insurer must defend Expedia because its false advertising exclusion didn't cover false claims about hotels

National Union Fire Ins. Co. v. Expedia, Inc., 2020 WL 5369261, No. C19-0896RSL (W.D. Wash. Sept. 8, 2020)

While receiving bad news in the underlying false advertising claims (watch this space), Expedia did manage to keep its insurer involved in the defense, despite a false advertising exclusion that turns out not to have been broadly worded enough.

National Union provided Special Risk insurance to defendant Expedia which included “Special Professional Liability” and “Media Content” coverage. In 2016, a class action lawsuit was filed in the Northern District of California against Expedia by four hotel operators, accusing Expedia of “a bait and switch marketing scheme whereby it advertises deals at hotels with which it had no contractual relationship and, when a customer attempts to make a reservation at one of those hotels, Expedia gives the impression that there are no rooms available on the requested dates and drives the traffic to its contracting partners.” When Expedia tendered defense of the lawsuit to National Union, National Union agreed to defend while reserving its rights, then filed this action for a declaration of its obligations.

National Union didn’t dispute that the coverages applied; it had the burden of showing that an exclusion nonetheless bars coverage.

The underlying lawsuit alleges, that when customers search for their hotels on Google or one of Expedia’s websites, Expedia displays the hotels as if it the customer were able to make a reservation through its websites. But, because Expedia has no ability to book rooms at their hotels, it allegedly switches them to other hotels by falsely implying that the chosen hotel is sold out or that rooms are unavailable for the selected dates. The remaining claim is false advertising in violation of the Lanham Act: “Expedia made false or misleading statements in on-line travel and booking services which misrepresented the nature, characteristics, and qualities of the hotels’ services and commercial activities” (emphasis added).

“Exclusions from coverage are strictly construed against the insurer because they are contrary to the protective purpose of insurance.” The Media Content coverage covers “any act, error or omission, negligent supervision of employee, misstatement or misleading statement” in any form of media content which results in, among other things, an infringement of trademark or trade dress. There is an express exclusion for claims “alleging, arising out of, based upon or attributable to (1) false advertising or misrepresentation in advertising of an Insured’s products or services . . . or (3) any infringement of trademark or trade dress by any goods, products or services, including any goods or products displayed or contained” in any form of media content. (The Specialty Professional Liability policy covers “any negligent act, error or omission, misstatement or misleading statement in an Insured’s performance of Professional Services for others....” There are exclusions for claims “alleging, arising out of , based upon or attributable to any misappropriation of trade secret or infringement of patent, copyright, trademark, trade dress or any other intellectual property right....” and claims “alleging, arising out of, based upon or attributable to false advertising or misrepresentations in advertising.”)

For the Media Content exclusion, the parties disagreed about whether the phrase “of an Insured’s products or services” mattered. “National Union argues that anything and everything Expedia says in its advertising is in furtherance of its own business interests and is therefore uncovered.” Expedia argued that the exclusion was limited only to misrepresentations about its own products or services, not those of another, contrasting it with the SPL exclusion which had no such additional language.

The court agreed with Expedia. As written, the false advertising must be “of an Insured’s products or services,” and if National Union truly intended to exclude all false statements Expedia made in advertising, there would be no need to add the phrase “of an Insured’s products or services.” Citing a practice guide to insurance litigation, the court noted that the exclusion “is generally thought to refer to inaccurate and misleading representations...concerning the insured’s own product, rather than that of another entity.” “Otherwise, protections expressly granted, such as coverage for claims arising out of disparaging comments aimed at the another’s product, would be negated by the exclusion. Such an interpretation would be unreasonable.”

Nor did the trademark exclusion apply, given that “the hotel operators’ Lanham Act claim can succeed without having to show that they have a protectable trademark or that Expedia infringed on their intellectual property rights.”