Is coverage for advertising liability adequate under a broadform general liability policy?
Advertising liability is ordinarily the third insuring agreement found under general liability policies. Our product fundamentals article on general liability coverage may be found here.
The two traditional general liability insuring clauses cover the policyholder for its liability in respect of third-party injury and / or property damage, arising from its business activities, which occurs during the policy period.
Advertising liability or, ‘advertising injury,’ intends to cover the liability of a business for infringing a third party’s rights in the course of advertising goods, products, or services.
Coverage extends to indemnify for claims brought against the policyholder for offences such as defamation, product disparagement, copyright infringement, passing off, and violating the right to privacy.
There is, however, complexity as to the breadth of cover: exclusions apply very differently across insurers’ respective policy wordings.
Our view is that companies concerned with transferring risk for ‘advertising liability’ should be minded to explore complementary specialty products to dovetail the insuring agreement on a standard general liability policy.
Example of an advertising liability insuring agreement
Insurance policies are commonly structured by first establishing the relevant indemnity to the policyholder, which is clarified through various definitions and general terms and conditions. Exclusions are then applied to restrict the cover to levels with which insurers are comfortable. An example of a standard advertising liability insuring agreement and associated definition is as follows:
Subject to the Limits of Liability stated in the Schedule, the Company will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay for compensation in respect of:
1) Personal Injury;
2) Property Damage; or
3) Advertising Liability,
first happening during the Period of Insurance within the Territorial Limits as a result of an Occurrence and happening in connection with the Insured’s Business or Products.
Advertising Liability means
a) libel or slander;
b) infringement of copyright of, or passing off of, title or slogan;
c) unfair competition, piracy or idea misappropriation contrary to an implied contract; or
d) invasion of privacy,
committed or alleged to have been committed during the Period of Insurance in any advertisement, publicity article, broadcast or telecast arising out of any advertising activities conducted by or on behalf of the Insured, in the course of advertising its Products, goods or services.
Many broadform general liability policies include a specific definition for ‘Advertisement’, and some insurers have separate indemnity clauses for settlement and judgment, and defence costs. Practically, the effect is usually the same as if they were covered under the one clause.
Advertising liability exclusions
Examples of common exclusions that determine an insurers’ scope of cover for loss in connection with advertising liability include:
It is standard under broadform liability policies that the policy-triggering event is unexpected and / or unintended from the perspective of the policyholder. In the context of claims alleging defamation or breaches of intellectual property (IP) rights, factors surrounding knowledge and intent during publication are likely to be heavily scrutinised in the context of this exclusion. Whilst the policyholder may have deliberately made representations in the course of advertising, it may not have intended those representations to be defamatory or to breach a third party’s rights. Broadform liability policies also typically exclude aggravated, punitive or exemplary damages where the offending conduct is deliberate or particularly egregious.
Whilst a claim can successfully be made under a general liability policy in the context of a breach of contract, it is important to note that breach of contract alone will not suffice, unless the liability that sounds in contract also sounds in common law.
Unless the cover is written back into the policy by way of endorsement or any extension clause, most liability policies do not cover the policyholder for any liability they have assumed under a contract, typically by way of an indemnity or hold harmless clause, that would otherwise not apply at common law.
IT general liability policies exclude liabilities arising out of “professional services” (see our article here), on the basis that these liabilities should be covered by a professional indemnity policy.
Broadform liability policies exclude claims relating to a policyholder’s failure to properly describe goods or services and their price when advertising. This means that allegations of misleading or deceptive conduct or breaches of certain consumer guarantees under the Competition and Consumer Act 2009 (Cth) are excluded. It is important to review the policy wording to determine exactly which anti-competitive practices are excluded as not all policies are the same in this regard.
It is standard for general liability policies to exclude advertising liability claims where the policyholder is directly engaged in the business of broadcasting, advertising, or publishing as there are specific insurance policies, such as multimedia liability insurance, which are specifically designed to cover these activities. Cover under these policies for advertising liability is generally broader than general liability policies as advertising and publication are the core business activities that are being covered and advertising liability is therefore a more acute risk for these businesses.
There are also IP insurance policies which cover the policyholder for legal liability where there is an allegation that the policyholder has infringed a third party’s IP. Such policies can also cover pursuit costs against third parties alleged to have infringed upon the policyholder’s own IP.
Examples of covered claims
Advertising liability claims ordinarily arise when a suit is brought against a business by a competitor, where the competitor alleges the policyholder’s advertisement has materially damaged their business. For example:
- The policyholder is a football manufacturer that creates an advertisement which is published on both the internet and television. In the advertisement the policyholder makes statements that the footballs made by their main competitor are heavier than official weight and as such must contain lead. The policyholder believes this statement to be true, albeit with a tongue-in-cheek element, however, the competitor decides to sue for defamation.
- The policyholder is a small local craft beer manufacturer who creates an advertising campaign using a slogan. The slogan is, unknowingly to the Insured, similar to one which has recently been used by an international beer company. The international beer company then sues the Insured for utilising its slogan without consent. A topical example of this occurring in everyday commercial activities is the recent decision handed down by the Victorian Federal Court in Brick Lane Brewing Co Pty Ltd v Torquay Beverage Co Pty Ltd. Where popular brewing company Better Beer (Torquay Beverage Co) were sued by Brick Lane Brewing for passing off the design of their Sidewinder Lager’s can and marketing. The case was ultimately dismissed by the Federal Court. However, it is likely that this would have enlivened coverage under a Public and Products Liability Policy for Torquay Beverage Co.
Is the coverage adequate for your business?
Given the issues identified around the complexity of such claims, it is important to assess whether a standard general liability policy with an advertising liability insuring agreement will adequately cover the risk your business faces.
Pertinent questions to consider are whether or not your business has a large social media and network advertising presence, as this increases your potential exposure. Similarly, if you are operating an advertising, broadcasting, publishing, or multi-media company it is likely a broad range of claims will be excluded and a specific tailored policy will be required to ensure that you have appropriate cover. Further, we are experiencing a number of businesses who are seeking to distribute their products and services overseas and are faced with frivolous IP suits by plaintiff firms alleging that the Australian company, now in their jurisdiction, has infringed IP. To transfer the risk of these types of claims, IP insurance should be considered.
As with many insurance policies, the devil is in the detail and advertising liability is one area of cover that attracts nuances. Accordingly, it is important that businesses review their risk profile and then design appropriate cover in respect of the unique concerns. But to rely solely on a general liability advertising liability insuring agreement to transfer these risks is discouraged.
If you would like to discuss your business’ risk profile in regards to advertising liability please contact us via the form below.