Insurance Coverage for Trademark Infringement Lawsuits

Given the current economic climate, every company in America is looking to minimize legal costs. To that end, companies should be taking a closer look than ever at their existing insurance program as a means to cover legal fees in areas that they may not have considered previously. Standard liability insurance policies contain, in addition to the well-known bodily injury and property damage coverages, an often-forgotten section known as “advertising injury,” which affords coverage that too many companies overlook.

If a company has been sued for trademark infringement, it likely can obtain insurance coverage under the advertising injury section of its standard business liability policy, and this coverage includes the duty to pay the costs of defense. Insurers generally contend that no such coverage exists because their policies do not contain the word “trademark,” and all too often insurance brokers and corporate risk managers accept the insurers' position at face value and fail to press the issue any further. This is a costly mistake ' even when a case ends with no liability, defending a trademark infringement suit can cost upward of $1 million. Since the majority of cases to address the coverage issues have found coverage for defense costs and liability, companies that choose not to pursue coverage for trademark lawsuits are likely leaving money on the table.

This article provides an overview of case law holding that insurance companies are obligated to provide coverage for trademark claims under advertising injury coverage, even when the word “trademark” does not appear anywhere in the policy. Further, it discusses rulings on the prior publication exclusion, which insurers frequently assert applies to advertising injury in the trademark infringement context.

Recent Decisions Requiring Coverage

A majority of courts have held that the standard definition of “advertising injury” contained in standard comprehensive general liability policies covers trademark infringement claims. This is true even though the word “trademark” is conspicuously absent from the list of covered advertising injury offenses. Courts generally find coverage for trademark claims under the terms “infringement of slogan,” “infringement of trade dress,” or “use of another's advertising idea,” which are included in the definition of advertising injury. In order to be covered, the activity giving rise to a trademark suit must relate to advertising activity on the part of the policyholder. However, courts are liberal in their interpretation of what constitutes “advertising,” and virtually any effort to market or sell a product is sufficient to trigger coverage. Since trademarks are inherently a part of marketing, demonstrating a relation to advertising activity is rarely a problem.

The case law holding that trademark claims are covered is not unanimous, but a compelling majority of decisions favor coverage. Within the past few months, the landscape became increasingly favorable for policyholders when two influential courts, the U.S. Court of Appeals for the Seventh Circuit and the Supreme Court of Minnesota, issued opinions requiring insurers to defend trademark suits under advertising injury coverage. See Capitol Indem. Corp., v. Elston Self Serv. Wholesale Groceries, Inc., 559 F.3d 616 (7th Cir. 2009); General Cas. Co. of Wis. v. Wozniak Travel, Inc., 762 N.W.2d 572 (Minn. 2009).

In Capitol Indemnity, the Seventh Circuit required an insurer to defend trademark claims relating to the sale of allegedly counterfeit cigarettes. In doing so, the court relied on the part of the advertising injury definition that included infringement of “copyright, title or slogan” and “misappropriation of advertising ideas.”

In General Casualty Company of Wisconsin, the court analyzed the provision “use of another's advertising idea in your 'advertisement,'” and determined that a trademark infringement claim for wrongful use of the word “hobbit” by travel agency Hobbit Travel triggered a defense. As in Capitol Indemnity, the court held that the absence of the word “trademark” in the policy did not foreclose the possibility that trademark infringement falls within the scope of the advertising injury definitions in the policy. Further, in rejecting the insurer's argument that the use of a trademarked term in a business's name does not constitute advertising, the court broadly interpreted the term “advertising” to mean “any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business.”

These decisions give the trademark lawyer an increasingly persuasive argument with which to lay claim to insurance coverage. And virtually every such case should be tendered to insurers for defense and coverage.

The Prior Publication Exclusion

The prior publication exclusion bars coverage for advertising injury that arises out of “oral or written publication of material whose first publication took place before the beginning of the policy period.” This exclusion can pose a challenge to establishing coverage because it does not require that the alleged infringement took place prior to the period, but rather mere use of the mark.

