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CGL Insurance Coverage for Claims of Trademark Infringement

By Christopher L. Lynch, Esq.
Lindquist & Vennum P.L.L.P.

Last September, an article appeared in this column discussing the importance of protecting your company’s intellectual property, including its trademarks (Protecting Your Company’s Most Important Assets, David A. Allgeyer, Lindquist & Vennum P.L.L.P.). Trademark infringement, however, is a two-way street. For every company asserting a claim of trademark infringement, there is a company or individual accused of being the infringer. If your company finds itself in the latter position, the cost of defending against the claim—not to mention the cost of paying a settlement or damages award to the claimant—can be substantial.

To protect itself against such a possibility, your company can purchase insurance specifically covering liability stemming from intellectual property claims. However, in the event your company does not have such a policy, or did not have such a policy in effect at the time the infringement occurred or the claim arose, there is another possible source of insurance—namely, your company’s Commercial General Liability (“CGL”) policy.

Possible Basis for Coverage

The typical CGL policy does not expressly cover trademark infringement claims. But it probably does cover two general categories of claims: (1) claims seeking monetary damages because of “Bodily Injury or Property Damage,” and (2) claims seeking monetary damages because of “Personal Injury or Advertising Injury.” It is within the confines of “Advertising Injury” protection that coverage for claims of trademark infringement has sometimes been found.

Many CGL policies in existence today are based more or less on the standard form CGL policy promulgated by the Insurance Services Office (“ISO”) in 1986. The coverage provided under the 1986 form obligates the insurer to pay those sums that the insured becomes legally obligated to pay as damages because of advertising injury. The policy defines “advertising injury” as an injury arising out of one or more listed offenses, including “misappropriation of advertising ideas or style of doing business,” and “infringement of copyright, title or slogan.” The policy requires that the advertising injury be caused by an offense committed “in the course of advertising your goods, products or services,” but frequently does not define “advertising.”

Many courts interpreting policies with coverage provisions similar to those in the 1986 form have ruled that a claim for trademark or trade dress infringement may fit within the policy’s coverage of claims of “misappropriation of advertising ideas or styles of doing business.” The general reasoning is that a trademark may constitute “advertising” in that it is a means of publicly marketing and promoting goods or services so that they will be identified with a particular source. Other courts have justified a finding of coverage by reasoning that the policy’s inclusion of coverage for claims of infringement of “title” is broad enough to encompass claims of trademark infringement.

In short, if your company’s CGL policy follows this general form, you may have a basis to demand coverage for a trademark infringement claim; so check your company’s CGL policy. Also, remember to check your company’s old insurance policies. Some CGL policies cover an “occurrence” that took place during the policy period, even if the claim based on that occurrence arises after the policy period has ended. These old policies may provide coverage in addition to, or in lieu of, your existing policies.

It All Depends

Simply because your company’s CGL policy contains coverage for “Advertising Injury” claims does not guarantee you will have an easy time convincing either your liability insurer or a court to extend coverage to a claim of trademark infringement. Coverage for such claims is fraught with legal limitations and factual exclusions.

Coverage Depends on the Particular Language of the Policy

Not all CGL policies follow the 1986 standard form. Some policies expressly exclude coverage for trademark infringement claims. Others may specifically define the parameters of covered “advertising activity” or utilize different terms in describing the particular claims that constitute advertising injury claims.

Moreover, the ISO revised its standard form CGL policy in 1998 and again in 2001. The 1998 form defines “advertising” and modifies the scope of advertising injury coverage to apply to claims arising out of “the use of another’s advertising idea in your advertisement,” and “infringement upon another’s copyright, trade dress or slogan in your advertisement,” among other claims. While there has been little case law discussing the effect of these changes, industry commentators have suggested that the 1998 form emphasizes the need for a connection between a company’s alleged misconduct and the company’s “advertising” activity. Furthermore, the 1998 form expressly extended coverage to certain claims of “trade dress” infringement, but did not provide express coverage for claims of “trademark” infringement. That omission may support an argument that the policy was not intended to cover trademark infringement claims.

The limits contained in the 2001 form are even clearer. In an apparent attempt to close the window completely on trademark infringement coverage, the ISO’s 2001 form specifically excludes from coverage any advertising injury “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” Thus, an insured whose policy follows the 2001 form may be hard pressed to convince either its insurer or a court to provide coverage for a trademark infringement claim.

Even if your company’s policy generally follows the 1986 standard form, subtle and not-so-subtle variations in a policy’s language may drastically affect the scope and type of coverage that is offered. A change of a single word can mean the difference between coverage and no coverage. Thus, it is extremely important to look to the specific language of your company’s particular policy to determine whether the claim may be covered.

Coverage Depends on The Law Governing the Interpretation of Your Policy

The success of your attempts to secure coverage for trademark infringement claims also depends in large measure on which jurisdiction’s law governs the interpretation of your company’s CGL policy. Some courts have taken a narrow interpretation of what constitutes covered advertising activity - holding, for example, that “advertising” requires widespread, public dissemination. Moreover, while various courts have indicated that infringing packaging or promotional activities are sufficient to cause an advertising injury, some jurisdictions require a definite nexus between the claimed infringement and traditional advertising activity. In other words, the actual infringement has to occur in the course of traditional advertising activity. Finally, some courts have ruled as a matter of law that trademark and trade dress infringement claims simply do not qualify as either claims for “misappropriation of advertising ideas” or claims for “infringement of copyright, title or slogan” and therefore do not fall within a CGL policy’s “advertising injury” coverage.

Coverage Depends on the Facts of the Underlying Infringement Claim

The existence of CGL coverage for a trademark infringement claim also depends heavily on the specific facts surrounding the claim levied against your company. Most CGL polices contain numerous exclusions from advertising injury coverage, including, without limit, exclusions for claims arising out of a breach of contract (e.g., an employment contract), for claims based on advertisements that were first published outside the policy period, and for claims based on the publication of material known to be false. Whether any of these exclusions will apply in your case depends on the language of the exclusion, the facts underlying the alleged infringement, and - because an insurer’s duty to defend is typically determined from the allegations contained in the underlying complaint - the wording of the complaint filed against your company.

Conclusion

Like any insurance issue, the existence and scope of CGL coverage for trademark infringement claims are dependent on the specific contracts, laws, and facts that apply to the case at hand. A company accused of trademark infringement, however, should immediately consult the CGL policy. Under the right circumstances, such a policy might provide a source of insurance coverage for the infringement claim. 

ABOUT THE AUTHOR

Christopher Lynch is a member of Lindquist & Vennum’s Minneapolis Litigation and Insurance Coverage Groups. He can be reached at 612-371-3512; or, e-mail clynch@lindquist.com.

riskVue | The webzine for risk management professionals
April 2003