Monthly Archives: March 2015

NO COVERAGE FOR CYBER COMMENTS POSTED UNDER FALSE NAMES


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People post comments on the Internet.  Sometimes, people troll, and trolling can turn extreme when people use an Internet persona or a false identity, believing in the Internet’s anonymity.  Sometimes, comments on the Internet create legal liability.

In Sletten & Brettin v. Continental Cas. Co., slip op., No. 13-2918 (8th Cir., Mar. 19, 2015), a dental practice found out the hard way that defamatory comments made on the Internet can be traced, can create legal liability, and can be excluded from insurance.

In that case, St. Croix Valley Dental, PLLC, sued the dental practice Sletten & Brettin (“S&B”) after Brettin posted defamatory comments about St. Croix’s practice while posing as St. Croix patients.  Specifically, the lawsuit alleged that Brettin used (hijacked?) his neighbor’s wireless network to post false, negative reviews about St. Croix.  Three times, Brettin allegedly posed as a patient of St. Croix and criticized one of its dentists:

For example, one review using the screen name “Hockey Mom” claimed that the reviewer’s son required oral surgery after his braces were removed at St. Croix Valley Dental and warned potential patients, “[b]uyer beware.”

Id. at 2.  Ouch.  St. Croix asserted causes of action against S&B for defamation and libel, civil conspiracy, and unfair competition.

S&B tendered a defense to its insurer.  The insurer denied coverage on the ground that S&B was not an insured.  In the ensuing coverage litigation, the trial court granted the insurer’s motion to dismiss, but not on the issue of whether S&B was an insured.  Instead, the trial court determined that that there was no coverage for the lawsuit because the insurance policy excluded coverage for acts done with the intent to injure.  Id. at 3.  S&B appealed and the Eighth Circuit affirmed.

The insurance policy covered “all amounts, up to the limit of liability, which you become legally obligated to pay as a result of injury or damage . . . . The injury or damage must be caused by an occurrence.”  Id. at 5.  The term “injury” was defined to include “oral or written publication of material that . . . slanders or libels an entity or disparages an entity’s goods, products or services.”  Id.

“Occurrence” was defined as “an accident, including continuous or repeated exposure to conditions which: A. results in injury and/or damage; and B. was not expected nor intended by you.”  Id.  “Accident” was not defined.  Id.  The policy also contained an exclusion for “injury or damage you expected or intended, or which a reasonable person could have expected.”  Id. 

On appeal, S&B argued that the policy was ambiguous because it purported to cover several claims based on intentional acts, but then excluded coverage for them by including an intent-to-injure exclusion.  Id.  The Eighth Circuit disagreed, concluding that the policy excluded coverage for acts that were intended to injure, but covered intentional acts where the resultant injury was not intended or expected:

… the policy here grants coverage for accidents through its definition of occurrence.  And the exclusion precludes coverage for intent-to-injure acts. Thus, the two provisions here are opposite sides of the same coin, and we read them together as providing coverage for intentional acts but excluding coverage for acts committed with the intent to injure.  Accordingly, the insurance policy here provides coverage for defamation in general, an intentional act, but excludes coverage for defamation committed with the intent to injure.

Id. at 6.

The Court further noted that its conclusion that an intent-to-injure exclusion was enforceable for defamation coverage was buttressed by a prior Eighth Circuit decision that held a knowledge-of-falsity exclusion excluded coverage for a defamation claim.  Id. at 7-8.

The Court also rejected S&B’s argument that the exclusion for intentional injury rendered the policy’s coverage for intentional acts like defamation illusory.  The Court reasoned that an intent to injure “is not a required element for defamation claims against private individuals under Minnesota law,” and that “defamation is often committed without an intent to injure.”  Id. at 8.

Finally, examining the allegations of the complaint, the Court agreed that there was no duty to defend because the lawsuit alleged that S&B intended to injure the plaintiff:

[T]he St. Croix lawsuit clearly alleges that S&B and Brettin both acted with the intent to injure.  Brettin allegedly used his neighbor’s wireless network to post false and negative reviews of [St. Croix dentist] Wolff and St. Croix Valley Dental.  As to S&B, the complaint specifically alleges that “Brettin was acting on behalf of and with the knowledge and consent of the other Defendants and for their benefit.”  S&B was one of the named “other Defendants” in the complaint.  All three claims, defamation and libel, civil conspiracy, and unfair competition, arose out of the same alleged facts.  And all three claims specifically alleged that the defendants acted with the intent to injure Wolff and St. Croix Valley Dental’s reputation.  [Emphasis added.]

Id. at 10.

What This Case Means:  People can do some dumb things on the Internet because it purports to promise a faceless medium that can preserve anonymity.  Can steps taken by a person to create or preserve anonymity serve as an indication of an intent to injure?  Yes.  Certainly, the Eighth Circuit was swayed by Brettin’s apparent hijacking of his neighbor’s network to post comments under false identities as an indication of an intent to injure St. Croix.  That intent implicated an intentional injury exclusion and excluded coverage his practice later sought.

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MARCH MADNESS: A MAN’S ADVERTISEMENT IS HIS CASTLE (OR CONVERTING COVERAGE B INTO IP INSURANCE)


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Two and-a-half months into 2015, and we are having a different kind of march madness for Coverage B advertising injury decisions.  The latest is Mid-Continental Cas. Co. v. Kipp Flores Architects, LLC, — Fed. App’x –, 2015 WL 795822 (5th Cir. Feb. 26, 2015), where the United States Court of Appeals for the Fifth Circuit held that a house is an advertisement for purposes of the duty to indemnify under Coverage B.

