The “advertising injury” coverage in commercial liability insurance policies typically extends to lawsuits alleging product disparagement. But is there coverage if your company’s advertisement does not specifically mention a competitor’s product by name? A recent judicial decision suggests that the answer is yes.
JAR Laboratories LLC v. Great American E&S Insurance Co., 2013 U.S. Dist. LEXIS 67516 (N.D. Ill. May 10, 2013), addressed whether an insurance company had a duty to defend its policyholder, the manufacturer of an over-the-counter pain relief patch, against a lawsuit brought by a distributor of a prescription pain relief patch. The issue turned on whether the allegations in the distributor’s complaint fell within the scope of the policy’s coverage for “personal and advertising injuries” resulting from the publication of material that “disparages a person’s or organization’s goods, products, or services.” Id. at *12 (quotation marks omitted).
The insurance company argued that the distributor’s complaint did not trigger coverage because (i) the complaint was based on advertisements that related solely to the policyholder’s patch, and (ii) the advertisements were not disparaging.
As to the first argument, the court found that the insurance company interpreted the complaint “too narrowly.” Instead of focusing exclusively on the text of the advertisements, as the insurance company did, the court considered the entire complaint. The court found that the complaint alleged that the policyholder’s advertisements did in fact convey messages about the prescription patch by suggesting that the two patches were equivalent. It was “immaterial” to the court that the advertisements themselves did not refer to the prescription patch by name: “Whatever words [the policyholder] used, [the prescription patch distributor] clearly understood (and alleges that a ‘substantial segment of consumers’ would likewise believe . . .) that [the policyholder’s] implicit ‘message’ was about [the prescription patch].” Id. at *13.
As to the insurance company’s second argument, the court ruled that the messages portraying the over-the-counter patch—an allegedly inferior product—as the equivalent to the prescription patch were disparaging: “a statement equating a competitor’s product with an allegedly inferior one is logically indistinguishable from, and no less disparaging than, a statement describing one’s own product as ‘superior’ to the competitors.” Id. at *17.
The court thus concluded that the distributor’s lawsuit triggered the policyholder’s advertising injury coverage. Like the court in JAR Laboratories, policyholders should greet with skepticism the notion that an advertisement must specifically refer to a competitor’s product by name for product disparagement coverage to exist. It is important that the complaint arguably alleges that the advertisement disparaged the competitor’s product.