Author: Chris Boggs
Proprietary coverage forms are not always better than Insurance Services Office (ISO) forms. Careful comparison is required to confirm the insured is not harmed by non-ISO language. Comparison is especially important if several proprietary forms are used – not only between forms but also with ISO forms.
Several months ago we wrote about a claim where ISO's personal auto policy (PAP) was broader than a carrier's proprietary form regarding the application of the business use exclusion. ISO's PAP provided coverage where SafeAuto's proprietary form excluded coverage.
A recent Illinois district court ruling highlights another incidence where ISO wording may be broader and better for the insured. The case in question revolved around coverage for a personal and advertising-type injury in the commercial general liability (CGL) or businessowners' (BOP) policy.
On November 3, 2016, Woofbeach, Inc. (“Woofbeach") filed a complaint against Beach for Dogs in a suit referred to as Woofbeach, Inc. v. Beach for Dogs Corporation for this writing. At the heart of the
Woofbeach suit is the very similar appearance of logos utilized by Woofbeach and Beach for Dogs. Woofbeach alleges:
- The ongoing use of the “Beach for Dogs" business name and a logo containing nearly identical graphic elements as the Woofbeach Design Mark is deceptive and creates a likelihood of confusion in the minds of consumers as to a possible affiliation or connection of Beach for Dogs with Woofbeach and thereby trades on the goodwill and infringes the rights of Woofbeach in its service marks.
- The “Beach for Dogs" name and related logo are confusingly similar to the Woofbeach Word Mark and Woofbeach Design Mark and, on information and belief, the use of the Beach for Dogs name and logo has resulted in instances of actual consumer confusion between the two businesses.
- The continued use of the name, “Beach for Dogs" and related logo will continue [to] cause confusion in the minds of the consuming public as to the existence of a relationship between Woofbeach's dog training and grooming business and Beach for Dogs.
These allegations resulted in four charges against Beach for Dogs by Woofbeach:
- Trademark infringement;
- Violation of the Illinois Uniform Deceptive Trade Practices Act;
- Violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act;
- Tortious Interference with Prospective Economic Advantage.
Within the allegations of trademark infringement, Woofbeach alleged copyright infringement.
The Claim, the Denial, and the Duty to Defend
Beach for Dogs notified its insurance carrier, Sentinel Insurance Company, of the suit on December 15, 2016, and filed a claim seeking defense and coverage. Sentinel filed a motion for declaratory judgement on February 22, 2017, asserting it owed no duty to defend because, based on the allegations against its insured, its policy provided no possibility of coverage. Five days later, Sentinel notified its insured of its denial.
Beach for Dogs filed a counterclaim asserting that Sentinel owed a duty to defend because at least one allegation, copyright violation, was subject to an exception to the policy's “intellectual property" exclusion. In its April 28, 2017, counterclaim, Beach for Dogs also charged Sentinel with Breach of Contract.
An insurer's duty to defend flows from the facts alleged in the suit. When the pleadings state facts demonstrating that the alleged injury is covered by the policy, the insurance carrier has a duty to defend whether or not the insured is ultimately liable. Conversely, when the pleadings allege facts indicating that the event in question is not covered, and the insurer has not knowledge of facts to the contrary, the carrier is not obligated to defend.
Courts generally apply the “eight corners" test to decide if the carrier has a duty to defend; this may also be called the “comparison test." The policy and the complaint are compared side-by-side to determine whether the allegations or events in the complaint are covered or excluded. Policy language is a question of law, and if the courts decide the policy language is clear and unambiguous, the court must enforce the policy as written – whether for or against the insured. (Remember, ambiguous policy language is typically found in favor of the insured.)
Proprietary Policy Language
In the subject case, Sentinel's policy contained an intellectual property exclusion (IP exclusion) that read in applicable part:
1. Applicable to Business Liability Coverage
This insurance does not apply to:
* * *
p. Personal and Advertising Injury
“Personal and advertising injury":
* * *
(7) (a)Arising out of any actual or alleged infringement or violation of any intellectual property right, such as copyright, patent, trademark, trade name, trade secret, service mark, or other designation or origin or authenticity; or
(7) (b)Any injury or damages alleged in any claim or “suit" that also alleges an infringement or violation of any intellectual property right, whether such allegation of infringement or violation is made by you or any other party involved in the claim or “suit", regardless of whether this insurance would otherwise apply
But, there was an exception to this part of the IP exclusion:
However, this exclusion does not apply if the only allegation in the claim or suit involving any intellectual property right is limited to:
(1) Infringement, in your “advertisement", of:
(b) Slogan; or
(c) Title of any literary or artistic work; or
(2) Copying, in your “advertisement", a person's or organization's “advertising idea" or style of “advertisement"
Beach for Dogs asserted that the exception giving back coverage for infringement of copyright in (1)(a) required Sentinel to provide a defense. Ultimately the court disagreed stating: “…the Court finds that Sentinel has no duty to defend Beach for Dogs in the underlying Woofbeach suit. Because there is no coverage available to Beach for Dogs, summary judgment in the entire case is granted in Sentinel's favor."
One key phrase within the exception led to the court's conclusion. Note the exception's wording: “However, this exclusion does not apply if the only allegation in the claim or suit involving any intellectual property right is limited to…."
For the exception to apply, the covered claim has to be the ONLY allegation. Woofbeach made four allegations, and copyright violation was not a standalone allegation – it was included within the trademark infringement allegation. This precluded any coverage.
Sentinel's exception to the IP exclusion is very narrow. Rarely is one allegation made in any suit; and it is most unlikely that violation of copyright will ever be the only allegation made in a personal and advertising injury or intellectual property suit.
ISO Policy Language
ISO's applicable policy language in its unendorsed CGL reads, in part, similar to Sentinel's:
This insurance does not apply to:
i. Infringement Of Copyright, Patent, Trademark Or Trade Secret
"Personal and advertising injury" arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Under this exclusion, such other intellectual property rights do not include the use of another's advertising idea in your "advertisement".
And like Sentinel's policy, ISO's exclusion has an exception which reads:
However, this exclusion does not apply to infringement, in your "advertisement", of copyright, trade dress or slogan.
Sentinel's exclusion is stricter and narrower than ISO's wording. Note that Sentinel's is an intellectual property exclusion, and ISO's is a “personal and advertising injury" exclusion.
ISO Language and Coverage
Whether or not ISO's language would provide defense and coverage in the subject case is a question of law for the courts decide, but based on a comparison of the policy language, ISO's policy seems to extend at least defense if not coverage. The ISO policy:
- Includes “Infringing upon another's copyright, trade dress or slogan in your 'advertisement'" within the definition of covered acts under Personal and Advertising injury;
- Includes an exception to exclusion 2.i. (presented above) that supports the grant of coverage in the definition; and
- Does not require that a covered allegation be the ONLY allegation for coverage to exist.
Bringing it Back Together
Never assume a proprietary form is as broad as or broader than the comparative ISO form. Pay attention to key words and limitations in the forms (i.e. “only"). We have described two cases in the last few months where ISO wording is potentially broader and more beneficial to the insured.
Don't misconstrue the point of this article; we are not asserting that ISO is the best policy language, only that one policy is not necessarily equivalent to another. Any time a proprietary form is used, compare it to its ISO equivalent. Further, if all competing carriers are using proprietary forms – compare them to each other - and to ISO. The differences might be startling.
Last Updated: January 19, 2018