Coverage for Communications Costs

Seasoned lawyers and communications professionals know that strategic public communications can play a key role in helping to minimize potential liability. In complex litigation, public perceptions of the parties and the facts can have a significant effect on the ultimate size of the defendant's liability. For example, an early and compelling public recitation of facts favorable to the defense may dissuade some potential plaintiffs from joining the litigation. Similarly, in cases in which a government agency must approve a proposed settlement, public support for the settlement can help resolve the case. These examples of a multifaceted defense effort represent just a few of the circumstances in which public communications can serve as an important adjunct to the legal case being litigated in court.

When faced with potential liability, policyholders look to their insurance coverage to cover the costs of their defense, which might include public relations or crisis communications costs. Despite the usefulness of public relations in managing a potential liability and the absence of policy language specifically excluding such costs, insurers often take the position that communications costs are not included within the scope of defense costs covered under a standard-form general liability policy. Insureds facing such a denial may choose to push back, relying on analogous case law to argue that such costs should be covered. Insurers also have seen the market opportunity created for them by strategic communications and are increasingly offering “crisis management” coverage for companies concerned about mitigating interrelated public relations crises and liability risks under certain types of coverage, such as management liability, product contamination and cyber liability policies.

Commercial General Liability Policies

Commercial general liability policies typically provide that the insurer has the duty to defend the insured against any suit seeking damages that would be covered by the policy. In general, the filing of a suit against the insured seeking damages that may be covered by the policy triggers an insurer's duty to defend. See, e.g., Tews Funeral Home, Inc. v. Ohio Cas. Ins. Co., 832 F.2d 1037, 1042 (7th Cir. 1987). In some jurisdictions, the initiation of an adjudicatory proceeding other than a traditional lawsuit may also trigger the duty to defend. See, e.g., Ameron Int'l Corp. v. Insurance Co. of the State of Pa., 242 P.3d 1020 (Cal. 2010).

Whether a court considers communications costs to be defense costs covered by a standard liability policy will likely turn on what the court understands to be included in the concept of a defense. There is little case law on this topic. However, there is a body of case law on an analogous issue, namely, whether public communications costs are sufficiently related to litigation to qualify as legal costs that are recoverable under a statutory entitlement such as 42 U.S.C. ' 1988(b) (allowing prevailing parties to obtain reimbursement of attorneys' fees in civil rights cases) or 42 U.S.C. ' 12205 (providing prevailing parties with reimbursement for “a reasonable attorney's fee, including litigation expenses” in disability cases). This case law provides useful guideposts in considering whether communications costs should be covered defense costs under a liability insurance policy.

Some courts have recognized that public relations damage to the company can help a company achieve its litigation goals. Under these precedents, communications costs may be considered legal costs when they are “directly and intimately related to the successful representation of a client.” See Gilbrook v. City of Westminster, 177 F.3d 839, 877 (9th Cir. 1999) (quoting Davis v. City & Cnty. of San Francisco, 976 F.2d 1536, 1545 (9th Cir. 1992)); see also National Fed'n of the Blind v. Target Corp., No. C06-01802 MHP, 2009 U.S. Dist. LEXIS 67139, at *12-13 (N.D. Cal. Aug. 3, 2009) (observing that communications costs can be “directly and intimately connected to the successful representation of the client” and allowing recovery of half of the hours spent by attorney on media communications in a class action); Prison Legal News v. Schwarzenegger, 561 F. Supp. 2d 1095, 1101 (N.D. Cal 2008) (allowing recovery of certain communications costs incurred in producing press releases and participating in interviews with members of the press because such coverage was crucial to the plaintiff's goals).

Court Rulings

In United States v. San Francisco, 748 F. Supp. 1416 (N.D. Cal. 1990), an employment discrimination case, the court awarded the plaintiffs reimbursement for time spent by their attorney in press conferences “focused on fostering the[ir] litigation goals” because obtaining the political support of the City Board of Supervisors was held to have helped to ensure the case's success. Id. at 1423. In Gilbrook v. City of Westminster, the U.S. Court of Appeals for the Ninth Circuit reasoned that communications costs with the potential to influence the outcome of the case are properly considered legal costs, and upheld the inclusion of time spent on “press conferences and performance of other lobbying and public relations work” while excluding time spent publicizing the verdict. See Gilbrook, 177 F.3d at 877. Judge Kimba Wood, in Rodriguez v. McLoughlin, 84 F. Supp. 2d 417, 425 n.7 (S.D.N.Y. 1999), went even further, noting that “there is precedent for awarding fees for media work, as informing the public about court proceedings is often necessary to fully vindicate the public interest implicated by the case.”

