In Penn National Insurance Company v. Group C. Communications Inc., the New Jersey Appellate Division reversed a lower court’s grant of summary judgment for an insurer on the insurer’s duty to defend its policyholder against potential advertising and personal injury liability.1 In so doing, the court joined the few courts that have considered the issue in interpreting a Commercial General Liability (“CGL”) policy’s “Business of Advertising Exclusion” as precluding coverage only where advertising comprises the “principal or primary” business of the policyholder.2 Further, in dicta, the court also agreed with an expanding majority of courts that find the terms “right of privacy” and “invasion of privacy” in insurance policies to be ambiguous. Accordingly, the court adopted an expansive definition of those terms that encompasses not only the dissemination of private information (secrecy interests), but also unwarranted intrusions into one’s sphere of privacy (seclusion interests).3
In Penn National, the policyholder was defending an underlying class action alleging violations of the Telephone Consumer Protection Act (the “TCPA”). The policyholder sought coverage under its Business Owners’ Liability and umbrella policies, both issued by Penn National Insurance Company. The policies provided coverage for “Advertising Injury” arising out of “oral or written publication of material that violates a person’s right to privacy,” but excluded coverage for advertising injury for an insured “whose business is advertising.”4 The insurer argued that the policyholder’s business was, indeed, advertising and pointed to the policyholder’s insurance application, which categorized its business as “Offices — Advertising.”5 In response, the policyholder argued that it ran a multi-faceted business of which advertising was only one component.
The trial court granted summary judgment for the insurer, but a panel of the Appellate Division reversed, finding an unresolved issue of fact as to the policyholder’s “principal or primary” line of business. Although the Penn National court made clear that the policyholder faced an uphill battle on remand, 6 the court put the insurance industry on notice of a broad duty to defend policyholders in cases involving advertising injury.
I. Coverage for Advertising Injury Generally. Policyholders commonly seek and obtain coverage for Advertising Injury under their CGL policies. They might also procure coverage under Directors’ and Officers’ Liability policies or, as in Penn National, Business Owners’ Liability insurance policies7. In general, advertising injury coverage provides protection for specific torts committed in the course of the policyholder’s advertising. Thus, unlike the occurrence-based coverage for bodily injury and property damage, advertising injury coverage is triggered by the commission of an enumerated offense by the policyholder.8 Prior to 1998, advertising injury comprised a separate section of the standard CGL policy. At that time, the standard advertising injury coverage grant obligated the insurer to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal injury’ or ‘advertising injury’ . . . This insurance applies to:  ‘advertising injury’ caused by an offense committed in the course of advertising your goods, products or services.” Pre-1998 CGL policies typically defined “Advertising Injury” to mean:
“injury, other than bodily injury, arising out of one or more of the following offenses:
a. Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;
b. Oral or written publication that violates a person’s right of privacy;
c. Misappropriation of advertising ideas or style of doing business; or
d. Infringement of copyright, title or slogan.”9
Early versions of the CGL form failed to define “advertising” or “advertisement.” Thus, a significant amount of litigation focused on whether or not a given activity qualified as “advertising,” with some courts accepting a broad interpretation that included targeted solicitation to small groups and others requiring widespread promotion targeted at the general public. 10 In an extreme example, in Charter Oak Fire Insurance v. Heeden & Cos., the Seventh Circuit broadly construed the policy language to include one-on-one solicitation within the definition of “advertising activity.”11
In 1998, ISO made major revisions to the CGL form, notably by combining personal and advertising injury into a single policy provision. The 1998 CGL form also responded to the controversy over the definition of advertising activity by explicitly defining “advertisement” as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” 12 In 2001, ISO further clarified and expanded the CGL definition of “advertisement” by including “[n]otices that are published include material placed on the Internet or on similar electronic means of communication.”13
The coverage implemented in 1998, which remains substantially unchanged, now “applies to ‘personal and advertising injury’ caused by an offense arising out of your business.” Personal and advertising injury are then jointly defined as:
“injury, including consequential ‘bodily injury,’ arising out of one or more of the following offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;
