On February 28, 2014, the Court of Special Appeals of Maryland in Blackstone International, Ltd. v. Maryland Casualty Co., No. 2302 (Md. App. Feb. 28, 2014), held that claims for unjust enrichment caused by a light manufacturer’s alleged use of another company’s product concept and packaging fell within the “advertising injury” coverage of a commercial general liability policy. The court found that the insurers’ defense obligations also extended to all concurrent claims outside the policy’s coverage until the covered unjust enrichment claim was resolved.

Background

Blackstone International, Ltd. (“Blackstone”) designs and manufactures lighting products that mimic natural light. RMG Direct, Inc. (“RMG”) purportedly entered into an oral agreement with Blackstone to form a joint venture to develop plans for the design, marketing and sale of low vision lighting products. RMG contended that its efforts in the joint venture yielded expert evaluations, a packaging design, the brand name “Vision Enhance” and the slogan “to help you see better.” After the parties experienced a falling out, RMG brought claims against Blackstone for breach of contract, promissory estoppel and intentional misrepresentation on the grounds that Blackstone breached the parties’ oral agreement by withholding payments for commissions and profits. RMG also claimed that Blackstone was unjustly enriched by continuing to use and benefit from the expert evaluations, packaging design and brand name developed by RMG.

Blackstone tendered the RMG lawsuit to its commercial general liability (CGL) insurance carriers, Maryland Casualty Company and Northern Insurance Company of New York (collectively, “the Insurers”). The Insurers denied coverage on the grounds that RMG’s claims did not fall within the CGL policy’s “advertising injury” clause, which affords coverage for, among other things, injuries arising out of the use of another’s advertising idea in an advertisement. The Insurers contended that the gravamen of RMG’s complaint is not injury arising out of Blackstone’s advertisements, but rather injury caused by Blackstone’s alleged breach of contract. The Insurers sought a declaration that they had no duty to defend or indemnify Blackstone. The Circuit Court for Baltimore County agreed with the Insurers and entered summary judgment in their favor. Blackstone appealed.

Holdings

The Court of Special Appeals of Maryland reversed, holding that the advertising injury clause applied. The court agreed with the Insurers that RMG’s breach of contract, promissory estoppel and intentional misrepresentation claims relating to unpaid commissions did not constitute “advertising injuries,” as that term is defined in the CGL policy, because the claims did not require RMG to prove “use” of RMG’s advertising ideas. Nonetheless, the court found that RMG’s remaining unjust enrichment claim did depend on Blackstone’s continued use and retention of RMG’s product concept and packaging, and therefore fell within the policy’s advertising injury coverage. Central to the court’s reasoning was the broad meaning ascribed to the phrase “arising out of” under Maryland law. That phrase, the court explained, triggers a causation analysis that requires a “direct or substantial” relationship between the alleged cause and effect. The complaint alleged that Blackstone was unjustly enriched by its use of RMG’s ideas in advertisements for Blackstone’s products. The court found, therefore, that the unjust enrichment claim was sufficiently connected to Blackstone’s alleged use of RMG’s advertising ideas to trigger the Insurers’ duty to defend. Moreover, because the Insurers were obligated to defend the unjust enrichment claim, the Insurers also would be obligated to defend all the concurrent claims, notwithstanding that those causes of action were outside the policy’s scope of coverage.

Implications

Blackstone illustrates the true breadth of “advertising injury” coverage under standard general liability insurance policies. Often portrayed by insurers as affording only a narrow scope of coverage for injuries caused by certain enumerated “offenses,” Blackstone demonstrates how a proper application of the “advertising injury” provision extends coverage to not only the enumerated “offenses,” but also to claims and injuries that are causally related to those offenses. The decision, therefore, stands as a reminder to policyholders to carefully evaluate all advertising-related claims and alleged liabilities — not only for whether they amount to an enumerated “offense,” but also for whether they bear a reasonable causal connection to such an “offense,” the latter being enough to trigger coverage.

Finally, Blackstone reiterates the general rule that the duty to defend applies broadly and requires that general liability insurers defend all noncovered claims so long as a complaint alleges at least one claim that is potentially covered by the policy.