Most commercial liability policies provide what is known as “personal and advertising injury” coverage, which usually provides coverage for claims that an insured’s advertising defamed or disparaged another person’s or organization’s goods or services. Section 43(a) of the Lanham Act (as well as various state law analogues) provides plaintiffs with a cause of action for false advertising, which generally requires proof that the defendant made a false or misleading statement of fact in a commercial advertisement or promotion that caused injury to the plaintiff. Defendants that are sued for anything involving their advertising or promotional activities should examine their policy’s advertising injury provision, as often coverage can be found for at least the defense of such actions.
A recent case out of Pennsylvania provides a good example. The well-known energy drink company 5 Hour Energy sued a competitor, Vitamin Energy, for trademark infringement and other claims, including false advertising. The false advertising claim alleged that Vitamin Energy had published a misleading comparison of its products to those of 5 Hour Energy. Vitamin Energy sought coverage from its insurer Evanston Insurance Company, and Evanston denied the claim. Ultimately, Vitamin Energy sued its insurer to obtain coverage. The district court ultimately sided with Evanston, finding no coverage. This week, the Third Circuit reversed.
In Pennsylvania (like many states, including Washington, Oregon and California), the duty to defend is much broader than the duty to indemnify. Under Pennsylvania law, the duty to defend exists if the factual allegations of the complaint encompass an injury that is actually or potentially within the scope of coverage. In Vitamin Energy the insurer argued that the accused advertisement only made allegedly false statements about the insured’s (i.e., Vitamin Energy’s) own product, not products of 5 Hour Energy. The Third Circuit disagreed, finding that the plaintiff’s complaint, liberally construed, also alleged that Vitamin Energy’s allegedly false statements about its own product in the comparative advertising implicitly demeaned and made potentially false statements about the product to which it was compared (i.e., 5 Hour Energy’s product). So long as the underlying complaint contained at least one allegation that fell within the scope of the policy’s coverage, the complaint triggered the duty to defend. Although the gravamen of the complaint may have been trademark infringement and other claims that were outside of coverage (because of the policy’s Intellectual Property and other exclusions), that does not defeat the duty to defend. So long as there is one covered claim, the insurer has the duty to defend the entire lawsuit.
So if you are faced with a lawsuit involving advertising, check your policy and consult with an experienced insurance advisor before making your next move.