Intellectual property (IP) rights are the cornerstone of innovation and competitive advantage for businesses worldwide. Despite its critical importance, many companies remain unaware of the significant gaps for IP exposures in their existing insurance policies. For example, Commercial General Liability (CGL) policies’ coverage for personal and advertising injury liability have historically offered some limited protection for IP issues. However, the evolution of policy language over time has curtailed coverage for IP-related claims, often leaving businesses exposed to potentially ruinous legal battles and financial losses arising from IP infringement disputes. 

Coverage under a CGL or Business Owner’s Policy is likely to include language insuring “personal and advertising injury.” Its terms may define “advertising injury" to include injury arising out of “Infringement of copyright, slogan, or title of any literary or artistic work, in your ‘advertisement.’ … ‘Advertisement’ means the widespread public dissemination of information or images that has the purpose of inducing the sale of goods, products or services through:  

a. (1) Radio; (2) Television; (3) Billboard; (4) Magazine; (5) Newspaper;  

b. The Internet, but only that part of a web site that is about goods, products or services for the purposes of inducing the sale of goods, products or services; or 

c. Any other publication that is given widespread public distribution. 

However, ‘advertisement’ does not include: 

a. The design, printed material, information or images contained in, on or upon the packaging or labeling of any goods or products …”[1] 

These mentions of “copyright [and] slogan” create potential coverage for copyright and trademark causes of action, but only if those disputes arise from the insured’s activity in advertising. The exception for packaging and labeling addresses arguments that the product’s name on its box would create coverage.  

As with any policy, what is seemingly covered in the primary language may be taken away by exclusions. For example, this form’s coverage “does not apply to personal and advertising injury … Arising out of any violation of any intellectual property rights such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity. However, this exclusion does not apply to infringement, in your ‘advertisement,’ of  

(a) Copyright; 

(b) Slogan, unless the slogan is also a trademark, trade name, service mark or other designation of origin 

or authenticity; or 

(c) Title of any literary or artistic work.” 

This IP exclusion makes clear that patent and other IP conflicts are outside the scope of coverage except for copyright and trademark cases specifically triggered by advertising alone. Thus, choosing a name for a product or service which is accused of infringing on another’s trademark would not be covered, even if the plaintiff learns of it through your advertising or online activity.  

Historically, CGL and similar policies first introduced Advertising Injury coverage in Insurance Services Office’s (ISO) CGL form in 1973. Subsequent iterations of the ISO CGL form further refined and limited IP coverage under the advertising injury provisions. With each change, general liability carriers sought to avoid coverage for IP risks. An attorney who specialized in pursuing advertising injury coverage and avoiding its exclusions has lamented that this type of coverage was becoming exceedingly “Narrow, Narrower and Narrowest.”[2] 

When intellectual property conflicts emerge and policyholders pursue coverage under CGL Advertising Injury policies, whether the policy applies frequently becomes a matter for legal dispute. Numerous courts have declined to require coverage of various intellectual property issues under CGL policies. For example, Direct Technologies International, Inc. (DTI) was denied coverage under its surplus lines policy with Maxum Indemnity Co. for a case brought by Hyundai. The surplus line policy personal and advertising injury coverage included the following exclusion: “This insurance does not apply to ‘personal and advertising injury’ arising out of the infringement of patent, trademark, service mark, trade name, trade dress, trade secrets, copyright, title, or slogan, or other intellectual property rights.” In the trademark lawsuit, Hyundai alleged that DTI was selling unauthorized Hyundai-branded parts of an inferior quality and falsely representing, on its website and elsewhere, that those parts are genuine and/or covered by the Hyundai warranty. Of Hyundai’s seven counts against DTI, two are related to IP rights, namely, trademark infringement and trademark dilution, both under the Lanham Act. Additionally, all other counts related to the unfair competition or false designation of Hyundai’s trademarks. The court determined that “every claim by Hyundai in the Complaint is based on DTI's infringement of the registered Hyundai trademarks. Consequently, the IP Exclusion unequivocally bars coverage for the underlying action.”[3] 

With these limitations on IP coverage under CGL and similar forms, insureds and their brokers should avoid assuming these risks are insured. Fortunately, dedicated Intellectual Property insurance policies have been available in the US since the 1990s to fill the gaps left by other forms. These coverages can explicitly cover defense for intellectual property claims brought against the insured for patent, trademark, and/or copyright infringement. These defense policies can cover litigation fees and damages related to a competitor or non-practicing entity bringing an IP suit against the insured.  

Specialized IP insurance can also offer protection to IP owners for their costs of pursuing infringers, a rather unique coverage providing policy benefits for a plaintiff’s legal fees. Combining defense and enforcement coverage can create tailored solutions for various industries, regardless of their size or market segment. This type of coverage can enable businesses to safeguard their intellectual assets and mitigate potential liabilities in today’s competitive marketplace.  

For more information on patent and other IP coverage, contact Chuck Baxter, Executive VP/Underwriting Manager, Intellectual Property Insurance Services Corp. 

You can reach Chuck at cbaxter@ipisc.com 

You can learn more about IPISC at this link.

[1] Business Owner’s Policy, Form SS 00 08 04 05 

[2] https://www.gauntlettlaw.com/news/narrow-narrower-and-narrowest-the-insurers-playbook-to-avoid-coverage  

[3] Direct Techs. Int’l, Inc. v. Maxum Indem. Co., 418 F.Supp. 3d 112, 114 (W.D.N.C. 2019). 

 Original Publication Date: August 23, 2024