The simplest way to get around this exclusion is to tender the claim under the policy year that was in effect when the trademark at issue first came into use. Provided that the underlying plaintiff alleges infringement during the same policy period, then the exclusion is not an obstacle.

Another means to deal with the exclusion is to focus on the requirement that, in order for the exclusion to apply, the prior publication of the material must have caused an injury identical to the latter publication. If separate, distinct injuries are alleged, and the publication giving rise to at least one injury was “first published” during the policy period, the prior publication exclusion does not apply, regardless of whether other injury arose from publication of material prior to the policy period.

For example, in Taco Bell Corp. v. Continental Casualty Co., 388 F.3d 1069 (7th Cir. 2004), the prior publication exclusion did not relieve an insurer from its duty to defend against claims that Taco Bell had misappropriated the advertising idea of a “Psycho Chihuahua,” even though the advertising campaign had commenced prior to the policy period. Because the underlying complaint alleged that subsequent commercials misappropriated other ideas as distinct from earlier ones, and a set of “fresh wrongs” occurred during the insurer's policy period, the insurer was obligated to defend.

As another example, in Capitol Indemnity, the district court in the underlying action held that there was nothing in the record to indicate when the defendant started selling counterfeit, rather than genuine, cigarettes. Because it was unclear whether or not the infringing conduct commenced during the policy period, and the duty to defend applies whenever there is the potential for coverage, then the prior publication exclusion did not allow the insurer to escape its duty to defend.

Another way to solve this exclusion is to argue that it does not apply at all to the advertising injury offenses that encompass trademark claims (i.e., “use of another's advertising idea”), but that it only applies to libel and slander. The court in Irons Home Builders, Inc. v. Auto-Owners Insurance Co., 839 F. Supp. 1260 (E.D. Mich. 1993), held that the exclusionary language “mimics the provisions of the policy that relate to advertising injury involving libel, slander, and invasion of privacy,” and limited the scope of the exclusion to those offenses. The court in Adolfo House Distributing Corp. v. Travelers Property and Casualty Insurance Co., 165 F. Supp. 2d 1332 (S.D. Fla. 2001), followed the same reasoning and reached the same conclusion as Irons Home Builders. Other courts, including Cincinnati Insurance Cos. v. Pestco, Inc., 374 F. Supp. 2d 451 (W.D. Pa. 2004), have held that, at a minimum, the language is ambiguous, requiring that it be interpreted against the insurer and in favor of coverage. Other courts, however, have rejected the argument and reasoning expressed in Irons Home Builders, and held that the exclusion applies to all forms of advertising injury.

New Exclusions and the Potential Effect on Policyholder Companies

In the wake of recent precedent finding coverage for trademark infringement suits, some insurers have begun adding exclusions to their policies for trademark infringement lawsuits. While this is bad news for those few policyholders that accepted the exclusion, the introduction of the exclusion onto some policies greatly strengthens the case for coverage under those policies without the exclusion, which constitutes the vast majority of policies. Policyholders without the exclusion can argue that had the insurer meant to eliminate coverage for trademark suits from its policy, it would have added the exclusionary language.

Further, not all hope for coverage is lost where a policy expressly excludes coverage for trademark infringement lawsuits. If just one of the claims alleged in the underlying complaint falls or potentially falls within the scope of the insurance policy, under most states' laws the insurer must defend the entire lawsuit. Thus, many policyholders have managed to secure defense costs for trademark and other intellectual property lawsuits, even if such suits are excluded under their policies, by identifying just one potentially covered claim.

Richard D. Milone is a partner in the insurance recovery and litigation practice groups at Kelley Drye & Warren LLP in the Washington, D.C. office. He focuses on representing commercial policyholders in insurance coverage disputes. John W. McGuinness, a senior associate at the firm, works in the same practice groups. The authors can be reached at [email protected] and [email protected].