d. Oral or written publication of material that slanders or libels a person or organization of disparages a person’s or organization’s goods, products or services;
e. Oral or written publication of material that violates a person’s right of privacy;
f. The use of another’s advertising idea in your ‘advertisement’; or
g. Infringing upon another’s copyright, trade dress or slogan in your ‘advertisement.’”14
The policyholder bears the initial burden of proving that the underlying claim involving advertising injury triggers coverage. Courts frequently apply some version of the following three-part test to determine whether a policy is triggered: 1) Whether the pleadings in the underlying claim state a cause of action among the enumerated offenses; 2) Whether the underlying claims seek compensation for injuries arising from an enumerated offense; and 3) Whether an exclusion applies.15
Once a policyholder establishes that an activity constitutes “advertising,” it must next demonstrate a causal nexus between the advertising activity and the underlying claims. 16 One court formulated the question as “not whether ‘the injury could have taken place without the advertising,’ but ‘whether the advertising did in fact contribute materially to the injury.’”17 The distinction is not always clear. For example, in GRE Insurance Group/Tower Insurance Co. v. Complete Music, Inc., the Eighth Circuit considered whether copyright infringement that occurred during a DJ company’s solicitation of new franchisees demonstrated a sufficient causal link to the company’s advertising.18 The DJ company sent a CD that allegedly contained copyright-infringing songs along with its standard solicitation package. The court found insufficient causation because “the evidence show[ed] that the primary objective of [the] advertising activities was to induce the sale of franchises, not copyright infringement.”19 In sum, the advertising “may have led to the infringement, but the infringement did not occur ‘in the course’ of its advertising.”20
Because advertising injury coverage is triggered by a complaint against the policyholder alleging violation of an offense enumerated by the policy, cases considering coverage for advertising injury liability necessarily track those enumerated offenses. Regardless of the offense for which coverage is sought, the policyholder faces the same initial burden of proving that the offense is enumerated in the policy and that the injury is causally related to the advertising activity. The following cases help demonstrate the boundaries of each offense.
A. Libel, Slander and Disparagement. The policy language covering libel, slander, and disparagement applies equally to both personal injury and advertising injury. Accordingly, a policyholder need not show that liability incurred for those offenses stems from “advertising activity.” Rather, most litigation focuses on whether the claim stated in the underlying litigation contains the requisite elements of the enumerated offense.
For example, in Virtual Home Care, Inc. v. St. Paul Fire & Marine Insurance Co., the court declined to impose a duty to defend. 21 The policyholder sold its business and then sent its former customers a “going out of business” letter. The court held that although the policyholder’s actions might subject it to liability for tortious interference with a contract, the claim against it did not constitute libel, slander or disparagement because the letter did not belittle the new business or contain any major inaccuracies.22
B. Advertising That Violates an Individual’s Right to Privacy. Disputes regarding coverage under this section are mostly in regard to the applicable definition of “right to privacy.” As in Penn National, courts have encountered this question when policyholders seek coverage for liability incurred for “blast faxing”: the unsolicited mass sending of fax advertisements. These cases have created a pronounced split, with the majority of circuits finding that “right to privacy” includes both the right to the preservation of secret facts as well as the right to seclusion in one’s private state.23 In an example of the minority viewpoint, the Seventh Circuit, applying Iowa law, declined to find coverage for a policyholder facing liability for unsolicited faxes.24 The court found that the use of the word “publication” in the policy indicated that violation of “seclusion” privacy was not covered, holding, “‘Publication’ is implicated only where the relevant concern is secrecy; one can violate another's right to seclusion without publicizing anything.”25
C. Misappropriation. The 1988 CGL Form provided coverage for “misappropriation of advertising ideas or style of doing business.” The 1998 Form changed the wording to “[t]he use of another’s advertising idea in your ‘advertisement,’” and in 2001, ISO added an exclusion for “infringement of copyright, patent, trademark, trade secret or other intellectual property rights,” except where the infringement occurs in an “advertisement.” The change in policy language, along with the undefined and sometimes ambiguous phrasing used, has caused significant litigation.
