Using General Liability Insurance Policies To Cover IP Claims

Under the coverage provisions in standard comprehensive general liability insurance policies, there is often coverage for what is known as "Advertising Injury." Depending upon the wording of the particular policy, coverage for Advertising Injury often exists with respect to claims made against the insured for copyright infringement, trademark and trade dress (product design and packaging) infringement and sometimes for patent infringement as well.

Although this coverage is of critical importance, its very existence often comes as a surprise to those business executives who need it most and often to their counsel as well. The reasons for this "unawareness" are not clear, although, in part, could be attributed to the lack of case law in this area prior to a landmark decision in California in 1995 in the case of American Economy Ins. v. Reboans, 900 F. Supp. 1246 (N.D. Cal. 1995), which held that a claim for trademark infringement was covered under the "misappropriation" and "infringement of title" provisions in the insured's liability insurance policy. Even after this decision and a multitude of others finding for the insured, today the existence of this coverage is still one of the most important but least understood weapons available to those faced with claims of trademark or copyright infringement.

Litigation, particularly when it involves intellectual property, can be extremely costly and without the protections afforded by an appropriate insurance policy, the costs of litigation often compel companies to enter into unfavorable settlements or to prematurely abandon potentially successful marketing programs. If there is coverage for a particular claim, the insurance company will be required to pay both the costs of defense and any damages found to be due to the plaintiff.

Ideally, a business should not wait until a claim is made before focusing on the possibility of insurance coverage for Advertising Injury. The importance of having legal counsel who is knowledgeable in the field and the review of insurance coverages (as well as samples of proposed policies) before selection of an insurance carrier and policy cannot be overstated. Even subtle differences in the language of the forms of insurance policies being considered could mean the difference between having meaningful coverage or no coverage at all.

Even if a company has not previously focused on the need to have coverage for Advertising Injury, it is quite possible that such coverage already exists as part of a standard comprehensive general liability policy. Most state forms of liability insurance policies contain at least some coverage for Advertising Injury.

There are two basic policy provisions that are used by insurance companies which define Advertising Injury coverage. One form of such policy language reads as follows:

"Advertising Injury" means injury arising out of an offense committed during the policy period occurring in the course of the named Insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan.

A potential concern with this definition from an insurance coverage perspective is that it seems to require that the offense occurred "in the course of the named insured's advertising activities." Insurance companies have succeeded at times in avoiding coverage unless there is a "causal connection" between the infringement and the insured's "advertising activities." See Hosel & Anderson v. ZV II, No. 00 CIV. 6957(LAK), 2001 WL 392229, at *2 (S.D.N.Y. March 21, 2001); Quitman Mfg. v. Northbrook Nat. Ins., 698 N.Y.S.2d 469, 266 A.D.2d 105 (1st Dep't 1999). Often, however, the insured can establish that the...