Given the current economic climate, every company in America is looking to minimize legal costs. To that end, companies should be taking a closer look than ever at their existing insurance program as a means to cover legal fees in areas that they may not have considered previously. Standard liability insurance policies contain, in addition to the well-known bodily injury and property damage coverages, an often-forgotten section known as “advertising injury,” which affords coverage that too many companies overlook.

If a company has been sued for trademark infringement, it likely can obtain insurance coverage under the advertising injury section of its standard business liability policy, and this coverage includes the duty to pay the costs of defense. Insurers generally contend that no such coverage exists because their policies do not contain the word “trademark,” and all too often insurance brokers and corporate risk managers accept the insurers' position at face value and fail to press the issue any further. This is a costly mistake ' even when a case ends with no liability, defending a trademark infringement suit can cost upward of $1 million. Since the majority of cases to address the coverage issues have found coverage for defense costs and liability, companies that choose not to pursue coverage for trademark lawsuits are likely leaving money on the table.

This article provides an overview of case law holding that insurance companies are obligated to provide coverage for trademark claims under advertising injury coverage, even when the word “trademark” does not appear anywhere in the policy. Further, it discusses rulings on the prior publication exclusion, which insurers frequently assert applies to advertising injury in the trademark infringement context.

Recent Decisions Requiring Coverage

A majority of courts have held that the standard definition of “advertising injury” contained in standard comprehensive general liability policies covers trademark infringement claims. This is true even though the word “trademark” is conspicuously absent from the list of covered advertising injury offenses. Courts generally find coverage for trademark claims under the terms “infringement of slogan,” “infringement of trade dress,” or “use of another's advertising idea,” which are included in the definition of advertising injury. In order to be covered, the activity giving rise to a trademark suit must relate to advertising activity on the part of the policyholder. However, courts are liberal in their interpretation of what constitutes “advertising,” and virtually any effort to market or sell a product is sufficient to trigger coverage. Since trademarks are inherently a part of marketing, demonstrating a relation to advertising activity is rarely a problem.

The case law holding that trademark claims are covered is not unanimous, but a compelling majority of decisions favor coverage. Within the past few months, the landscape became increasingly favorable for policyholders when two influential courts, the U.S. Court of Appeals for the Seventh Circuit and the Supreme Court of Minnesota, issued opinions requiring insurers to defend trademark suits under advertising injury coverage. See Capitol Indem. Corp., v. Elston Self Serv. Wholesale Groceries, Inc., 559 F.3d 616 (7th Cir. 2009); General Cas. Co. of Wis. v. Wozniak Travel, Inc., 762 N.W.2d 572 (Minn. 2009).

In Capitol Indemnity, the Seventh Circuit required an insurer to defend trademark claims relating to the sale of allegedly counterfeit cigarettes. In doing so, the court relied on the part of the advertising injury definition that included infringement of “copyright, title or slogan” and “misappropriation of advertising ideas.”

In General Casualty Company of Wisconsin, the court analyzed the provision “use of another's advertising idea in your 'advertisement,'” and determined that a trademark infringement claim for wrongful use of the word “hobbit” by travel agency Hobbit Travel triggered a defense. As in Capitol Indemnity, the court held that the absence of the word “trademark” in the policy did not foreclose the possibility that trademark infringement falls within the scope of the advertising injury definitions in the policy. Further, in rejecting the insurer's argument that the use of a trademarked term in a business's name does not constitute advertising, the court broadly interpreted the term “advertising” to mean “any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business.”

These decisions give the trademark lawyer an increasingly persuasive argument with which to lay claim to insurance coverage. And virtually every such case should be tendered to insurers for defense and coverage.

The Prior Publication Exclusion

The prior publication exclusion bars coverage for advertising injury that arises out of “oral or written publication of material whose first publication took place before the beginning of the policy period.” This exclusion can pose a challenge to establishing coverage because it does not require that the alleged infringement took place prior to the period, but rather mere use of the mark.

