Advertising injury policy's IP exclusion means ROP claims aren't covered

Covington Specialty Insurance Company v. Omega Restaurant & Bar, LLC, --- F.Supp.3d ----, 2023 WL 2720805, No. 2:21-cv-247 (E.D. Va. Mar. 30, 2023)

This is fallout from one of the many right of publicity etc. lawsuits against clubs for advertising them with images of models without those models’ consent. Omega was sued in state court by a group of such models; Covington sought a declaration that it had no duty to defend, which it secured on summary judgment.

The relevant policy provides coverage for bodily injury, property injury, and advertising injury, subject to certain conditions and exclusions. The underlying lawsuit asserted misappropriation of images and likenesses for advertising purposes under state law; violation of the Virginia business conspiracy statute; and violations of the Lanham Act for false advertising and false association.

In Virginia, insurance contracts are interpreted according to general principles of contract law; any ambiguity is construed against the insurer. “In deciding whether coverage applies, a court may consider only the underlying complaint and the relevant policy.” A duty to defend is triggered if there’s any possibility that a judgment against the insured will be covered.

Additionally, “[l]anguage in a policy purporting to exclude certain events from coverage will be construed most strongly against the insurer.”

Covered personal/advertising injury included

d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;

e. Oral or written publication, in any manner, of material that violates a person’s right of privacy;

f. The use of another’s advertising idea in your “advertisement”; or

g. Infringing upon another’s copyright, trade dress or slogan in your “advertisement”.

It excluded knowing violation of the rights of another, and injury “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. … However, this exclusion does not apply to infringement, in your ‘advertisement,’ of copyright, trade dress or slogan.”

Covington argued that the ROP claim was an intellectual property right; although Omega didn’t contest this, it’s not obviously true (see what’s going on in courts’ characterizations of the ROP for §230 purposes) and it’s probably past time to add ROP (or name, image and likeness if you prefer) to that list if insurers really want it excluded. However, given how ROP claims work, they really should be treated like copyright, trade dress, and slogan—they’re routinely connected to advertising and the advertising can regularly be distinguished from the underlying goods/services. Certainly insureds have at least as much reason to want such insurance, and given the extension of the right of publicity there is a set of claims that don’t involve knowing violations of rights.

Anyway, Omega also didn’t contest that the conspiracy allegation was an excluded “criminal act” and knowing violation of rights of another, or that the Lanham Act claims aren’t one of the enumerated offenses in the definition of personal/advertising injury. Instead, it argued that the underlying lawsuit alleged misappropriation of advertising ideas and slander/libel/disparagement.

The Virginia ROP “protects both a property interest and a right to privacy.” But it is generally known as the “right of publicity” as evolved from the right of privacy. The court concluded that the ROP is an intellectual property right. Black’s Law Dictionary defines “intellectual property” as “[a] category of intangible rights” including “trade-secret rights, publicity rights, moral rights, and rights against unfair competition.”  

“The distinction between the right of privacy and the right of publicity is critical to the coverage determination here because the Policy provides coverage for violation of one (the right of privacy) but excludes coverage for infringement of the other (as an intellectual property right).” But the exclusion didn’t swallow the coverage rendering the coverage meaningless, because other personal/advertising injury offenses were covered.

There was thus no duty to defend as to the ROP, and the court also found that the policy excluded the conspiracy claim and didn’t cover Lanham Act claims based on confusion about underlying plaintiffs’ employment at and/or endorsement of Omega. This was important because false endorsement/false advertising claims could succeed without the existence of intellectual property rights.

Omega’s arguments favoring coverage failed because the underlying complaint didn’t even implicitly allege misappropriation of advertising ideas, given that there’s no general common law right against misappropriation in Virginia. Nor did the underlying complaint state a potential claim for defamation by implication despite the fact that the underlying plaintiffs alleged that the false suggestion of association with Omega “would be highly offensive to a reasonable person.”

Courts have divided on whether similar allegations can actually found a defamation claim. Here, the underlying complaint didn’t “elaborate” on how such an association or affiliation would subject the underlying to “scorn, ridicule, or contempt” or render them “infamous, odious, or ridiculous.” Plus, the underlying complaint alleged that Omega used the images to promote and draw customers to their business—not to shame or disgrace the underlying plaintiffs.