If a third party alleges that you caused them reputational harm, you may have coverage under the personal and advertising injury provisions of your commercial general liability (CGL) policy.
Personal and Advertising Injury Coverage
CGL policies typically protect policyholders from three broad categories of claims brought by third parties: bodily injury, property damage, and personal and advertising injury. Unlike bodily injury and property damage coverage, which can arise from a broad range of claims, personal and advertising injury coverage is usually limited to allegations of specific offenses enumerated in the policy. While the wording varies from policy to policy, the list of offenses that can trigger personal and advertising injury coverage typically includes:
- Oral or written publication of material that slanders or libels a person or organization or disparages the person's or organization's goods, products, or services
Claims of Libel, Slander or Disparagement
When a third party brings a claim against a CGL policyholder, courts often must determine whether the allegations constitute claims of libel, slander or disparagement as defined in the policy's personal and advertising injury provision. To make their determination, courts generally focus on whether the underlying complaint alleges injury to the claimant's reputation. When reputational harm is alleged, courts typically find that the insurance company has a duty to defend the policyholder.
For instance, a furniture retailer was sued for allegedly infringing on the trade dress of one of its former suppliers after it offered "cheap synthetic knockoffs" of the supplier's wicker furniture products. The supplier alleged that the retailer distributed promotional materials to customers that contained photos of the supplier's distinctive, high-quality furniture, but pulled a "bait-and-switch" on the customers by displaying the cheap knockoffs in its showroom, potentially confusing and misleading customers about what they were actually buying. The supplier alleged this conduct would "dilute and tarnish" its trade dress. The court held that since the claims alleged damage to the claimant's reputation, they constituted an allegation of disparagement for the purposes of triggering coverage under the policy's provision.1
Limited Scope of Coverage
The scope of coverage under a personal and advertising injury provision is limited by the narrow definitions contained in a typical policy. In a case involving the manufacturing and marketing of a synthetic thyroid drug, a court sided with insurers in determining that the underlying complaints fell outside the scope of the personal and advertising injury provisions in the insured's policies. The underlying complaints included allegations of monopolization, racketeering, fraud, and deceptive business practices, but they failed to allege injury arising out of the offenses of "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." Further, the court held, the underlying claims did not specifically allege slander, libel or disparagement.2
Another court found that consumer fraud claims did not constitute claims of disparagement, even though the fraud claims arose out of the policyholder's alleged disparagement of a competitor's product. The policy defined advertising injury to include "oral or written publication, in any matter, of material that ... disparages a person's or organization's goods, products or services." The case involved allegations that customers were induced to buy a more expensive product as a result of the policyholder's disparagement of a competitor's product. But, the court noted, disparagement is limited to a company's negative statements about a competitor's product, and does not include fraud claims brought by customers, even when those claims are based on the policyholder's disparaging statements.3
1. Michael Taylor Designs, Inc. v. Travelers Prop. Cas. Co. of America, 761 F. Supp. 2d 904 (N.D. Cal. 2011)
2. BASF AG v. Great American Assurance Co., 522 F.3d 813 (7th Cir. 2008)
3. National Union Fire Ins. Co. v. Mead Johnson & Co. LLC, 735 F.3d 539 (7th Cir. 2013)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.