When most of us think of advertising, we conjure up an image ofthe troubled yet brilliant Don Draper of "Mad Men" creating theperfect print or television ad to sell a client's product. Thescope of what is considered advertising under a commercial generalliability policy, however, can reach beyond what even Don Drapercould imagine.

The Insurance Services Office's Commercial General Liability(CGL) policy provides coverage for personal and advertising injuryliability. One of the exclusions to this coverage is for suchinjury that arises out of copyright, patent, trademark, tradesecret, and other intellectual property infringement. The exclusioncontains an exception for copyright, trade dress, or sloganinfringement in the insured's advertisement.

"Advertisement" is a defined term in the policy, meaning "anotice that is broadcast or published to the general public orspecific market segments about your goods, products or services forthe purpose of attracting customers or supporters." Publishednotices include materials placed on the Internet and on the portionof websites that are about the insured's goods, products orservices for the purposes of attracting customers orsupporters.

(Photo: ThinkStock)

What is a notice? How can it be published?

The Fifth Circuit Court of Appeals addressed these questions inMid-Continent Cas. Co. v. Kipp Flores Architects, L.L.C.,602 Fed. Appx. 985 (5th Cir. 2105). In this case, Kipp FloresArchitects (KFA) — an architecture firm that licenses home designs— entered into license agreements with Texas homebuilder Hallmark.KFA supplied 11 different house designs, and Hallmark wasauthorized to build each design once. If Hallmark wanted to use thedesigns more than once, the agreement stipulated that KFA wouldreceive additional license payments.

Hallmark built several hundred more copies of the homes withoutpaying KFA for the additional licenses. KFA sued Hallmark forcopyright infringement and won. Hallmark's insurer, Mid-Continent,argued that the CGL policy excluded coverage for copyrightinfringement, but KFA countered that the exception for copyrightinfringement in Hallmark's advertisement applied. Mid-Continentcontended that the infringement did not occur in Hallmark'sadvertisement.

KFA claimed that "Hallmark infringed KFA's copyright in itsadvertisements and that the structures themselves constitutedadvertisements." Hallmark used the houses themselves as its primaryform of marketing. While Mid-Continent agreed that Hallmark usedthe houses to market to customers, it stated that "a house cannotbe a 'notice,' and it cannot be 'broadcast or published.'"

The court, though, said that "the policies never specify that'notice' must take any particular form (e.g., in writing or on awebsite) and never exclude from the definition a physical object,nor do they define 'broadcast' or 'published.'" The court alsonoted that dictionary definitions and other court opinions haveconstrued "notice" broadly, with the Oxford EnglishDictionary defining “notice" as the "act of impartinginformation."

Similarly, the court stated that "publish" has a comprehensivedefinition: "to make public or generally known."

Since Hallmark advertised its construction business almostexclusively though the houses themselves, models of the homes, andsigns in the yards of the houses, the court concluded, "Under theundisputed facts, Hallmark's use of infringing houses satisfies notonly the policies' expansive definition of 'advertisement' andTexas law's similarly broad construction of the term, but alsocommon sense." The infringing houses all qualified asadvertisements under the policies.

(Photo: ThinkStock)

Defining 'advertising'

In another case, Acuity v. Bagadia, 750 N.W.2d 817(Wis. 2008), the Supreme Court of Wisconsin was tasked withdetermining what was meant by "advertising," a term that was notdefined in the insured's policy.

UNIK Associates was a software vendor whose business focusedprimarily on purchasing computer software at discount prices andselling it to resellers. Symantec claimed that UNIK advertised,distributed, and sold its copyrighted and trademarked productswithout authorization. Symantec sued UNIK and was awarded ajudgment for $958,253.40.

Acuity, which provided UNIK with a CGL policy, claimed it wasnot responsible for paying the judgment because the policy coveredadvertising, and UNIK's actions were not advertising activities. Inparticular, it claimed that samples UNIK sent to potential clientsdid not meet the definition of "advertising."

The court considered the various definitions of “advertising.” Astandard dictionary defined the term as "calling the public'sattention to a product or business by proclaiming its qualities oradvantages in order to increase sales or arouse a desire to buy orpatronize." The court pointed out both the standard narrowdefinition and the standard broad definition that have evolved inthe common law. The standard narrow definition is “widespreadannouncement or distribution of promotional materials,” while thestandard broad definition is “any oral, written, or graphicstatement made by the seller in any manner in connection with thesolicitation of business.”

The court determined that the term “advertising,” as it was usedin the advertising injury provision of the CGL policy, wasambiguous, and it would use the broad definition.

Acuity said that "the disks UNIK shipped to existing customerswere shipped in response to customer requests, and they werepackaged in plain, white paper sleeves without retail boxes andwithout manuals" and argued that "such activity cannot be deemed'advertising' under any definition."

However, applying the broad definition, the court held thatUNIK's activities were considered advertising, stating, "Thefollowing facts are undisputed: (1) UNIK sent sample disks tocustomers; (2) if the customer approved of the sample, the customerplaced an order for the disks; (3) within less than three years,UNIK sold over 117,000 disks containing Symantec’s copyrightsthrough this process. We think it is abundantly clear that UNIK’spractice of sending sample disks constitutes a 'solicitation ofbusiness,' as we define advertising here."

The court held that UNIK’s advertising activity contributedmaterially to its infringement of Symantec's copyrights, thussupporting the finding of coverage under the advertising injuryprovision of the policy.

As these cases demonstrate, advertising is more than televisioncommercials and online ads. The range of the term, in its broadestsense, can reach to anything that is made public in order tosolicit business.

Susan Massmann, CPCU, is managing editor of electronicpublications for the reference division of ALM, the parent companyof Treasury & Risk. She may be reachedat [email protected].

Related: The8 most misunderstood coverage issues in CGLinsurance