To be sure, the case law is not monolithic, and a number of courts have declined to include communication costs within the ambit of what is recoverable. See, e.g., Halderman v. Pennhurst State Sch. & Hosp., 49 F.3d 939, 941'42 (3rd Cir. 1995); Rum Creek Coal Sales, Inc. v. Caperton, 31 F.3d 169, 176 (4th Cir. 1994); Associated Builders & Contractors of La., Inc. v. Orleans Parish Sch. Bd., 919 F.2d 374, 380 (5th Cir. 1990); Hopwood v. State of Tex., 999 F. Supp. 872, 913 (W.D. Tex. 1998); United States v. Knott, 106 F. Supp. 2d 174, 181 (D. Mass. 2000).

Emerging Themes

Some themes emerge from the case law on legal cost reimbursement that shed insight on the inclusion of communications costs as defense costs under liability policies. It seems clear that for communications costs to be considered within the scope of defense costs, it is helpful if the insured can argue that the costs positively advanced the party's cause or were intended to do so. For example, in Gunasekera v. Irwin, 774 F. Supp. 2d 882 (S.D. Ohio 2011), the court declined to decide whether communications costs were ever recoverable, but it denied the party's request in the case because the party did not explicitly allege that the media work had contributed to the outcome in court. Id . at 891-92. See generally United States v. City of San Diego, 18 F. Supp. 2d 1090, 1099'1100 (S.D. Cal. 1998) (allowing the recovery of narrowly tailored lobbying costs which the party would not have incurred absent the litigation). It is also helpful if such costs constitute a small percentage of the overall litigation bill. In the unpublished decision in Uphold Our Heritage v. Town of Woodside, Nos. A120749, A120757, 2008 Cal. App. Unpub. LEXIS 8875, at *18-19 (Cal. Ct. App. Nov. 12, 2008), the court relied in part upon the “very limited time spent communicating with the press” in upholding the recovery of communications costs.

Crisis Management Policies and Endorsements

Since at least the last decade, some insurers have offered “crisis management” or “catastrophe management” coverage as a component of their liability coverage offerings, with communications costs expressly included within the coverage. In the last several years, the number of insurers offering such coverage appears to be rising. See, e.g., Safety National Introduces Safety National Crisis Protection, insurancejournal.com (Apr. 25, 2014), available at http://bit.ly/1pZWky5; Liberty Mutual Launches Crisis Management Insurance Endorsement, businessinsurance.com (Jan. 18, 2012), available at http://bit.ly/1qkEQIk; Travelers Introduces Crisis Management Expenses Endorsement, insurancejournal.com (Apr. 5, 2011), available at http://bit.ly/1qkF2aD.

For example, HCC Insurance Holdings advertises that its crisis management coverage for product contamination helps “companies deal with the financial consequences of [malicious product tampering and accidental product contamination] crises,” including “public relations ' consultants” and radio and television announcements. HCC.com, http://bit.ly/1mA21ie (last visited June 23, 2014). AIG offers “Reputation Guard” coverage, which AIG says includes “crisis communication costs incurred through [its] panel of experienced public relations experts.” http://bit.ly/VLsAHu (last visited June 23, 2014). Moreover, insurance products that cover communications costs can include coverage for costs incurred prior to the commencement of legal action or equivalent trigger.

Crisis management coverage can vary significantly, including when covered communications costs may be incurred, whether a policyholder may choose which communications firm to retain, and how much coverage is provided. At least some policies require that the insured obtain permission from the insurer before incurring communications costs. For example, in Caudill Seed & Warehouse Co. v. Houston Casualty Co., 835 F. Supp. 2d 329 (W.D. Ky. Dec. 20, 2011), an insured's failure to abide by the terms of coverage of the crisis response portion of its Accidental Product Contamination Policy, which required advance written consent from the insurer, resulted in denial of coverage for the costs of hiring a public relations firm and consulting group.

Conclusion

Hiring a public relations firm to assist with a company crisis and to minimize potential liability has become increasingly common in complex cases that generate media interest. Although the understanding of what constitutes defense costs in the context of an insurer's duty to defend is evolving, insurers will almost certainly claim that commercial general liability policies do not provide coverage for communications costs. Policyholders whose coverage is under general liability policies may argue from analogous cases that the duty to defend should include communication costs that are reasonably related to minimizing the insured's liability. Policyholders with crisis policies that expressly cover communication costs should examine their coverage carefully and make sure they are able to avail themselves of this potentially valuable coverage.

Marialuisa S. Gallozzi and Seth A. Tucker, a member of this newsletter's Board of Editors, are partners in the Washington, DC, office of Covington & Burling LLP. The views expressed herein are those of the authors and not necessarily of Covington & Burling or its clients. The authors thank Rachel J. Ezzell, a former summer associate at the firm, for her substantial contributions to this article.

