Most business’ have insurance to protect against potential claims against them. Typical business coverage includes property and casualty, commercial general liability insurance (“CGL”), workers’ compensation, professional liability (“E&O”) and commercial automobile insurance. More specialized insurance available includes employment practices liability insurance (“EPLI”) and insurance against patent and trademark infringement. These policies are intended to apply to either basic, known business risks (such as loss of a commercial building or liability from a car accident) or are tailored to specific risks (such as EPLI). But what about business tort claims? Most business’s have liability insurance. So what is covered? Most are covered under the CGL portion.
Most Commercial General Liability policies have two types of coverage: Part A and Part B.
Part A provides insurance against two types of injuries: “bodily injury” and “property damage,” but only if arising from an “accident” or “occurrence.” CGL policies protect against claims arising from accidental or fortuitous events called “occurrences.” The term “bodily injury,” as defined in an insurance policy, includes physical injury to the body. Coverage does not always apply to non-physical emotional or mental harm caused by an employee of the insured. A CGL policy covers physical damage caused to the property of third parties by the insured as well.
Coverage Part A only includes actions involving “accidents” or “occurrences,” business torts based on a negligence theory are potentially coverable. However, business torts arising from intentional acts are typically not covered. In these situation coverage may exist for negligent misrepresentation, negligently performed faulty workmanship, employment actions sounding in negligence (negligent hiring, negligent retention, negligent supervision) and other negligence causes of action (failure to warn, unsafe premises and negligent procedure).
Different from Coverage Part A, Coverage Part B does not depend on the existence of an “accident” or “occurrence,” so it may cover damages arising from intentional conduct not otherwise excluded. While the insuring clause of Coverage Part A is expressed in general terms, Coverage Part B covers only specific listed acts committed by the insured. Some examples of such enumerated acts may include false imprisonment, malicious prosecution, wrongful eviction, defamation, invasion of the right to privacy and copyright and trademark infringement.
It is also possible that there may be Coverage under Part B for liability arising from the insured’s “advertising activity.” “Advertising activity” has been found in cases of TV, radio, newspaper and magazine advertising. But not all marketing activities constitute “advertising.” There must be a causal connection between the advertising activity and the injury. The sale of an infringing product by itself is not sufficient to satisfy the causal connection requirement. The infringement must be committed in the advertisement on its face, and not just in the sale of a product, in order to be covered.
Every business owner should review their insurance coverage’s a broker and attorney to determine whether it has sufficient coverage not only for the typical risks that the company may face, but also for the unexpected, claims for business torts that sometimes happen.
WHAT DO THESE COVERAGES MEAN FOR DEFENDANTS?
Many attorneys and clients think of every tort claim as personal injury action. But for purposes of insurance coverage, many tort actions arising from an automobile collision, a slip-and-fall, a product liability claim or a defective construction suit are matters of bodily injury and fall under Coverage A of the standard commercial general liability (CGL) policy purchased by most businesses. Most of the litigation concerns Coverage for bodily injury. Coverage under Part B usually pertains to personal and advertising injury liability and is often overlooked when seeking coverage under a business policy.
Although obtaining insurance under Coverage B requires more diligence by a policyholder or counsel for defendants seeking coverage, it can provide important protection, including a defense against a plaintiff’s claim. If one claim in a complaint is possibly covered, the CGL insurer must defend the entire case. It was this aspect of insurance law that enabled Los Angeles Lakers owner Dr. Jerry Buss to obtain an entire defense of what was largely a business/contract dispute (26 of the claims in the complaint); something ordinarily not covered under a standard form CGL policy. But a 27th claim for defamation implicated the personal injury provisions of the policy, and Buss received a complete defense to the suit (which eventually settled) that involved more than $1 million in counsel fees. The insurer sought reimbursement for the defense costs that did not involve the defamation claim. In Buss v. Superior Court, 939 P.2d 766 (Cal. 1997), the California Supreme Court stated that insurers had this right, provided they could adequately differentiate what was spent defending the respective claims, a position dividing the jurisdictions and rejected by the Supreme Courts of Illinois and Pennsylvania.1 Even if Nevada should eventually follow the Buss approach,2 a policyholder can benefit in this type of situation by at least obtaining an insurer-provided defense and delay its ultimate payment of some portion of counsel fees.
In practicality, it would be difficult to correctly separate attorneys fees spent on a covered claim versus one that is not covered. Under the California approach, the insurer defending the claim is forced to pay for the entire defense. Thus, a defendant faced with a lawsuit that looks like a commercial dispute without bodily injury or tangible, physical property damage and therefore what looks like no CGL policy show look for an allegation such as trespassing, defamation or misleading advertising claims that could trigger Coverage B. The policy states that the CGL insurer will pay “those sums that the insured becomes legally obligated to pay” as damages, because of “personal and advertising injury” to which the following applies:
- False arrest, detention or imprisonment;
- Malicious prosecution;
- The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;
- Oral or written publication, in any manner, of materials that slanders or libels a person or organization or services;
- Oral or written publication, in any manner, of material copyright, trade dress or slogan in your advertisement. as a “notice that is broadcast or published to the general public or your goods, products or services for the purpose of attracting customers or supporters.”
It includes notices published on the internet “or on similar electronic means of communication,” but as regards websites, “only that part of a website” that purpose of attracting customers or supporters” is considered an
advertisement. Unfortunately, the following are examples of the long list of exclusions stating that Coverage B “does not apply to:”
- Knowing Violation of the Rights of Another
- Material Published With Knowledge of Falsity
- Material Published Prior to the Policy Period
- Criminal Acts
- Contractual Liability
- Breach of Contract
- Quality Or Performance of Goods–Failure to Conform to Statements
- Wrong Description of Prices
- Infringement of Copyright, Patent, Trademark or Trade Secret
- Insured’s in Media and Internet Type Business
- Electronic Chartrooms or Bulletin Boards
- Unauthorized Use of Another’s Name Or Product
- Pollution-Related [Matters]
- Distribution of Material in Violation of Statutes
These provisions are exclusions that remove otherwise applicable coverages, therefore, the exclusions are construed narrowly and strictly against the insurer. The insurer will bear the burden of persuasion to show the particular exclusion applies. When exclusion is unclear and cannot be clarified by the facts, it is resolved against the author/ drafter of the policy, which is generally the insurer. Many of the listed exclusions have been found by courts to be sufficiently clear most of the time and thus make for a situation in which personal and advertising injury coverage has relatively limited scope and use for policyholders when compared to the more prevalent bodily injury coverage.
A fairly accurate summary is that Coverage B applies where a policyholder is accused of negligently or recklessly disparaging a claimant or defaming a plaintiff (defamation that it not within an exclusion) or misleading advertising (such as causing consumer confusion, or hurting a competitor) that does not involve copyright or patent infringement. The Nevada Supreme Court law on Coverage B is limited. I only know one insurance coverage case regarding “advertising injury,” and that is dicta. A hand full of District of Nevada federal court opinions mention the term. The substantive local precedent that exists has tended to support insurer efforts to limit coverage and is adverse to Plaintiffs. Mention of personal injury in case law is much more extensive, but in these decisions, the court is almost always referring to bodily injury rather than the insurance policy concept of personal injury coverage. When instituting litigation, under a business policy, counsel should always review all the defendant’s liability insurance policies and consider coverage under the obscure concepts of personal injury to ascertain if there is a loss that will be covered for their client.