Historically, looking to a commercial general liability (CGL) policy in the face of a trademark infringement suit has proven to be the wrong target for policyholders hoping to recover attorney’s fees or fund settlements. Insurers often raised successful defenses to covering trademark infringement cases under CGL policies, or policyholders would avoid CGL insurance altogether in favor of intellectual property (IP) insurance, which usually covers legal costs when enforcing or defending IP rights. But recent case law signals that businesses may want to take another look at their CGL policies in IP cases.

Liability insurance for “advertising injury” covers third-party claims arising from the advertising or promotion of goods or services. It usually extends to published disparagement, privacy rights violations, misappropriation or use of another’s advertising ideas or style, and, sometimes, infringing on another’s copyright, title, trade dress or slogan. 

Businesses may benefit from “advertising injury” coverage in two ways: the insurer’s duty to defend and the insurer’s duty to indemnify. The duty to defend requires the insurer to pay for the defense of a policyholder against claims made under a liability insurance policy. Generally, the duty is implicated by the mere potential for coverage based on factual allegations in the underlying complaint. This makes the duty to defend broader than the duty to indemnify, which requires the insurer to pay for only those losses actually covered by the insurance contract or to fund settlements of those claims.

Insurers may seek to avoid the duties to defend or indemnify by evoking coverage exclusions. In fact, IP exclusions are common in CGL policies that do not expressly cover IP infringement. The language in such exclusions varies, but usually bars coverage for injuries arising out of infringement of certain enumerated types of IP (e.g., the “infringement of copyright, patent, trademark, trade secret or other intellectual property rights”) or, more generally, infringement of a “designation of origin or authenticity.” Another frequently implicated exclusion is “breach of contract,” which provides that the insurance policy does not cover damages that the policyholder is obligated to pay by reason of contract. Policyholders often confront this exclusion when underlying litigation involves trademark licensing agreements. Other common exclusions include “knowing violations” and prior publication.

Often, these exclusions have stopped the advances of policyholders looking to cover expenses associated with trademark infringement litigation. But recent case law reminds us that the facts alleged in the underlying action (with respect to the duty to defend) or what is proved (with respect to the duty to indemnify) can assist in a policyholder’s search for IP protection.