Tag Archives: Coverage B

THIRD CIRCUIT HOLDS “PRIVACY” MEANS SECRECY, “PUBLICATION” MEANS DISSEMINATION TO PUBLIC, AND “IN ANY MANNER” DOES NOT CHANGE MEANING OF “PUBLICATION”


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In OneBeacon Amer. Ins. Co. v. Urban Outfitters, 2015 WL 5333845 (3d. Cir. Sept. 15, 2015), the United States Court of Appeals for the Third Circuit held that three underlying class action lawsuits filed against Urban Outfitters and Anthropologie, Inc. did not allege “personal and advertising injury.”  The Third Circuit held that for Coverage B “oral or written publication, in any manner, of material that violates  person’s right of privacy,” (1)“privacy” refers only to the right of secrecy, not the right of seclusion; (2) “publication” requires dissemination of information to the public at large, and (3) “in any manner” does not modify or change the meaning of “publication” to a lesser standard.

In the spirit of full disclosure, I represented OneBeacon America in the litigation with my colleagues at White and Williams LLP.  The facts of the matter are straightforward.

Urban Outfitters and Anthropologie (collectively, “Urban Outfitters”) were sued in three separate class actions filed in California, Massachusetts, and the District of Columbia.  (The California class action was actually a consolidation of multiple class actions.)  In each action, plaintiffs alleged that that Urban Outfitters wrongfully collected and used consumers’ ZIP codes and other data for marketing and purchase-tracking in violation of state statutes and privacy rights.  Urban Outfitters sought defense coverage for each lawsuit under “personal and advertising injury,” defined in part as “oral or written publication, in any manner, of material that violations a person’s right of privacy.”

In the first lawsuit, Hancock, the underlying complaint alleged that Urban Outfitters unlawfully collected consumers’ ZIP code information during credit card transactions in violation of District of Columbia statute.  Id. at *1.  By obtaining the consumers’ ZIP codes, Urban Outfitters was then able to obtain the consumers’ home and business addresses to use for marketing.  Id.  Urban Outfitters contended the exchange of data between the retailer and the consumers constituted a “publication” for purposes of “personal and advertising injury” coverage.  The Third Circuit disagreed and accepted the insurers’ arguments that “‘publication’ requires dissemination to the public.”  Id. at *2.  The court rejected the contention that the failure to define the term “publication” in the policy made the term ambiguous:

Although neither the policies nor the Pennsylvania Supreme Court have defined “publication,” that does not render the term ambiguous.  Rather, “[w]ords of common usage in an insurance policy are to be construed in their natural, plain, and ordinary sense, and we may inform our understanding of these terms by considering their dictionary definitions.”  Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (PA. 1999).  The District Court cited three separate dictionary definitions of “publication,” all of which support the conclusion that “publication” requires dissemination to the public. [Emphasis added.]

Id.

Significantly, the Court also rejected the contention that the phrase “in any manner” changed the meaning of “publication”:

The fact that the policies specify that “publication” may be made “in any manner” does not alter the analysis; as the Eleventh Circuit correctly noted, the phrase “in any manner” “merely expands the categories of publication (such as e-mail, handwritten letters, and, perhaps, ‘blast-faxes’) covered by the [p]olicy,” but “cannot change the plain meaning of the underlying term ‘publication.’”  Creative Hosp. Ventures, Inc. v. U.S. Liab. Ins. Co., 444 F. App’x 370, 375 (11th Cir. 2011).  [Emphasis added.]

Id.

In the second lawsuit, Miller, the underlying complaint alleged that Urban Outfitters unlawfully collected consumers’ ZIP code information to use for marketing purposes, including to send unsolicited promotional materials and “junk mail.”  Id. at *3.  Noting that the Pennsylvania Superior Court has recognized that the privacy right contemplated in “personal and advertising injury” is the right to secrecy, not the right to seclusion, the Third Circuit concluded that Miller did not allege a violation of a person’s “right of privacy.”  Importantly, in reaching its conclusion, the Third Circuit ejected the contention that the consumers had a right of privacy in their ZIP codes, or that the lawsuit alleged violation of consumers’ rights to keep their addresses secret from the retailers:

[T]he factual allegations of the Miller complaint evince a concern with seclusion, and not secrecy. The complaint asserts that plaintiffs “have suffered an injury as a result of Defendant’s unlawful conduct by receiving unsolicited marketing and promotional materials, or ‘junk mail,’ from Defendant.” [Record citation omitted.] Although the complaint asserts that Urban Outfitters did collect plaintiffs’ ZIP code information, that information was collected allegedly “to identify the customer’s address and/or telephone number … to send unsolicited marketing and promotional materials.” . . .  Put simply, the complaint does not assert harms based on the plaintiffs’ interests in keeping their ZIP codes secret. Accordingly, it does not allege publication of material that violates a person’s “right to privacy” under the policies . . . .

Id.  at *4.

For the final lawsuit, Dremak, the Court held that the Recording and Distribution of Material of Information In Violation of Law exclusion barred coverage, because the lawsuit was brought under California’s Song-Beverly Credit Card Act.  Id. at *3. The lawsuit originally had alleged common law claims, but those causes of action were dismissed without prejudice while the coverage litigation was pending in the Pennsylvania federal district court.  Urban Outfitters argued that the dismissal of those claims was not dispositive because the factual allegations supporting the common law claims remained in the complaint, and Pennsylvania law required that the factual allegations, not the causes of action, determined an insurer’s duty to defend.  Id.  The Court rejected the argument because the same alleged facts that gave rise to common law claims also alleged the statutory violations.

[T]he Court looked to the factual allegations of the complaint in determining that the complaint alleged “action[s] or omission[s]” that were alleged to violate the Song–Beverly Credit Card Act.  The fact that those same “action[s] or omission[s]” were also alleged to give rise to common law claims (claims that were dismissed) is irrelevant to the analysis.  [Emphasis added.]

Id.

What does this case mean?  This decision is a significant one.  It is one of only a few appellate-level decisions holding that (1) “publication” requires dissemination to the public at large, and (2) that “right of privacy” means the right of secrecy, not the right of seclusion.  The decision is the only the second to address and debunk the myth that the phrase “in any manner” changes the meaning of “publication” in Coverage B.

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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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