Seasoned lawyers and communications professionals know that strategic public communications can play a key role in helping to minimize potential liability. In complex litigation, public perceptions of the parties and the facts can have a significant effect on the ultimate size of the defendant's liability. For example, an early and compelling public recitation of facts favorable to the defense may dissuade some potential plaintiffs from joining the litigation. Similarly, in cases in which a government agency must approve a proposed settlement, public support for the settlement can help resolve the case. These examples of a multifaceted defense effort represent just a few of the circumstances in which public communications can serve as an important adjunct to the legal case being litigated in court.

When faced with potential liability, policyholders look to their insurance coverage to cover the costs of their defense, which might include public relations or crisis communications costs. Despite the usefulness of public relations in managing a potential liability and the absence of policy language specifically excluding such costs, insurers often take the position that communications costs are not included within the scope of defense costs covered under a standard-form general liability policy. Insureds facing such a denial may choose to push back, relying on analogous case law to argue that such costs should be covered. Insurers also have seen the market opportunity created for them by strategic communications and are increasingly offering “crisis management” coverage for companies concerned about mitigating interrelated public relations crises and liability risks under certain types of coverage, such as management liability, product contamination and cyber liability policies.

Commercial General Liability Policies

Commercial general liability policies typically provide that the insurer has the duty to defend the insured against any suit seeking damages that would be covered by the policy. In general, the filing of a suit against the insured seeking damages that may be covered by the policy triggers an insurer's duty to defend. See, e.g., Tews Funeral Home, Inc. v. Ohio Cas. Ins. Co. , 832 F.2d 1037, 1042 (7th Cir. 1987). In some jurisdictions, the initiation of an adjudicatory proceeding other than a traditional lawsuit may also trigger the duty to defend. See, e.g., Ameron Int'l Corp. v. Insurance Co. of the State of Pa. , 242 P.3d 1020 (Cal. 2010).

Whether a court considers communications costs to be defense costs covered by a standard liability policy will likely turn on what the court understands to be included in the concept of a defense. There is little case law on this topic. However, there is a body of case law on an analogous issue, namely, whether public communications costs are sufficiently related to litigation to qualify as legal costs that are recoverable under a statutory entitlement such as 42 U.S.C. ' 1988(b) (allowing prevailing parties to obtain reimbursement of attorneys' fees in civil rights cases) or 42 U.S.C. ' 12205 (providing prevailing parties with reimbursement for “a reasonable attorney's fee, including litigation expenses” in disability cases). This case law provides useful guideposts in considering whether communications costs should be covered defense costs under a liability insurance policy.

Some courts have recognized that public relations damage to the company can help a company achieve its litigation goals. Under these precedents, communications costs may be considered legal costs when they are “directly and intimately related to the successful representation of a client.” See Gilbrook v. City of Westminster , 177 F.3d 839, 877 (9th Cir. 1999) (quoting Davis v. City & Cnty. of San Francisco , 976 F.2d 1536, 1545 (9th Cir. 1992)); see also National Fed'n of the Blind v. Target Corp., No. C06-01802 MHP, 2009 U.S. Dist. LEXIS 67139, at *12-13 (N.D. Cal. Aug. 3, 2009) (observing that communications costs can be “directly and intimately connected to the successful representation of the client” and allowing recovery of half of the hours spent by attorney on media communications in a class action); Prison Legal News v. Schwarzenegger , 561 F. Supp. 2d 1095, 1101 (N.D. Cal 2008) (allowing recovery of certain communications costs incurred in producing press releases and participating in interviews with members of the press because such coverage was crucial to the plaintiff's goals).

Court Rulings

In United States v. San Francisco , 748 F. Supp. 1416 (N.D. Cal. 1990), an employment discrimination case, the court awarded the plaintiffs reimbursement for time spent by their attorney in press conferences “focused on fostering the[ir] litigation goals” because obtaining the political support of the City Board of Supervisors was held to have helped to ensure the case's success. Id. at 1423. In Gilbrook v. City of Westminster, the U.S. Court of Appeals for the Ninth Circuit reasoned that communications costs with the potential to influence the outcome of the case are properly considered legal costs, and upheld the inclusion of time spent on “press conferences and performance of other lobbying and public relations work” while excluding time spent publicizing the verdict. See Gilbrook, 177 F.3d at 877. Judge Kimba Wood, in Rodriguez v. McLoughlin , 84 F. Supp. 2d 417, 425 n.7 (S.D.N.Y. 1999), went even further, noting that “there is precedent for awarding fees for media work, as informing the public about court proceedings is often necessary to fully vindicate the public interest implicated by the case.”