In particular, many disputes centered on whether “misappropriation” in the 1988 form was limited to its common law meaning, or whether it could also include trademark infringement. 26 Another highly contested issue involved coverage for patent infringement claims. Although a majority of courts have found patent infringement claims not to be covered because patent infringement is not an enumerated offense,27 others applied the “misappropriation of advertising ideas” clause to find coverage for the policyholder.28
D. Infringement of Copyright, Trade Dress or Slogan. The 1998 CGL form covered loss arising from “infring[ment] upon another’s copyright, trade dress, or slogan in your ‘advertisement.’” As mentioned above, an exclusion barred coverage for infringement of “copyright, patent, trademark, trade secret or other intellectual property rights,” except where the infringement occurs in an “advertisement.” Thus, trademark infringement was not an enumerated offense, although it was included as an exception to the relevant exclusion. Not surprisingly, this policy language instigated significant litigation over whether trademark infringement claims were covered under a given policy. Many courts have found trademark infringement to be covered under the “infringement . . . of title or slogan" clause.29 In contrast, in A Touch of Class Imports, Ltd. v. Aetna Casualty and Surety Co., the Southern District of New York found that some trademark claims would not be covered, although it granted coverage in that particular case. 30 The court held the policy not to be ambiguous and distinguished between “trademarks” and “slogans” for purposes of determining coverage.31
Copyright infringement claims, an enumerated offense, are covered as advertising injury under the standard CGL form. Litigation over coverage for copyright infringement tends to focus on whether the necessary causal nexus is demonstrated between the advertising activities and the infringement.32
II. Exclusions to CGL Coverage for Advertising Injury. Coverage for advertising injury is subject to increasingly numerous exclusions. Whether a given exclusion will preclude coverage depends on the particular facts of the case. Indeed, in some cases, the facts that make an exclusion applicable will not be evident from the pleadings in the underlying cause of action. In that situation, the insurer’s duty to defend generally is triggered, but the insurer will not be obligated to indemnify its policyholder for any actual loss.
An extensive examination of the exclusions to advertising injury coverage found in the standard CGL Form is beyond the scope of this article. Nevertheless, we list those common exclusions with a brief explanation of their functions and, where appropriate, citation to a representative case on the issue. 33
“This insurance does not apply to [advertising injury] . . .
1) 8531) “[C]aused . . . with the knowledge that the act would violate the rights of another.” See, e.g., Education Training Systems Inc. v. Monroe Guaranty Insurance Co., 129 S.W.3d 850, 853 (Ky. App. Ct. 2003) (exclusion applies when policyholder acts with the intention of causing harm); Zurich Ins Co. v. Killer Music, Inc., 998 F.2d 674 (9th Cir. 1993).
2) “[I]f done . . . with knowledge of its falsity.” Courts are split on whether the knowledge of falsity exclusion applies to all enumerated offenses, or only those that expressly entail the “oral or written publication of material.” See, e.g., Atlantic Mutual Insurance Co. v. Terk Technologies Corp., 309 A.D.2d 22, 30-32 (N.Y. 2001) (exclusion applies to intentional, willful and knowing passing off of counterfeit goods); contra Adolfo House Distributing Corp. v. Travelers Property & Casualty Insurance Co., 165 F. Supp. 2d 1332, 1341 (S.D. Fla. 2001) (declining to apply exclusion to trademark and related claims).
3) “[W]hose first publication took place before the beginning of the policy period.” See, e.g., Applied Bolting Technology Products v. United States Fidelity & Guarantee Co., 942 F. Supp. 1029, 1035-36 (E.D. Pa. 1996), aff’d, 118 F.3d 1574 (3d Cir. 1997) (coverage barred where publications occurred before, and continued into, the policy period).
4) “Arising out of a criminal act.” An earlier version excluded injury arising out of the “willful violation of a penal statute.” The 1998 amendment to “criminal act” clarified the previously most litigated issues.
5) “For which the insured has assumed liability in a contract or agreement.” See, e.g., Kinko’s, Inc. v. Shuler, 646 N.W.2d 855 (Wis. Ct. App. 2002) (finding that contract must be with insured itself for exclusion to apply; since contract was made by employee of insured, exclusion held inapplicable).
6) “Arising out of a breach of contract.” See, e.g., Sport Supply Group Inc. v. Columbia Casualty Co., 335 F.3d 453 (5th Cir. 2003) (claim barred where policyholder sold product on Internet in violation of a licensing agreement).
7) “Arising out of the failure of goods . . . to conform with any statement of quality.”
8) “Arising out of the wrong description of the price of the goods.”
9) “Committed by an insured whose business is advertising, broadcasting, publishing or telecasting.” See, e.g., American Employees Insurance Co. v. DeLorme Publishing Co., 39 F. Supp. 2d 64, 81-82 (D. Me. 1999) (exclusion applies to policyholders whose “primary” business is advertising or media); Penn National Insurance Co. v. Group C Communications, Inc., No. A-2813-09T3, 2011 N.J. Super. Unpub. LEXIS 2077 (App. Div. Aug. 1, 2011) (applying DeLorme and reaching a similar conclusion).
