So-called “Intellectual Property” (“IP”) exclusions in commercial general liability (“GL”) insurance policies have received relatively little attention from the courts. However, the ubiquity of new advertising technologies, recent appellate decisions confirming GL “personal and advertising injury” coverage for patent claims, and new claims that policyholders are facing for alleged electronic invasions of privacy may well turn the IP Exclusion into the proverbial “elephant in the room.” Even though a recent California Court of Appeal decision found that a form of IP exclusion barred coverage for certain “infringement of likeness” claims under a GL policy, that decision confirms that IP exclusions must be narrowly construed, are highly dependent on specific wording used, and will not routinely bar coverage in a broad variety of cases that insurance companies will argue are focused on or arise from IP claims. In other words, the IP Exclusion elephant can be shot (http://www.youtube.com/watch?v=NfN_gcjGoJo), or better, perhaps, sent off to a retirement facility (http://io9.com/5877226/the-circus-elephant-retirement-home) with no damage done.
Courts routinely have held that classic “IP claims” such as patent, trademark and copyright which involve the infringement or misappropriation of an advertisement, an “advertising idea” or technology involving advertising will trigger coverage under standard GL policy forms. In some jurisdictions, trade secret claims involving items such as customer lists and marketing plans, and claims for misappropriation of likeness also are covered. While many new invasion of privacy claims based on security breaches and under laws such as the Electronic Communications Privacy Act also may be covered, decisions on those issues are (so far) few and far between. And of course, claims routinely made alongside patent, trademark, copyright and trade secret claims, such as defamation, trade libel and other forms of electronic privacy invasion frequently are covered, requiring in many jurisdictions that the GL insurer defend all claims made in the suit against the policyholder, including the “IP” claims.
While many courts have found GL coverage for what may be called “IP” claims, relatively few have construed the IP exclusions or found them applicable, especially in the context of patent claims. Most policyholders have understood for years (if not decades) that a GL policy’s coverage for “invasion of privacy” (a part of the “personal and advertising injury” provision) covers third party claims for infringement of a person’s likeness or right of publicity. In Aroa Marketing, Inc. v. Hartford Ins. Co. of the Midwest,198 Cal.App.4th 781 (2011), California’s Second District Court of Appeal confirmed this is the case under California law, as it is in many other jurisdictions. However, the Aroa court went on to find that a Hartford policy exclusion for claims arising out of “any violation of any intellectual property rights such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity” barred coverage for a model’s claim for unlawful use of her likeness. The Court did so relying on Black’s Law Dictionary, and a California case (Comedy III, involving the Three Stooges) which had stated that the right of publicity “protects a form of intellectual property.”
The Aroa decision has important lessons for policyholders facing infringement of likeness/right of publicity litigation, and for those potentially facing disputes over IP exclusions in the context of other underlying claims such as trademark, patent and invasions of privacy. First, Aroa is applicable only to GL policies. Increasingly, policyholders are buying errors and omissions, cyberliability or other “claims made” and catastrophe policies which are specifically crafted to cover claims such as infringement of likeness/right of publicity and/or classes of classic “IP” claims. Aroa should have little if any bearing on issues raised under such policies. Second, Aroa confirms that IP exclusions should be construed narrowly, and in the event of ambiguity, against the insurer. Third, Aroa confirms that coverage can be highly dependent on the format of the facts alleged in the underlying case, and the inferences that can be drawn from them. The Court suggested that, even though certain right of publicity claims are “intellectual property” claims, the outcome may have been different had the model’s complaint alleged or referred to an injury to her feelings or peace of mind from the misappropriation of her image.
Time will tell how the Courts will handle the IP Exclusion elephant.
If you would like additional information on the topics addressed in this post, please contact Martin Myers at firstname.lastname@example.org.