To be sure, the case law is not monolithic, and a number of courts have declined to include communication costs within the ambit of what is recoverable. See, e.g., Halderman v. Pennhurst State Sch. & Hosp. , 49 F.3d 939, 941'42 (3rd Cir. 1995); Rum Creek Coal Sales, Inc. v. Caperton , 31 F.3d 169, 176 (4th Cir. 1994); Associated Builders & Contractors of La., Inc. v. Orleans Parish Sch. Bd. , 919 F.2d 374, 380 (5th Cir. 1990); Hopwood v. State of Tex. , 999 F. Supp. 872, 913 (W.D. Tex. 1998); United States v. Knott , 106 F. Supp. 2d 174, 181 (D. Mass. 2000).

Emerging Themes

Some themes emerge from the case law on legal cost reimbursement that shed insight on the inclusion of communications costs as defense costs under liability policies. It seems clear that for communications costs to be considered within the scope of defense costs, it is helpful if the insured can argue that the costs positively advanced the party's cause or were intended to do so. For example, in Gunasekera v. Irwin , 774 F. Supp. 2d 882 (S.D. Ohio 2011), the court declined to decide whether communications costs were ever recoverable, but it denied the party's request in the case because the party did not explicitly allege that the media work had contributed to the outcome in court. Id . at 891-92. See generally United States v. City of San Diego , 18 F. Supp. 2d 1090, 1099'1100 (S.D. Cal. 1998) (allowing the recovery of narrowly tailored lobbying costs which the party would not have incurred absent the litigation). It is also helpful if such costs constitute a small percentage of the overall litigation bill. In the unpublished decision in Uphold Our Heritage v. Town of Woodside, Nos. A120749, A120757, 2008 Cal. App. Unpub. LEXIS 8875, at *18-19 (Cal. Ct. App. Nov. 12, 2008), the court relied in part upon the “very limited time spent communicating with the press” in upholding the recovery of communications costs.

Crisis Management Policies and Endorsements

Since at least the last decade, some insurers have offered “crisis management” or “catastrophe management” coverage as a component of their liability coverage offerings, with communications costs expressly included within the coverage. In the last several years, the number of insurers offering such coverage appears to be rising. See, e.g., Safety National Introduces Safety National Crisis Protection, insurancejournal.com (Apr. 25, 2014), available at http://bit.ly/1pZWky5; Liberty Mutual Launches Crisis Management Insurance Endorsement, businessinsurance.com (Jan. 18, 2012), available at http://bit.ly/1qkEQIk; Travelers Introduces Crisis Management Expenses Endorsement, insurancejournal.com (Apr. 5, 2011), available at http://bit.ly/1qkF2aD.

For example, HCC Insurance Holdings advertises that its crisis management coverage for product contamination helps “companies deal with the financial consequences of [malicious product tampering and accidental product contamination] crises,” including “public relations ' consultants” and radio and television announcements. HCC.com, http://bit.ly/1mA21ie (last visited June 23, 2014). AIG offers “Reputation Guard” coverage, which AIG says includes “crisis communication costs incurred through [its] panel of experienced public relations experts.” http://bit.ly/VLsAHu (last visited June 23, 2014). Moreover, insurance products that cover communications costs can include coverage for costs incurred prior to the commencement of legal action or equivalent trigger.

Crisis management coverage can vary significantly, including when covered communications costs may be incurred, whether a policyholder may choose which communications firm to retain, and how much coverage is provided. At least some policies require that the insured obtain permission from the insurer before incurring communications costs. For example, in Caudill Seed & Warehouse Co. v. Houston Casualty Co. , 835 F. Supp. 2d 329 (W.D. Ky. Dec. 20, 2011), an insured's failure to abide by the terms of coverage of the crisis response portion of its Accidental Product Contamination Policy, which required advance written consent from the insurer, resulted in denial of coverage for the costs of hiring a public relations firm and consulting group.

Conclusion

Hiring a public relations firm to assist with a company crisis and to minimize potential liability has become increasingly common in complex cases that generate media interest. Although the understanding of what constitutes defense costs in the context of an insurer's duty to defend is evolving, insurers will almost certainly claim that commercial general liability policies do not provide coverage for communications costs. Policyholders whose coverage is under general liability policies may argue from analogous cases that the duty to defend should include communication costs that are reasonably related to minimizing the insured's liability. Policyholders with crisis policies that expressly cover communication costs should examine their coverage carefully and make sure they are able to avail themselves of this potentially valuable coverage.

Marialuisa S. Gallozzi and Seth A. Tucker, a member of this newsletter's Board of Editors, are partners in the Washington, DC, office of Covington & Burling LLP. The views expressed herein are those of the authors and not necessarily of Covington & Burling or its clients. The authors thank Rachel J. Ezzell, a former summer associate at the firm, for her substantial contributions to this article.