What is Advertising Injury?
Advertising injury means injury committed by a business in the course of advertising its products or services.
The injury may be committed against an individual or another business. The injured party typically suffers a financial loss. For example, a business publishes an ad that disparages another company, damaging its reputation. The ad causes the injured party to lose customers. It sues the other business for compensatory damages to recoup the income it has lost.
Advertising injury involves acts (offenses) committed by a business in the course of advertising its goods, products or services. The offenses cause injury to another party. Advertising injury is one of two types of injury covered by a Standard Commercial General Liability (“CGL”) policy. The other is personal injury. Personal injury means offenses committed by a business while performing activities other than advertising. Examples of personal injury are false arrest and malicious prosecution. These coverages are provided as a single coverage called Personal and Advertising Injury Liability.
The insured must fulfill three elements in order to establish coverage:
(1) the insured must have engaged in “advertising activity”;
(2) the underlying action must fit into one of the enumerated offenses of “advertising injury”; and
(3) the “advertising injury” to the underlying plaintiff must have arisen solely out of the insured’s “advertising activities.”
In turn, the insurer has the burden on any policy exclusions.
What is an Advertisement?
In the past, disputes have arisen between insurers and policyholders as to what constitutes advertising. Some policyholders have argued that communication between a business and a single customer qualifies as advertising. Insurers have disagreed, contending that advertising means communication with many customers, not just one. To clarify the policy’s intent, ISO added a definition of advertisement. Nowadays, many policies include the definition that appears below:
A notice that is broadcast or published to the general public or specific market segment about your goods, products or services for the purpose of attracting customers or supporters.
Whether a court finds coverage for a particular offense depends in large part upon the policy language. While there is much standardization among policies, revisions in policy forms from time to time have altered, among other things, the definition of advertising injury and what injuries are expressly excluded.
A liability policy covers claims or suits that arise from offenses that are committed while advertising a business. For a claim to be covered, it must result from an offense that falls within the definition of personal and advertising injury.
The definition includes seven types of offenses, four of which relate to advertising activities. These are listed below:
- Libel, Slander, or product disparagement
- Violation of the right of privacy
- Use of someone else’ advertising idea in your advertisement
- Infringement of copyright, trade dress or slogan in your advertisement
For an advertising injury claim to be covered under a policy, the claimant must seek compensation for a type of offense cited above. If the claimant demands damages for some other type of offense, such as patent infringement, the claim will not be covered.
CGL policies that provide coverage for advertising injury liability routinely also include terms that exclude advertising injury liability from coverage in certain circumstances.
Here are some key exclusions that apply to CGL policies. This is not a complete list of exclusions.
- Knowledge of Falsity: No coverage applies for advertising injury arising out of libel or slander or the publication or utterance of defamatory or disparaging material made by or at the direction of the insured with knowledge of the falsity thereof.
- Knowing Violations: No coverage applies for acts committed if the insured knows those acts will violate someone’s rights. For example, the use of a customer’s photo in an ad without his or her permission even though you know your actions will violate his or her privacy.
- Criminal Acts: Claims alleging criminal acts are not covered.
- Breach of Contract: No coverage applies to claims alleging that the insured failed to fulfill the terms of a contract.
- Contractual Liability: No coverage is provided for advertising injury for which the insured is liable solely because of a contract they signed.
- Price, Quality, and Performance: Modern policies also exclude coverage for advertising injury arising out of the failure of goods, products or services to conform with any statement of quality or performance made in the insured’s advertisement.
Websites, Bulletin Boards, and Forums
Advertising injury coverage does not apply to the types of businesses listed below. These businesses need specialized insurance called media liability coverage.
- Internet Service Providers
- Website Designers
- Publishing Companies
- Advertising Agencies
- Broadcasting Companies
If you have created a website for the purpose of promoting your business, are you considered an advertising or publishing company under your liability policy? The answer is no. Your company is insured for advertising injury unless you are in the business of designing websites for others, publishing other people’s content, or developing advertisements for other companies.