertising did not refer to
Dahl’s product directly or by implication.
 The Supreme Court has granted review of Swift Distribution.
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2) Privacy Coverage
 Covers oral or written publication of material that
violates a person’s right of privacy
 Can be triggered in a variety of cases where plaintiff
alleges dissemination of information violates privacy
rights.
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2) Privacy Coverage
 Example: Claims of unlicensed/unapproved use of a person’s
image in defendant’s advertising may trigger duty to defend.
 Right of Publicity Statute—based
on common law right to privacy
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3) Limited IP Coverage
 Covers infringing on another’s copyright, trade dress,
or slogan in your “advertisement.”
 Insurers have narrowed IP coverage in CGL policies
over time.
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3) Limited IP Coverage (cont.)
 Limited IP Coverage is the coverage for IP claims that
remains in standard CGL policy.
 Important coverage in suits alleging copyright and trade dress
infringement.
 Those suits often include claims of infringement by defendant’s
advertising.
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3) Limited IP Coverage (cont.)
 Plaintiffs often allege infringement over a period of
years.
 Those allegations may trigger earlier CGL policies with
broader IP coverage.
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PI/AI coverage –
In-House Lawyer’s Best Friend
 A basis for triggering insurer’s duty to defend, based
on limited allegations
 In cases that would not otherwise be covered.
 Under California law, once duty to defend is triggered,
insurer must defend entire case.
 Even uncovered claims/causes of action.
 Insurer would avoid paying defense costs only to
extent it can show legal services are “solely allocable”
to an uncovered claim.
 This is a very difficult standard for insurer to meet.
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Significant Take-Away Points
 Almost all CGL policies contain coverage for “personal
and advertising injury.”
 Disparagement coverage is a powerful tool for
triggering insurer’s duty to defend.
 Privacy coverage can be triggered in cases where
plaintiff alleges dissemination of information violates
privacy rights.
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Significant Take-Away Points
 Allegations of infringing on another’s copyright, trade
dress, or slogan may trigger earlier CGL policies with
broader IP coverage.
 Under California law, once duty to defend is triggered,
insurer must defend entire case.
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11th Annual In-House Counsel Conference
January 22, 2014 (Los Angeles, CA)
www.acc.com/chapters/socal/
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