On October 23, 2015, the United States Court of Appeals for the Third Circuit issued a ruling that may make it more difficult for Pennsylvania policyholders to obtain coverage for the misappropriation of advertising ideas under standard commercial general liability policies. In The Hanover Insurance Company v. Urban Outfitters, Inc., No. 14-3705 (Oct. 23, 2015), the Third Circuit adopted a standard for the “prior publication” exclusion – an exclusion that precludes coverage for misappropriation of material that was first published before the insurance policy incepted – that may prove difficult to overcome.

In Urban Outfitters, the Navajo Nation sued Urban Outfitters for trademark infringement and related common law and statutory violations. Navajo Nation alleged that Urban Outfitters had infringed the Navajo name, starting as early as March 2009, in its advertising. Urban Outfitters’ insurance carrier, who insured Urban Outfitters starting in 2010, brought a declaratory judgment action seeking a ruling that it was not obligated to defend the Navajo suit.

The Third Circuit held that the insurer had no duty to defend the Navajo suit due to the policy’s prior publication exclusion. While recognizing that the exclusion may not apply if there is a “fresh wrong” during the policy period, the Third Circuit held that no such wrong was alleged. The Third Circuit based this conclusion on Navajo Nation’s vague assertions that Urban Outfitters’ infringement was continuous since 2009. Borrowing from the Ninth Circuit’s decision inStreet Surfing, LLC v. Great Am. E & S Ins. Co., 776 F.3d 603 (9th Cir. 2014), the Third Circuit relied on the fact that the Navajo suit did not allege separate torts for separate infringements, and that there was no significant time gap alleged between the purportedly infringing acts. The Third Circuit further adopted a standard that ostensibly examines the “common objective” of the advertising in assessing whether a “fresh wrong” has been alleged.

The Third Circuit’s new test has the potential to pose significant hurdles for policyholders seeking coverage for misappropriation claims. As an initial matter, the test appears unfairly to turn on the vagaries of the plaintiff’s pleadings in the underlying suit. In a misappropriation action, there would be little need, or incentive, for a plaintiff to plead separate torts for each act of infringement. And, the “common objective” standard appears too vague to serve as a useful tool in determining if a separate infringing activity is alleged to have taken place within the policy period.

While the utility and breadth of the Third Circuit’s test has yet to be determined, retaining experienced coverage counsel to navigate these waters is even more essential in the wake of the Urban Outfitters ruling.