The simplest way to get around this exclusion is to tender the claim under the policy year that was in effect when the trademark at issue first came into use. Provided that the underlying plaintiff alleges infringement during the same policy period, then the exclusion is not an obstacle.

Another means to deal with the exclusion is to focus on the requirement that, in order for the exclusion to apply, the prior publication of the material must have caused an injury identical to the latter publication. If separate, distinct injuries are alleged, and the publication giving rise to at least one injury was “first published” during the policy period, the prior publication exclusion does not apply, regardless of whether other injury arose from publication of material prior to the policy period.

For example, in Taco Bell Corp. v. Continental Casualty Co. , 388 F.3d 1069 (7th Cir. 2004), the prior publication exclusion did not relieve an insurer from its duty to defend against claims that Taco Bell had misappropriated the advertising idea of a “Psycho Chihuahua,” even though the advertising campaign had commenced prior to the policy period. Because the underlying complaint alleged that subsequent commercials misappropriated other ideas as distinct from earlier ones, and a set of “fresh wrongs” occurred during the insurer's policy period, the insurer was obligated to defend.

As another example, in Capitol Indemnity, the district court in the underlying action held that there was nothing in the record to indicate when the defendant started selling counterfeit, rather than genuine, cigarettes. Because it was unclear whether or not the infringing conduct commenced during the policy period, and the duty to defend applies whenever there is the potential for coverage, then the prior publication exclusion did not allow the insurer to escape its duty to defend.

Another way to solve this exclusion is to argue that it does not apply at all to the advertising injury offenses that encompass trademark claims (i.e., “use of another's advertising idea”), but that it only applies to libel and slander. The court in Irons Home Builders, Inc. v. Auto-Owners Insurance Co., 839 F. Supp. 1260 (E.D. Mich. 1993), held that the exclusionary language “mimics the provisions of the policy that relate to advertising injury involving libel, slander, and invasion of privacy,” and limited the scope of the exclusion to those offenses. The court in Adolfo House Distributing Corp. v. Travelers Property and Casualty Insurance Co. , 165 F. Supp. 2d 1332 (S.D. Fla. 2001), followed the same reasoning and reached the same conclusion as Irons Home Builders. Other courts, including Cincinnati Insurance Cos. v. Pestco, Inc., 374 F. Supp. 2d 451 (W.D. Pa. 2004), have held that, at a minimum, the language is ambiguous, requiring that it be interpreted against the insurer and in favor of coverage. Other courts, however, have rejected the argument and reasoning expressed in Irons Home Builders, and held that the exclusion applies to all forms of advertising injury.

New Exclusions and the Potential Effect on Policyholder Companies

In the wake of recent precedent finding coverage for trademark infringement suits, some insurers have begun adding exclusions to their policies for trademark infringement lawsuits. While this is bad news for those few policyholders that accepted the exclusion, the introduction of the exclusion onto some policies greatly strengthens the case for coverage under those policies without the exclusion, which constitutes the vast majority of policies. Policyholders without the exclusion can argue that had the insurer meant to eliminate coverage for trademark suits from its policy, it would have added the exclusionary language.

Further, not all hope for coverage is lost where a policy expressly excludes coverage for trademark infringement lawsuits. If just one of the claims alleged in the underlying complaint falls or potentially falls within the scope of the insurance policy, under most states' laws the insurer must defend the entire lawsuit. Thus, many policyholders have managed to secure defense costs for trademark and other intellectual property lawsuits, even if such suits are excluded under their policies, by identifying just one potentially covered claim.

Richard D. Milone is a partner in the insurance recovery and litigation practice groups at Kelley Drye & Warren LLP in the Washington, D.C. office. He focuses on representing commercial policyholders in insurance coverage disputes. John W. McGuinness, a senior associate at the firm, works in the same practice groups. The authors can be reached at [email protected] and [email protected].