10) “Arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights,” but “this exclusion does not apply to infringement, in your ‘advertisement’, of copyright, trade dress or slogan.” ISO added this exclusion in 2001 to “reinforce,” “because of the increasing Internet exposure,” that “[t]he CGL policy provides no coverage for infringement of intellectual property rights” except where arising from an advertisement. ISO, Explanatory Memorandum (2000). See, e.g., Villa Entertainment Management Ltd. v. Federal Insurance Co., 821 A.2d 1174 (N.J. App. Div. 2002) (finding coverage for trademark infringement claim despite exclusion).
11) “Arising out of an electronic chatroom or bulletin board the insured hosts.” Intended to address the greater than contemplated risk of slander, disparagement, or libel in various online settings.
12) “Arising out of the unauthorized use of another’s name or product in your e-mail address, domain name or metatag.”
13) “Arising out of any action . . . that violates . . .” the Telephone Consumer Protection Act, the CAN-SPAM Act of 2003, or any other “statute, ordinance or regulation . . . that prohibits the sending, transmitting, communicating or distribution of material or information.” Added in 2007 specifically in response to “blast fax” cases such as Penn National. Research reveals no cases considering this exclusion.
III. Penn National: N.J. Addresses Advertising Injury. In Penn National Insurance Co. v. Group C Communications, Inc., a panel of the New Jersey Appellate Division considered several of the issues discussed above.34 Group C published magazines and hosted trade shows targeted at professional facility managers. While marketing a 2005 trade show, Group C hired a marketing firm to fax advertisements to a list of potential attendees. The fax was sent to over 40 recipients on April 14, 2005.35 One of the recipients, an Illinois company with no prior relationship to Group C, initiated a class action lawsuit charging Group C with violations of the TCPA, which allows a prevailing plaintiff the greater of actual damages or $500 per violation.36 The complaint, filed in Illinois state court, alleged a violation of the TCPA’s prohibition on “faxing or having an agent fax advertisements without the recipient’s prior express invitation or permission.”37
The complaint alleged that Group C violated the plaintiff’s right to seclusion privacy, and caused them to “lose the use of [their] fax machine, paper, and ink toner.”38
Group C sought coverage under both its primary liability policy and its umbrella policy, each issued by Penn National. Importantly, in its application for insurance, Group C categorized its business as “Offices - Advertising.” 39 Penn National offered to provide a defense subject to a reservation of rights. Subsequently, Penn National instituted a declaratory action seeking a resolution that it had no duty to defend as a matter of law.40 After discovery, each party filed cross-motions for summary judgment, which the trial court granted in favor of Penn National. Group C appealed that judgment.
The Appellate Division began its review by reciting the basic canons of insurance policy interpretation; most notably that “[a]mbiguity occurs only ‘where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage,’” 41 and that “‘[i]n general, insurance policy exclusions must be narrowly construed.’”42 The court then considered whether Group C was covered for the underlying claims under the advertising injury provisions of the policies. The lower court found that coverage was precluded by the Media Business Exclusion, which stated in identical language in both the primary and umbrella policies that coverage did not apply to offenses “committed by an insured whose business is advertising, publishing or telecasting.” Group C disagreed, arguing that although it clearly engaged in some advertising and media activities, its diverse business portfolio could not be shoehorned into the categories listed in the exclusion.43
The court relied on two cases that considered the question and reached similar conclusions. In American Employers’ Insurance Co. v. DeLorme Publishing Co., the District Court for Maine considered the “Business of Advertising” exclusion and concluded that the provision was not ambiguous and applied only to policyholders whose principal or primary business is advertising. 44 The DeLorme court noted that “most, if not all, businesses are engaged in multiple areas of business,” and that “an ordinary person would not reasonably conclude that the exclusion applies if one of a company’s ancillary activities is in one of the four listed areas.”45 This conclusion comported with the policy of Maine (like that in New Jersey) that insurance policies be construed in favor of coverage whenever possible. Thus, the Penn National court similarly held that the exclusion was not ambiguous and applied only where the policyholder’s primary business fell within the listed categories. The court noted that Group C’s self-classification as an advertiser would be difficult to overcome; however, the court found that an issue of material fact existed and accordingly remanded the case to the trial court for application of the DeLorme standard.46
