”Advertising Injury” Insurance Coverage Definition

The Supreme Court held this language requires that " 'advertising injury' must have a causal connection with the insured's 'advertising activities' before there can be coverage." (Bank of the West v. Superior Court, supra, 2 Cal. 4th at p. 1276.)

In this regard, the court noted that "courts have disagreed on the question of what constitutes 'advertising' for these purposes.

Most of the published opinions hold that 'advertising' means widespread promotional activities directed to the public at large. (International Ins. v. Florists' Mut. Ins. Co. (1990) 201 Ill.App.3d 428 147 Ill.Dec. 7, 559 N.E.2d 7, 9-10; Playboy Enterprises v. St. Paul Fire & Marine Ins. (7th Cir. 1985) 769 F.2d 425, 428-429; Fox Chemical Co., Inc. v. Great Am. Ins. Co. (Minn. 1978) 264 N.W.2d 385, 386; cf. First Bank & Trust Co. v. N.H. Ins. Group (1983) 124 N.H. 417 469 A.2d 1367, 1368.)

Of the published opinions, only the courts in American States Insurance Co. v. Canyon Creek (N. D.Cal. 1991) 786 F. Supp. 821, 828, and John Deere Ins. Co. v. Shamrock Industries, Inc. (D. Minn. 1988) 696 F. Supp. 434, 440, appear to have held that the term 'advertising' can also encompass personal solicitations." (Bank of the West, supra, 2 Cal. 4th at p. 1276, fn. 9.)

Thus, Bank of the West suggests a two-part test for determining whether an offense was committed "in the course of advertising."

First, the promotion of the product or service at issue must constitute "advertising" within the meaning of the policy language; and second, the "advertising activities" must have in some sense caused the "advertising injury."

The Select Design court reasoned:

"Although the term 'advertising' is not defined in the policy, it has been defined in case law as 'the widespread distribution of promotional material to the public at large.' International Ins. Co. v. Florists' Mut. Ins. Co., 201 Ill.App.3d 428, 147 Ill.Dec. 7, 559 N.E.2d 7, 10, supra.

Other courts have endorsed substantially the same definition. See, e.g., . . . Monumental Life Ins. Co. v. United States Fidelity & Guar. Co., 94 Md.App. 505, 617 A.2d 1163, 1173 (Md.Ct.Spec.App. (1993)) ('The plain meaning of the term "advertising" to a reasonably prudent person is not susceptible of more than one meaning, and encompasses only the "public" sense of the word') . . . Smartfoods, Inc. v. Northbrook Property & Casualty Co., 35 Mass.App.Ct. 239, 618 N.E.2d 1365, 1368 (1993) ('a public announcement to proclaim the qualities of a product or point of view') . . . First Bank & Trust Co. v. New Hampshire Ins. Group, supra, 124 N.H. 417, 469 A.2d 1367, 1368 . . . (mere explanation of bank services to couple in private office is not considered advertising)." (Select Design, supra, 674 A.2d at p. 801; see also American States Ins. Co. v. Vortherms (Mo.Ct.App. 1999) 5 S.W.3d 538, 542 following Select Design.)

The Select Design v. Union Mut. Fire Ins. (1996) court noted that in Monumental Life v. USF & G, supra, 617 A.2d 1163, 1173 the insured was an insurance company accused of pirating employees from a competitor and misusing trade secrets and confidential information from the competitor. (617 A.2d at pp. 1165-1167 & fn. 5.) the plaintiff in Monumental argued that an advertising injury was alleged.

The court held that one-to-one sales activity by the plaintiff's agents, which induced customers to switch coverage to the plaintiff, was not advertising: "Advertising and solicitation are . . . mutually exclusive, the difference being that advertising must be of a public nature." (617 A.2d at p. 1173.)

The Select Design court gave three reasons for adopting the majority view and rejecting the view that mere "solicitation" could constitute "advertising."

