Recent Cases Reflect Increased Momentum Towards Insurance Coverage For Trademark Infringement Lawsuits
May 15, 2009
Given the current economic climate, every company in America is looking to minimize legal costs. To that end, your company should be taking a closer look than ever at your existing insurance program as a means to cover legal fees in areas that you may not have considered before now. Standard liability insurance policies contain, in addition to the well-known bodily injury and property damage coverages, an often forgotten section known as "advertising injury," which affords coverage that too many companies overlook.

If your company has been sued for trademark infringement, you likely can obtain insurance coverage under the advertising injury section of your standard business liability policy, and this coverage includes the duty to pay the costs of defense. Insurers generally contend that no such coverage exists because their policies do not contain the word "trademark," and all too often insurance brokers and corporate risk managers accept the insurers' position at face value and fail to press the issue any further.

However, a growing body of caselaw holds that the standard definition of "advertising injury" contained in most liability policies indeed covers trademark claims, even though the word trademark does not appear anywhere in the policy. The definition of advertising injury typically includes the terms "infringement of slogan," "infringement of trade dress," or "use of another's advertising idea," and courts more often than not hold that a lawsuit for trademark infringement under the Lanham Act or similar state laws falls within this definition. In order to be covered, a trademark suit must relate to advertising activity, but courts are extremely liberal in their interpretation of what constitutes "advertising," and virtually any effort to market, brand, or sell a product is sufficient to trigger coverage.

The caselaw holding that trademark claims are covered is not unanimous, but the majority of decisions favor coverage, and the landscape recently became increasingly favorable for policyholders when both the U.S. Court of Appeals for the Seventh Circuit and the Supreme Court of Minnesota issued opinions requiring insurers to defend trademark suits under advertising injury coverage. See Capitol Indem. Corp., v. Elston Self Serv. Wholesale Groceries, Inc., 559 F.3d 616 (7th Cir. 2009); General Cas. Co. of Wis. v. Wozniak Travel, Inc., 762 N.W. 2d 572 (Minn. 2009).

In Capitol Indemnity, the Seventh Circuit required an insurer to defend trademark claims relating to the sale of allegedly counterfeit cigarettes, even though the "advertising injury" clause of the insurance policy did not expressly provide coverage for trademark infringement. In doing so, the Court relied on the part of the advertising injury definition that included infringement of "copyright, title or slogan" and "misappropriation of advertising ideas."

In Wozniak Travel, the court analyzed the provision "use of another's advertising idea in your ‘advertisement,’" and determined that the trademark infringement claim for wrongful use of the word "hobbit" by a travel agency named "Hobbit Travel" triggered the insurer's duty to defend. As in Capital Indemnity, the court held that the absence of the word "trademark" in the policy does not foreclose the inclusion of trademark infringement within the scope of the advertising injury definitions in the policy. Further, in rejecting the insurer's argument that the use of a trademarked term in a business' name does not constitute advertising, the court broadly interpreted the term "advertising" to mean "any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business."

In the wake of this recent precedent, some insurers have begun adding exclusions to their policies for trademark infringement lawsuits. While this is bad news for policyholders whose policies contain this exclusion, the introduction of the exclusion onto some policies greatly strengthens the case for coverage under those policies without the exclusion, which constitutes the vast majority of policies. Policyholders without the exclusion can argue that, had the insurer meant to eliminate coverage for trademark suits from its policy, it would have added the exclusionary language.

Kelley Drye & Warren LLP

Kelley Drye & Warren's Insurance Recovery Group has extensive experience representing commercial policyholders in coverage disputes with their insurers.