RISKVUE ARCHIVE | FEATURE STORIES

Comparing Apples To Apples:
A Careful Review Of Policy Language Is Necessary When Purchasing Advertising Injury Coverage

By Christopher H. Yetka
Lindquist & Vennum P.L.L.P.

What Is Advertising Injury Coverage?

Advertising injury liability insurance covers a business against third-party claims arising from the policyholder’s communications or actions when promoting or advertising its goods or services. Typically, a business obtains protection against advertising injury through its Commercial or Comprehensive General Liability (CGL) policy. Courts have generally interpreted CGL policies to provide advertising injury coverage if the following conditions exist:

(1) the existence of advertising injury as defined by the policy;

(2) advertising;

(3) the advertising injury results from advertising;

(4) none of the policy’s exclusions negate coverage.

Therefore, coverage exists under a policy if there was advertising injury as defined in the policy, resulting from advertising or advertising activity, and no exclusion applies. These elements are important to keep in mind when obtaining coverage because policy language can vary substantially.

Typical Policy Language

Most CGL policies follow the standard forms issued by the Insurance Service Organization (ISO). The language of the ISO forms has changed since the time when advertising injury coverage was provided in the 1973 Broad Form CGL Endorsement. The most recent change came in the 2001 ISO CGL Policy Form, with two other versions issued in 1986 and in 1998. It is important to note the different forms because not all insurers have kept up with the new forms. Recent versions of advertising injury policies (including those providing coverage as recently as 2003) make use of the 1998 and 1986 forms.

In 1973, advertising injury was typically not included in coverage terms of liability policies. To obtain coverage for advertising injury you had to purchase coverage under the Broad Form Endorsement. In 1986, the ISO moved advertising injury to Part B of the policy proper, and provided a more comprehensive definition of “advertising injury.” In 1998, the ISO rewrote the exclusions that applied to coverage, modified the definition of “advertising injury,” and added a definition of “advertisement,” a term that had been undefined, and was the subject of numerous legal decisions.

Four Part Analysis

As discussed previously, to obtain coverage, a policyholder must show four things: (1) advertising injury; (2) advertising; (3) advertising injury resulting from advertising; and (4) no exclusion applies.

(1) Advertising Injury

This element is usually the easiest to prove or disprove because nearly all policies that provide advertising injury coverage include its definition. However, as the ISO policy forms changed, so did the definition of advertising injury. Earlier policies included unfair competition and piracy in the definition of advertising injury. Therefore, many courts found coverage for claims under state consumer protection statutes. Furthermore, earlier policies also included misappropriation of advertising ideas or style of doing business in the definition. Again, some courts have interpreted this to include coverage for infringement of trade dress.

The changes in the definition of advertising injury, and the interpretation of the various definitions, make the initial review of a policy particularly important when you are purchasing insurance.

(2) Advertising or Advertising Activity

Until 1998, ISO policy forms did not define what constituted advertising. Some courts held that advertising required a wide distribution to the public to qualify as advertising under the policy. Other courts held that limited distribution to targeted audiences could be considered advertising. The later cases are the better-reasoned, given the well-established principle that coverage clauses, or language of inclusion, are interpreted broadly in favor of coverage, and exclusionary clauses are interpreted narrowly. [9 Lee R. Russ, Couch on Insurance §129:25, at 129-44 (3d ed. 2003)]. Again, the changes in policy forms and definitions make an initial, careful review of the policy important.

(3) Causal Connection

Most courts find that in order to hold an insurance company liable for advertising injury, there must be a causal connection between the advertising activity and the injury suffered by the policyholder. Most policies cover injury “arising out of” advertising activities. There has been, however, a split in authority over what “arising out of” means: a general causal connection (“but for causation”), or the actual result of the advertising activity (“proximate causation”). To determine the scope of coverage provided, a look at not only the language of the policy, but an analysis of the law, is required.

(4) Applicable Exclusions

An up-front analysis of exclusions can be very difficult given the number of exclusions, their changing nature in the various ISO forms, and the multitude of claims that can be brought. However, a policyholder should keep in mind that under many states’ laws, if an insurer attempts to expand exclusions from one policy year to the next, specific notice of a substantial reduction in coverage is required or the new exclusion might not be enforceable. However, this applies only to renewals of coverage with the same insurer.

What Does it All Mean?

Given the changing nature of the ISO forms, and the fact insurers use different versions, it is very important for a business to carefully compare the policies offered. The language of a policy offered by one insurer could differ greatly from a policy offered by another, even if they both use “standard” ISO forms. The difference in coverage provided may be a more important consideration than price.

To best ensure a fair comparison of policies, have a good broker obtain copies of the policy language and walk you through the differences. It is also wise to consult with legal counsel on the types of claims you are likely to expect. This will assure that your business has the coverage it needs and expects.

ABOUT THE AUTHOR

Christopher Yetka is a trial attorney practicing in the area of commercial litigation, focusing his practice on insurance coverage disputes. He can be reached at 612-371-2416 or by e-mail at cyetka@lindquist.com.

This article is only a general summary for informational purposes and does not constitute legal advice. Consult a qualified and experienced insurance advisor for your specific situation or particular questions.

riskVue | The webzine for risk management professionals
May 2004