court finds advertising injury insurance coverage in false association case despite consumer fraud and other exclusions

Illinois Casualty Co. v. Kladek, Inc., No. 22-3214 (DWF/DJF), 2025 WL 2071043 (D. Minn. Jul. 23, 2025)

ICC sought declaratory judgment that it didn’t have to defend (or indemnify) its insured in a Lanham Act false association lawsuit brought by models, and failed, at least as to defense.

In the underlying lawsuit, the models sued over a “Gentlemen’s Club” that used photos of them in social media ads. They alleged 43(a) false endorsement, unfair competition, and false advertising; right of publicity violations; negligence; violation of Minnesota’s Uniform Deceptive Trade Practices Act; and unjust enrichment.

ICC issued Kladek business liability coverage that included advertising injury and also issued an additional cyber protection endorsement. An arbitration panel concluded that the cyber protection endorsement created a duty to defend (but did not resolve the duty to indemnify), but the business liability coverage is broader and so still relevant.

Advertising injury covers, inter alia,

(4) Oral or written publication, in any manner, or material that slanders or libels a person or organization or disparages a person’s or organization’s good, products or services;

(5) The use of another’s advertising idea in your “advertisement”; or

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

But ICC contended that exclusions applied. Under Minnesota law, courts read policies in favor of finding coverage, construing words of inclusion broadly and words of exclusion narrowly.

First, ICC argued that it excluded coverage with the “law exclusion,” which covered liability “arising directly or indirectly out of any action or omission that violates or is alleged to violate … (12) Any federal, state, county, municipal or local consumer fraud protection law, regulation, ordinance, order, or directive barring fraud, unfair competition, and/or deceptive business practices.”

The court agreed with Kladek that the Lanham Act and MDTPA claims apply to various types of conduct, not all of which can be labeled “consumer fraud.” The exclusion does not apply to the statutory claims insofar as they do not implicate consumer fraud conduct:

Notably, the Models have not alleged that any “consumer” has been defrauded. Instead, the Models allege that they were wronged because their images were used without their authorization or compensation. These claims are not “consumer fraud” claims at their core, but rather commercial claims involving advertising injury.

“Because the core of the Models’ Lanham Act claim alleges an injury caused by the unauthorized use of their images without compensation by the Club, and not a consumer fraud claim, ICC has not demonstrated that the Law Exclusion applies to the Models’ Lanham Act claim.” Of course, injury to consumers is the method by which the harms of false advertising are inflicted, and courts have rejected models’ Lanham Act claims merely based on failure to pay, but that I suppose is a matter for the merits.

In a footnote, the court said that the duty to defend even one claim triggered the duty to defend in its entirety unless an additional exclusion applied, and that, in the alternative, ICC’s interpretation would render any insurance illusory. “[W]hen policy exclusions appear to be broader than the coverage, so as to ‘swallow up’ the coverage, rendering the insuring promise illusory, a court will avoid that unreasonable result.” The court found that logic compelling, “as it appears that the ICC’s broad interpretation of the policy exclusions would preclude coverage in most factual scenarios.”

Electronic chatroom exclusion: this excluded advertising injury “[a]rising out of any electronic chat room, bulletin board, or blog the insured hosts, owns, or over which any insured exercises control.” ICC argued that Facebook, Instagram, and Twitter, the platforms on which the models’ images were used, “all allow users to post or read messages and control or host their own bulletin boards” and therefore qualified for the exclusion. But the policy didn’t define “bulletin board” or “electronic chat room,” so the plain meanings of those terms applied. Chat rooms involve realtime communication, and a bulletin board is an “online communication system[ ] where one can share, request, or discuss information on just about any subject.” “In contrast, as commonly understood, Facebook, Instagram, and Twitter are social media platforms.” Kladek didn’t host, own, or exercise control over Facebook, Instagram, and Twitter, but rather used them to promote its business. “There is no evidence that it did so with any intention to generate any discussion among viewers. Indeed, the use of the Models’ images did not occur in a chat room, on a bulletin board, or on a blog.” The best description of where these images were was that they were on Kladek’s “social media accounts.”

ICC had one final try: its exclusion for “multimedia peril,” “the release or display of any ‘electronic media’ on your ‘internet’ site or ‘print media’ for which you are solely responsible, which directly results in any of the following”:

a. Any form of defamation or other tort related to the disparagement or harm to the reputation or character of any person or organization, including libel, slander, product disparagement, or trade libel;

b. Invasion, infringement or interference with an individual’s right of privacy including false light, intrusion upon seclusion, commercial misappropriation of name, person, or likeness, and public disclosure of private facts;

c. Plagiarism, piracy, or misappropriation of ideas under an implied contract ….

This exclusion applied unless the cyber endorsement applied—or maybe it did so if the cyber endorsement applied. “In essence, ICC appears to argue that because the ICC has a duty to defend claims under the Cyber Endorsement (as determined by the arbitration panel), all of the Models’ claims are now excluded from coverage under the Policy.” The court disagreed. The arbitration panel didn’t decide indemnification, or which claims in the underlying suit triggered the cyber endorsement duty to defend. Also, the cyber endorsement created several ambiguities, and was unclear on its relationship with the main liability policy. Basically, the endorsement was inconsistent about whether it amended or supplemented the main policy and stated that its coverage was “in addition to, and will not erode, the limits of insurance provided elsewhere under your Policy.” And the main form was written on a traditional “occurrence” basis, while the cyber endorsement was a claims made policy. Finally, “the wording of the Multimedia Exclusion is, itself, circular and facially contradictory” by excluding multimedia liability for advertising injury “except to the extent that coverage may be provided under the Cyber Endorsement.” The court found the language confusing, but one reading was that, once coverage exists under the cyber endorsement, it also exists under the basic liability policy. “Ambiguities are construed against the insurer and in favor of coverage.”