The background facts for the case are straightforward and unremarkable.  Plaintiffs, Kipp Flores Architects (“KFA”) is an architecture firm that designs homes and licenses its designs to builders.  The insured, Hallmark Design Homes (“Hallmark”) built a large number of homes using KFA’s designs without a license.  KFA sued Hallmark for copyright infringement, seeking damages under the Copyright Act.  Id. at *1.  KFA alleged that:

Defendants have created, published and used non-pictorial depictions of structures based on KFA’s Copyrighted Works in promotional and advertising materials. Defendants have published and used these infringing materials in the course of advertising their infringing structures. Furthermore, defendants have used the structures themselves to advertise their infringing structures.

Hallmark had a series of CGL policies covering damages “because of” “personal and advertising injury,” defined in part as injuring arising out of the “infringing upon another’s copyright, trade dress or slogan in your ‘advertisement.’” Id. at *3.  The policies defined “advertisement” in part as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.”  Id.  The policies had an IP exclusion, which prohibited coverage for:

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.

However, this exclusion does not apply to infringement, in your “advertisement”, of copyright, trade dress or slogan.  [Id. at *4.]

The underlying action went to trial, and the jury returned a verdict in KFA’s favor for $3.3 million.  Id. at *2.  Coverage litigation ensured to determine the insurer’s duty to indemnify that verdict, and the parties cross-moved for summary judgment.

The insurer argued that there was no duty to indemnify because the alleged copyright infringement in the home deigns took place in the homes, not in an “advertisement,” as defined in the policies.  The insurer also argued that the damages entered against Hallmark were for the homes’ infringement, and not “because of” “personal and advertising injury,” and that, in any event, the IP exclusion applied.  The trial court denied the insurer’s motion and granted KFA’s motion.  The Fifth Circuit affirmed.

The insurer argued that it had no duty to indemnify because the homes themselves could not constitute an “advertisement,” and that the $3.3 million verdict was not damages “because of” an advertising injury to implicate coverage.  The Fifth Circuit disagreed.  Noting that the insurer itself “conceded that KFA presented evidence that the houses themselves were Hallmark’s primary form of marketing,” the Court concluded that the houses, themselves, constituted “notice that is broadcast or published to the general public” to fall within the policies’ definition for “advertisement.”

Stating that the policies did not define “notice” or “published,” the Court reasoned that the terms were understood to have very broad meanings:

It is important to note that the policies never specify that “notice” must take any particular form (e.g., a writing or a website) and never exclude from the definition a physical object, nor do they define “broadcast” or “published.” Among other things, the Oxford English Dictionary defines “notice” sweepingly as the “act of imparting information” or “something which imparts information.”  The few cases interpreting the policy language at issue here (“a notice that is broadcast or published”) have construed “notice” very broadly.  Under the policy language, such notice need only be broadcast or published to qualify as an advertisement. While “broadcast” generally implies radio or television advertisement, “publish” is much more comprehensively defined as “to make public or generally known” or “to make generally accessible or available for acceptance or use (a work of art, information, etc.); to present to or before the public.”

Id. at *6 (emphasis added).

In other words, because the terms “notice” and “broadcast” were not restricted to forms of communication, such as oral or written, or electronic, and because they did not exclude a house in a written definition, the terms could mean a house.

Because, according to Hallmark, the homes were the “primary marketing device” used by the builders to sell the homes, and because the copyright infringement was in the homes themselves, the Court concluded that the underlying action alleged infringement of copyright in the insured’s advertisement:

In this case, it is undisputed that Hallmark’s primary means of marketing its construction business was through the use of the homes themselves, both through model homes and yard signs on the property of infringing homes it had built, all of which were marketed to the general public.  Mid–Continent even contends there is no evidence that Hallmark’s customers saw any marketing materials other than the houses themselves.  Under the undisputed facts, Hallmark’s use of the infringing houses satisfies not only the policies’ expansive definition of “advertisement” and Texas law’s similarly broad construction of the term but also common sense. We therefore conclude that the infringing houses in this case, as used by Hallmark, all qualify as “advertisements” under the policies.

Id. at *7 (emphasis added). Wait. What?  This brings a whole new meaning to the phrase “the house just sells itself.”

The Fifth Circuit easily dispatched the insurer’s remaining arguments.  Because the homes constituted an “advertisement,” the underlying verdict was for damages “because of” “personal and advertising injury.”  In addition, the IP Exclusion’s carve-out exception for “infringement, in your ‘advertisement’. . . of copyright” applied.  Id. at *8.

What Does This Case Mean?  The logical path of this decision can lead to a parade of the horribles.  With one swoop, the Fifth Circuit turned a CGL policy into insurance for product copyright infringement.  To support its decision, the Court emphasized concessions made by the insurer, but really, all the concessions in the world should not have converted a house into an advertisement (i.e., a notice that is broadcast or published to the general public).

Seriously, consider for a moment the implication this decision: an insured need only contend that an infringing product sells itself in order to qualify for “personal and advertising injury” coverage.  The Court called this “common sense.”  Yet, using a product to sell itself is not that uncommon.  It’s the primary tool in counterfeit merchandising.  Same with knock-off products and fake art.  What about infringing music – should Sam Smith have called his lawyer or his broker?

In two months, we have seen some significant developments in “personal and advertising injury” coverage.  First, a placard on a store shelf can implicate coverage.  Now, the infringing product itself – where there is no evidence of use of other marketing materials – can implicate coverage.  And its only March.

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