The court next considered Group C’s argument that it was afforded coverage for personal injury under the umbrella policy. The primary policy explicitly excluded coverage for personal injury arising out of advertising activity, but the umbrella policy used different language. The court dismissed this argument, explaining that the definition of “personal injury” in the umbrella policy stated that “such ‘offenses’ must arise out of the conduct of your business, excluding advertising, publishing, broadcasting, or telecasting done for or by you.”47
Finally, the court considered whether Group C might be covered under both policies for property damage, pursuant to the complaint’s allegation that “[r]eceiving [d]efendant’s junk faxes caused the recipients to lose paper and toner consumed in the printing of [d]efendant’s faxes.”48 Accordingly, the court reviewed the definitions of “property damage” and “occurrence” in the policies and considered whether the injury was “expected or intended” from the policyholder’s standpoint.49 The court held that “a good faith belief that the businesses contained on the CCTB list obtained by Group C were willing to receive faxes from the other business entities would preclude application of the intentional conduct exclusion.”50
The court’s consideration of Group C’s coverage for property damage also yielded one conclusion potentially crucial to future advertising injury disputes. The policies excluded coverage for “invasion of privacy” resulting from “dissemination of any matter published or printed by the insured” or its agent. Although the court found the property damage claim to be within an exception to the exclusion, the court also noted, in a footnote, that “we construe [invasion of privacy] to include ‘both rights involving secrecy interests and rights involving seclusion interests.’51 As noted above, courts are split on this distinction, with those courts interpreting “privacy” to include only secrecy rights essentially foreclosing the “blast fax” action.52 Although the court opted for the expansive definition only in dicta, the decision indicates that policyholders may be covered for seclusion-related claims in the future (although not for “blast faxes” specifically; see below).
IV. Other Recent New Jersey Decisions Considering Blast Faxes and/or Coverage for Advertising Injury. Interestingly, the underlying action in Penn National likely would not survive summary judgment were it initiated in New Jersey instead of Illinois. Earlier this year, a New Jersey appellate court affirmed the lower court’s denial of class certification to a prospective class that alleged violations of the TCPA. 53 In Local Baking Products, Inc. v. Kosher Bagel Munch, Inc., the court found that because the TCPA allowed for $500 in damages, and could be litigated in small claims court, the “superiority” requirement for class certification was not met.54 The court also indicated that the “commonality” requirement might not be met because of potential differences between the class members’ consent to faxing.55 The court noted a developing jurisdictional split on the issue and denied class certification in “blast fax” litigation.56
In Myron Corp. v. Atlantic Mutual Insurance Co., a case very similar to Penn National, the court awarded attorney’s fees from the underlying litigation to the policyholder57. As in Penn National, the policyholder faced liability in a class action suit under the TCPA for blast faxes, again, instituted in Illinois. The policyholder, after an extended forum dispute, successfully secured coverage from its insurer.58 It next sought reimbursement of its attorney’s fees from both the underlying litigation as well as the forum dispute, pursuant to N.J. Stat. Ann 5758N.9a(6). Although the insurer argued that allowing fees would encourage forum shopping, and impose a New Jersey rule on litigation instituted in foreign jurisdictions, the New Jersey Appellate Division held in the policyholder’s favor:
“This is not a case in which [policyholder] instituted suit in New Jersey solely to collect counsel fees. Rather, after successfully fending off [insurer’s] effort to litigate the coverage issue in Illinois, [policyholder] litigated the merits of the coverage issue in New Jersey and obtained a favorable result. Its rights to counsel fees stems from its success in the New Jersey litigation.”60
Accordingly, if Group C succeeds in obtaining coverage in the subsequent stages of Penn National, it may expect to recover attorneys’ fees from the underlying action, as well as the coverage dispute.
V. Conclusion. With Penn National, the court clarified the expectations of policyholders regarding the Advertising Business Exclusion to Advertising Injury coverage. The court’s concrete holding that the exclusion applies only where the policyholder’s primary or principal business is within the exclusion will allow policyholders to seek coverage without fear that a minor aspect of their business will preclude coverage for advertising injury. Further, policyholders are advised that statements made in their application may well affect potential coverage.
In addition, the Penn National court addressed and defined the meaning of “privacy” and “right to privacy” in the insurance context. Although the recent ruling in Local Baking Products likely forecloses class action litigation over “blast faxes” in New Jersey, see Part IV above, “privacy” appears in multiple sections of the standard CGL form. Policyholders now have an expectation of how that term will be construed both in the personal/advertising injury context, and as an exclusion to property damage coverage. Indeed, the Penn National decision on this much-litigated issue may represent a significant win for policyholders.