Why it matters

The Ninth Circuit Court of Appeals, applying California law, recently held an insurance company may properly deny coverage under a prior publication exclusion if advertisements run during the policy period are substantially similar to advertisements published before the policy period. The insured argued that its allegedly improper ads were sufficiently different from its pre-policy ads so that the prior publication exclusion was inapplicable. The Ninth Circuit disagreed, finding that “a company that began a wrongful course of conduct, obtained insurance coverage, continued its course of conduct, then sought a defense from its insurer when the injured party sued.” Although “a liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity,” the prior publication exclusion, strictly construed, limits that broad duty.

Detailed Discussion

In 2004 the insured, Street Surfing, LLC, began selling a two-wheeled skateboard called the “Wave” to retail stores. The Wave displayed the Street Surfing logo.

Great American provided general liability insurance to Street Surfing from August 2005 to September 2007. The policy covered personal and advertising injury. “Personal and advertising injury” was defined to include the “use of another’s advertising idea in your ‘advertisement.’”

The policy contained several exclusions, including a prior publication exclusion that removed coverage for “‘[p]ersonal and advertising injury’ arising out of oral or written publication of material whose first publication took place before the beginning of the policy period.”

In June 2008 Rhyn Noll, the owner of the registered trademark “Streetsurfer,” sued Street Surfing asserting causes of action for trademark infringement, unfair competition and unfair trade practices under federal and California law.

Street Surfing sought coverage from Great American, which denied the request in reliance on several exclusions, including the prior publication exclusion.

After settling with Noll in 2009, Street Surfing sued Great American, seeking a ruling that the insurer violated its coverage obligations. The parties filed cross-motions for summary judgment. The district court concluded the prior publication exclusion relieved Great American of any duty to defend Street Surfing and entered judgment in Great American’s favor.

On appeal, the Ninth Circuit unanimously agreed, ruling that the prior publication exclusion applied to the Noll complaint. The court reasoned that the advertisements currently at issue were similar to prior advertisements prior to the policy period. The court explained that “if Street Surfing’s post-coverage publications were wrongful, that would be so for the same reason its pre-coverage advertisement was allegedly wrongful: they used Noll’s advertising idea in an advertisement.”

The court found immaterial that some of the subject advertisements used the term “Street Surfing” and others used the term “Street Surfer” – they both were a subordinate version of Noll’s “Streetsurfer” mark/advertising idea. The court also rejected Street Surfing’s argument that Noll’s claim asserted fresh wrongs because different products were advertised before and during the policy period. Again, the advertising idea was the same.

To read the decision in Street Surfing LLC v. Great American E&S Ins. Co., click here.