INTERNET ADVERTISING AND PERSONAL INJURY EXPOSURES

By Donald S. Malecki, CPCU

For almost 40 years, the occurrence trigger for bodily injury and property damage has dominated the controversy and litigation of commercial liability insurance. With the emergence of e-commerce, and its expanding role in the global economy, however, more of the focus on liability insurance disputes is shifting to personal and advertising injury coverage.

Use of the Internet and Web sites has greatly benefited commerce. At the same time, it has also brought about greater scrutiny to those who sell and market their goods, products and services. Because use of the Internet for these purposes exposes a business to a wider audience, it also means that advertising and personal injury offenses, such as misappropriation of advertising ideas, and trademark infringement will likely become increasingly common.

A trigger problem of the Internet

One issue involving personal and advertising injury coverage that appears to be growing involves oral or written material first published before the beginning of the policy period. This exclusion has been largely dormant and is just now being increasingly relied on in denying coverage, as the use of the Internet brings about more liability involving the publication of material and a personal or advertising injury offense.

One of the many cases in point is Superformance International v. Hartford Casualty Insurance Company. The insured in this case, Superformance, was sued on December 19, 2000, by Ford Motor Company and Carroll Shelby, alleging that Superformance infringed on the trademark rights of the plaintiffs.

On March 20, 2001, Superformance purchased a commercial general liability policy from Hartford, with an effective date of March 9, 2001. On August 24, 2001, subsequent to the issuance of that policy, both Ford and Shelby filed an amended complaint. Superformance then tendered the defense of the amended complaint to Hartford, which promptly denied coverage, at which point Superformance filed suit to obtain defense.

The court ruled against Superformance, in part based on the exclusion applicable where the offense arises out of material first published prior to the policy issuance. The court rejected the notion that there was a duty to defend the second complaint, given that the allegations there were the same as the initial complaint with minor exception.

Now that the Internet is an established method of publishing advertisements, those using this medium should take care to examine the wording used. They also need to understand that personal and advertising injury coverage will not apply where the material generating allegations of an offense first appeared (was first published) prior to the date the policy from which coverage is sought was issued.

To some, the exclusion for material first published prior to policy inception is simply a restatement of the obvious—namely, that because the trigger of personal and advertising injury coverage is an offense committed during the policy period, publication of material that constitutes an offense prior to policy inception is outside the scope of coverage.

While there may be instances and jurisdictions where publication of material constituting an offense is not deemed to be so until it is discovered, in most cases publication and the resulting offense will be simultaneous, regardless of the date of discovery.

It is important to note that the trigger of personal and advertising injury, unlike the occurrence trigger for bodily injury and property, has no long-tail impact. With an occurrence form, it is possible to trigger a number of successive policies when bodily injury or property damage transgresses over more than one policy period. This is the reason insurers introduced such endorsements as Amendment of Insuring Agreement—Known Injury or Damage CG 00 57. With personal and advertising injury, all resulting injury goes back to the policy period when the first publication took place.

There is no question that identifying this potential coverage problem is virtually impossible. It most likely would require some careful thought about past transactions by the insured, and a specific question on the application prompting such consideration. It would be like those questions posed in applications having to do with certain professional liability policies: Is the applicant aware of any circumstances having to do with any oral or written material first published before the beginning of the policy period that could give rise to claim?

Considering the innumerable times a business would actually involve itself in oral or written (and often both) material in its transactions, it probably is futile to ask the question. To say or maintain that an agent or broker could be held accountable for having failed to alert the applicant or insured to this kind of an exposure is really stretching it. Actually, what is necessary, given the legality of the issue, is advice from the applicant’s or insured’s competent legal counsel. In fact, one of the obstacles faced by applicants is understanding what kind of an offense could qualify as an oral or written publication.

Another perplexing issue

In fact, another question related to this subject that appears to perplex some insureds, insurers, and courts is whether the exclusion applicable to oral or written publication of material taking place before the policy period applies to all personal and advertising injury offenses, or only to those offenses that specifically refer to oral or written publication of material.

This was one of the questions that confronted the court in the case of Adolpho House Distributing Corp. v. Travelers Property and Casualty Company. In addressing application of the prior publication exclusion, the court stated that it applied only to advertising injury involving libel, slander and invasion of privacy, because the language of the exclusion, in referring to oral or written publication, “mimicked” the wording of the offenses under which coverage was provided.

Problem of the court’s rationale

A problem with the court’s rationale is that, while the above two offenses relating to misappropriation of advertising ideas or style of doing business and infringement of copyright, title or slogan omit specific references to oral or written publication, a publication of some form still is necessary to trigger coverage; thus, both of these offenses should be subject to the prior publication exclusion. That is, how does a business infringe on a copyright, title or slogan without some form of publication? Even if those offenses were to be committed by virtue of the use of wording contained in store signs, are not the signs a form of publication intended to be read by customers entering into, or passing by, the store?

This definition makes clear that published material includes material placed on the Internet and, with respect to Web sites, only that part dealing with the named insured’s goods, products, or services for purposes of attracting customers or supporters. Therefore, it would be difficult to argue that the prior publication exclusion has no application to these offenses, even under the reasoning of the Aldopho case.

Conclusion

Any time publication of material infringes on another’s copyright, trademark or slogan, or uses another’s advertising idea, that publication is likely to be subject to the exclusion for publications/offenses that took place prior to the policy inception.

For those businesses confronted with an insurer denial based on the exclusion of personal and advertising injury arising out of oral or written material first published before the beginning of the policy period, prior insurance, to the extent it exists, is important. With the burden of proof falling on the policyholders, it would behoove them to retain their insurance policies. Even with the existence of prior insurance, there still could be instances when, through the application of reduced aggregates, limits are insufficient, unless a business also has an umbrella or excess liability policy to rely on.