Primarily, the court did not find the federal court cases persuasive, noting even the John Deere court acknowledged that its interpretation "'seems to stretch the meaning of advertising."

In this regard, the Select Design court noted it was required to read the policy provisions "according to their plain, ordinary meaning" and that the majority position did so. (Select Design, supra, 674 A.2d at p. 802.)

The Select Design court's reading of the policy is consistent with California law, which requires us to interpret words in a policy "in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage." (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal. 4th at pp. 18-19.)

In other words, we must view the relevant policy terms as a layperson would read them, not as an attorney or insurance expert might analyze them. (Lebas, supra, 50 Cal. App. 4th at p. 559; Apple, supra, 79 Cal. App. 4th at p. 831.)

In Smartfoods, Inc. v. Northbrook Property & Casualty Co., 35 Mass.App.Ct. 239, 618 N.E.2d 1365, 1368 (1993) the plaintiff, a producer of snack foods, was sued when it terminated distribution contracts. (618 N.E.2d at p. 1366.)

The distributors alleged unfair trade practices and misappropriation of trade secrets, among other causes of action. the plaintiff sought insurance coverage by characterizing its letters soliciting distributors as advertising and arguing that the complaint against it alleged injuries from advertising activities. (Id. at p. 1368.)

The Smartfoods court rejected the argument, concluding that "a proposal to a particular company to do business together does not conform to ordinary notions of calling to the attention of the public the merits of a product," and added "we doubt that every pitch made by one businessman in a letter to another constitutes advertising as the word is understood in American usage." (Ibid.)

There are a number of federal district court cases that define "advertising" more broadly than have the cases discussed above. (See New Hampshire Ins. Co. v. Foxfire, Inc., supra, 820 F. Supp. 489 (Foxfire); Merchants Co. v. American Motorists Ins. (S.D.Miss. 1992) 794 F. Supp. 611; John Deere Ins. Co. v. Shamrock Industries, Inc., supra, 696 F. Supp. 434.)

The most expansive definition is in John Deere Ins. Co. where the court considered a policy defining "advertising injury" in nearly the same words as those in the policy before us.

There, the insured wrote letters to a single buyer attempting to sell a machine the insured allegedly misappropriated from a former employer.

The court held "while activity directed at one customer seems to stretch the meaning of advertising, Black's Law Dictionary's definition of 'advertise' encompasses any form of solicitation, presumably including solicitation of one person." (696 F. Supp. at p. 440.)

The New Hampshire Ins. Co. v. Foxfire, Inc. (N.D.Cal. 1993) court, on the other hand, adopted an approach between the two extremes (i.e. between a definition limited to "the widespread distribution of promotional material to the public at large" and one that encompassed solicitation of a single customer).

In Foxfire, the insured had sent out a letter to all of his former employer's clients soliciting business. (Foxfire, supra, 820 F. Supp. at p. 491.)

The court, construing a pre-1986 policy (see fn. 5, ante) considered whether this amounted to "advertising."

The court did not embrace either of the extreme views we have described above, but instead held that "advertising activity must be examined in the context of the overall universe of customers to whom a communication may be addressed.

Where the audience may be small, but nonetheless comprises all or a significant number of a competitor's client base, the advertising activity requirement is met.

The holding might be different where the target audience are customers of a large organization that markets to the general public or a significant portion of it.

But, where the business is one with a small customer base and that base, or a significant part of it, is the target audience, the reach is extensive enough to constitute advertising injury." (Foxfire, supra, at p. 494)

See also Farmington Cas. Co. v. Cyberlogic Technologies, supra, 996 F. Supp. 695, 700-702, 705 in dicta, adopting similar definition and finding advertising where software manufacturer distributed disks to "virtually every potential customer" in specialized market; Amway Distributors Benefits Ass'n v. Federal Ins. (W.D.Mich. 1997) 990 F. Supp. 936, 945 noting advertising "comes in many forms and may differ in scope from business to business, depending on the product, the size of the company, the company's marketing system, or the size of the target market".)