Maryland’s High Court Ignores Policy Language

Unjust Enrichment Claims Based on “Use of Another’s Advertising Idea” Were Not used in Insured’s ‘Advertisement’ ”

In Maryland Cas. Co. v. Blackstone Int’l Ltd., No. 51, September Term, 2014, 2015 Md. LEXIS 286 (Md. Apr. 21, 2015), the Maryland Court of Appeals failed to address the salient policy language concluding that no potential coverage arose for “unjust enrichment” claims.  Having conceded that the allegations evidenced “use of another’s advertising idea” under offense (f), the majority ignored “product packaging,” which the dissent and Intermediate Court both agreed evidenced “advertising idea use in [the insured’s] ‘advertisement.'”

Relying on New Appleman Insurance Law Practice Guide, § 43.18, at 43-29, the court observed, at *20:

When there are no allegations that the claimant suffered damages as a result of advertising, there will be no advertising injury claim.

The same treatise § 43:15, observed that a:

Three Step Analysis to Determine Coverage. . . .  [which include]  (1) is there “advertising injury” offenses defined by the policy?; (2) was the offense committed in the course of advertising your goods, products or services?; and (3) is there causal connection between the advertising and the injury?

The proposition that the “claimant suffered damages as a result of advertising” glosses over a significant distinction in element three.  The authority for this “damages” nexus is a citation to Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219, 1222 (9th Cir. 1996).  There, no advertising was alleged that created liability for the offense at issue — “misappropriation of advertising ideas” in a patent infringement lawsuit.

The court’s gratuitous reference to “damages as a result of advertising” did not track the policy language in Simply Fresh Fruit, nor in Blackstone.  Citing Walk v. Hartford Cas. Ins. Co., 382 Md. 1, 16-17, 852 A.2d 98, 107 (2004), the majority presumed that under the predecessor policy language, a third element requiring a causal relationship between the “advertising” and “injury,” but its citation to Walk does not explain how either element relates to proof of damages.

The “use” itself need not be wrongful so long as injury arises out of that “use.”  “[T]here is nothing limiting ‘use of an advertising idea’ to a laundry list of theories or causes of action.”  (Ohio Cas. Ins. Co. v. Albers Medical, Inc., No. 03-1037-CV-W-ODS, 2005 U.S. Dist. LEXIS 45675 at *4 n.5 (W.D. Mo. Sept. 22, 2005)  The policy language only calls for an indirect causal connection between the advertising and the injury, as injury need only “arise out of” the pertinent offense.

Maryland’s policy only requires that the suit seeks damages where injury “arises out of” Offense (f) with damages available as a remedy for that injury.  The policy phrase “damages because of ‘personal and advertising injury’” only requires that “damages” (as opposed to injunctive relief alone) be available under a “personal and advertising injury” offense.  Norfolk & Dedham Mut. Fire Ins. Co. v. Cleary Consultants, Inc., 81 Mass. App. Ct. 40, 48 (2011) review denied, 461 Mass. 1108, 961 N.E.2d 591 (2012) (“What matters is whether the allegations … are reasonably susceptible of the interpretation that they state or roughly sketch a claim for damages because of injury arising out of one or more of the offenses specified as within the personal and advertising injury coverage ….  It is of no significance that other factors may have contributed to those damages apart from conduct covered by the policy.”).

Such an approach also substitutes a focus on injury and damages, which is inappropriate in analyzing offense-based policies.  Rather, the question is “whether that conduct as alleged in the complaint is at least arguably within one or more of the categories of wrongdoing that the policy covers.”  Curtis-Universal, Inc. v. Sheboygan Emerg. Med. Servs., Inc., 43 F.3d 1119, 1122 (7th Cir. (Wis.) 1994).  As Judge Croskey, a noted insurance coverage scholar and legal writer as well as jurist, noted: “Coverage for personal injury is not determined by the nature of the damages sought in the action against the insured, but by the nature of the claims made against the insured in that action. . . . ‘[C]overage … is triggered by the offense, not the injury or damage which a plaintiff suffers.’ ”  Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1032 (2002) (emphasis added).

