Wednesday, February 20, 2013

False advertising claim based on licensed slogan isn't covered by ad injury insurance

Basic Research, LLC v. Admiral Ins. Co., --- P.3d ----, 2013 WL 563359 (Utah), 727 Utah Adv. Rep. 5, 2013 UT 6

Basic Research wanted Admiral to defend it against consumer protection claims; the state supreme court agreed that a policy exclusion applied. 
 
Basic Research sells a weight-loss product Ak√§var, using the slogans “Eat All You Want And Still Lose Weight” and “And we couldn't say it in print if it wasn't true!”  (These were allegedly licensed trademarks.)  Customers filed multiple lawsuits alleging false advertising, product defects, etc.

Basic Research had personal and advertising injury coverage, which Admiral contended didn’t cover these underlying claims.  Basic Research claimed coverage because the policy covered “The use of another’s advertising idea in your ‘advertisement.’”  It argued that the underlying claims were causally linked to its “use of another’s advertising idea.”  However, in order to trigger a duty to defend, the injury must have occurred as a result of the use of another’s advertising idea, and that connection wasn’t present.  The underlying causes of action didn’t depend on the source or ownership of the slogans, but rather on their content.  As the court pointed out, if the underlying claims went to trial, plaintiffs would never be required to prove the source of the slogans.  The insurance contract couldn’t reasonably be interpreted to cover that type of mere but-for causation, “no matter how legally irrelevant the link.” 

The insured cited cases suggesting that “use” should be interpreted broadly in this phrase, including “misuse” via deceptive advertising.  That might be appropriate where the underlying injury is directly caused by the deceptive advertising regardless of the product’s failure to perform, but here the use isn’t the problem: the problem is the underlying alleged failure to perform, making the use false.  Plus, Basic Research’s argument would allow insureds to indemnify themselves from all defective product liability by using slogans etc. from other sources.  The policy might well require Admiral to indemnify Basic Research against a claim by the licensor related to Basic Research’s use, but that wasn’t the case here.

In any event, even if the underlying claims triggered advertising injury coverage, there was an explicit exclusion for advertising injury arising out of the failure of goods to conform with any statement of quality or performance made in an insured’s ad.

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