Advertising Insurance Policies: Advertiser Beware

James S. Carter

Carter, James S.Is your company about to embark on an advertising campaign? Insurers offer a wide variety of specialized insurance coverage for advertising risks. The marketing materials associated with such coverage often suggest that the coverage is broad. Advertising policies, however, often contain non-standard and untested language that might contain subtle nuances that could give rise to coverage disputes.

In one recent case, a coverage dispute turned on the placement of a mere comma in a seemingly broadly written provision granting coverage for advertising-related claims. See ACE European Group, Ltd. published by shutterstock licensev. Abercrombie & Fitch, 2013 U.S. Dist. LEXIS 131269, Case No. 2:12-CV-1214, Case No. 2:11-CV-1114 (S.D. Ohio Sept. 13, 2013). Abercrombie & Fitch sought coverage under a “Safeonline Advertisers and Internet Liability Policy” for several consumer class actions alleging that Abercrombie had misled consumers about a nationwide gift card promotion.

An endorsement in the policy appeared to extend coverage to the class actions:

We [the insurer] shall pay . . . all damages and claim expenses . . . arising out of the following:

unfair competition, involving misuse of media communication, dilution, deceptive trade practices, civil actions for consumer fraud, false advertising or misrepresentation in advertising activities committed in the utterance, dissemination, gathering, acquisition, or obtaining of matter by your or with your permission solely in your performance of advertising.

The term “unfair competition” was defined as “the misuse of a literary, artistic, audio-visual, musical, dramatic, or informational property right.”

 Despite the endorsement’s seeming breadth, the insurer denied coverage to Abercrombie for the class actions and litigation ensued. Abercrombie and the insurer cross-moved for judgment on the pleadings. The insurer argued that the endorsement was limited to claims arising out of “unfair competition” as that term was defined (i.e., “the misuse of a literary, artistic, audio-visual, musical, dramatic, or informational property right”). Because the consumer class actions did not allege “unfair competition,” the insurer argued that Abercrombie was not entitled to coverage.

Fortunately for Abercrombie, the court rejected the insurer’s position. In the court’s view, resolution of the coverage dispute turned on whether the term “unfair competition” was modified by all of the terms following the word “involving” (the insurer’s interpretation) or only by the phrase “misuse of media communication” (Abercrombie’s interpretation).

The court found that the insurer’s narrow interpretation would render the endorsement “nonsensical.” Under the insurer’s interpretation, the court reasoned, the endorsement would read that the insurer shall pay “‘claims expenses . . . arising out of . . . unfair competition, involving . . . civil actions for consumer fraud[.]’”

The court ultimately sided with Abercrombie, but could the coverage dispute have been averted altogether if the endorsement had been drafted more clearly? The court itself observed that the endorsement was hardly a model of clarity, noting that the comma before the word “involving” could have been omitted, or semicolons could have been used to separate each type of claim, to make the provision clearer.

The takeaway from this case is that insureds and their brokers should carefully scrutinize whether an advertising policy contains terms that clearly provide the coverage that the policy is intended to provide. If there is any question, insureds should consider whether to request and negotiate changes to the language—even if the changes concern the seemingly innocuous placement of a comma. Doing so could help avoid a potential coverage dispute before a claim ever arises.