Many businesses acquire commercial liability insurance coverage to protect against “advertising injury” resulting from their marketing practices. But while the term “advertising injury” on its face may sound comprehensive, its definition in the insurance policy may be narrower than you think. As a result, some businesses have received a rude awakening after learning: (1) they are being sued for false advertising; and (2) their insurance company is not going to pay for it.

Vitamin Health faced this exact situation after it was sued by Bausch & Lomb based on advertising that promoted the health benefits of its Viteyes® supplements for eye health. Vitamin Health’s ad campaign promoted the supplements as “AREDS 2-Compliant,” which means they contained a combination of vitamins recommended by the National Eye Institute’s Age-Related Eye Disease Study (AREDS). Bausch & Lomb filed suit against Vitamin Health for patent infringement, but later amended its complaint to add a false advertising claim after Vitamin Health “change[d] the formulation” of its eye supplement so that it was no longer AREDS-2 Compliant. According to Bausch & Lomb, Vitamin Health reduced the level of zinc in Viteyes® from the AREDS-recommended 80 mg to 25 mg, rendering the product no longer compliant with AREDS 2.

Vitamin Health’s commercial liability policy with Hartford Insurance Company provided coverage for “personal and advertising injury,” which was narrowly defined as “[o]ral, written or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” The policy also contained two key exclusions: coverage would not be provided for any suit that also alleges infringement of intellectual property rights, and coverage would not be provided for advertising injury “arising out of the failure of goods, products or services to conform with any statement of quality or performance made in [the policyholder’s] advertisement.'”

Hartford refused to defend and indemnify Vitamin Health in the Bausch & Lomb suit, arguing that the advertising at issue was not covered by the policy because the ad did not disparage Bausch & Lomb’s products. And even if it did, the intellectual property exclusion and failure to conform exclusion applied to prevent coverage because there was a patent infringement suit and the advertising related to the quality of Viteyes®.

The U.S. District Court for the Eastern District of Michigan agreed. In a declaratory judgment action to determine whether Hartford was required to defend and indemnify Vitamin Health, the Court held there could be no “disparagement”, as required for coverage, because Vitamin Health’s advertising was based on the content of its own product, not Bausch & Lomb’s product. Both policy exclusions also applied independently because Bausch & Lomb’s lawsuit was based on Vitamin Health’s failure to conform with its claim that Viteyes® complied with AREDS 2 standards, and the false advertising allegations were included in a complaint involving patent infringement. See Vitamin Health, Inc. v. Hartford Casualty Insurance Co., 186 F. Supp. 3d 716 (E.D. Mich. 2016). Any one of these three grounds would have sufficed to deny coverage.

Vitamin Health appealed to the U.S. Court of Appeals for the Sixth Circuit, which heard oral argument in November. In the meantime, Vitamin Health settled its dispute with Baush & Lomb in late December and remains on the hook unless the Sixth Circuit concludes that each of the district court’s three reasons for denying coverage were wrong.

Courts will generally construe an insurance policy against the insurer when its terms are ambiguous, but courts have also made clear that they will not ignore the express terms of the agreement even if it narrows the scope of coverage. The Vitamin Health case is just one example of recent cases where courts have denied coverage due to the limitations of coverage for “advertising injury.” It is therefore critical that businesses consider the terms of their insurance policy and the scope of their “advertising” coverage when evaluating the content and strategy for their marketing campaigns.