Court Fails to Address Why Product Packaging Cannot Be An “Advertisement”

The majority opinion eschewed focus on the “product packaging,” deeming it no doubt an “inconvenient truth.”  The failure to acknowledge facts that cannot be explained, where inconsistent with the majority’s opinion renders this decision of questionable viability.  “Advertisement” as defined in the Blackstone policy need not include advertising, but simply “notice published . . . to a select market segment . . . about your products.”  Product packages that serves as advertising would meet this test.  See New Appleman’s Chapter 44 Insurance Law Practice Guide by David A. Gauntlett, addressing “advertising injury provisions:”

This last element of test is satisfied by evidence that the insured’s advertising is a substantial factor in establishing liability under an enumerated “advertising injury” offense [Acuity v. Bagadia, 750 N.W.2d 817, 830 (Wis. 2008) (“[T]he advertising need not be the sole cause of harm.  Rather, the advertising must merely ‘contribute materially’ of the harm.”)

While damages may result from advertising in many fact scenarios, to require the complaint to speak in the words of the policy imports a policy limitation under the guise of interpretation.  “[T]he duty to defend does not require that the complaint allege or use language affirmatively bringing the claims within the scope of the policy.”  Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp., 876 F. Supp. 2d 1005, 1013 (N.D. Ill. 2012).  See “Can A Product Be An ‘Advertisement’ For Itself – The Debate Continues”, Licensing Journal, Vol. 30, No. 1 (January 2010).

Court Limits Coverage to “Specified Perils” Not “Categories of Wrongdoing”

The court also presumes that offense based policies covers only “specified perils” rather than “categories of wrongdoing.”  Cincinnati Ins. Co. v. E. Atl. Ins. Co., 260 F.3d 742, 749 (7th Cir. (Ill.) 2001).  Its views are reminiscent of the spurious arguments appearing in Mealy’s Emerging Disputes Publications, April 22, 1996 Vol. 1, George V. Hall, Jr., “Keeping the Advertising Approach and Advertising Injury,” Vol. 1, No. 16.  August 26, 1996, “Recognized ‘The Limits Of “Advertising Injury,’ ” attacked in “Exposing The Duplicity Of Insurer Analysis Of The ‘Advertising Injury’ Offenses” by David A. Gauntlett, appearing in Mealy’s © 1998.  The better view is articulated in Lime Tree Vill. Cmty. Club Ass’n v. State Farm Gen. Ins. Co., 980 F.2d 1402, 1405-06 (11th Cir. 1993) where the court stated:

First, the duty to defend turns on the “grounds for liability” expressed by “allegations of fact” in the underlying complaints. . . . This is not a case where there is only a single cause of action based wholly on acts expressly excluded by the policy. . . . Second, the factual allegations triggered the duty regardless of the label [the insurer] would like to attach to the cause of action. . . . The court cannot speculate as to the nature or merit of the claims; . . . If the facts alleged show any basis for imposing liability upon the insured that falls within policy coverage, the insurer has a duty to defend.

As Judge Croskey observed in evaluating the scope of the prior offense:

There is nothing about the terms “misappropriation of an advertising idea” or “misappropriation of a style of doing business,” neither of which constitutes a recognized tort, which compels us to conclude one way or the other as to just how broadly or narrowly they should be read.  Nor is there anything about the statutory offense of trademark infringement which necessarily precludes its inclusion as a part of either.

Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group, 50 Cal. App. 4th 548, 565 (Cal. Ct. App. 1996).

The “specified perils” approach also ignores that “Those draftsmen had it within their power to make clear the full scope of the coverage offered as well as any limitations they wished to place thereon.”  (Id. at 566, n.13)  So understood, the majority’s opinion is out of step with the better reasoned coverage case law analyzing offense-based coverage, as the dissent affirming the intermediate court of appeals’ reasoning concluded.


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