In Information Spectrum, Inc. v. The Hartford, 182 N.J. 34, 860 A.2d 926 (2004) the New Jersey Supreme Court was recently faced with the issue of whether claims of Lanham Act violations and copyright infringement were covered by the insured’s commercial general liability policy, which would trigger the insurer’s obligation to defend. The plaintiff-insured, Information Spectrum, filed a federal action seeking a declaratory judgment to challenge claims of Facstore, Inc. that the insured, Information Spectrum, Inc., misappropriated a computerized police reporting system developed by Facstore. Specifically, Facstore contended that the insured sold “knock-offs” of the
product to prospects to whom Facstore had attempted to market the system. In response to the insured’s declaratory judgment action, Facstore filed a counterclaim alleging, among other claims, copyright infringement, Lanham Act violations pursuant to 15 U.S.C.A. sec. 1125(a), and misappropriation of trade secrets. The jury rendered a verdict in favor of the insured in that matter. Hartford denied the insured’s claim for $170,988.50 in costs
incurred in defending Facstore’s counterclaim, asserting that the alleged offense did not occur in the course of advertising the insured’s products and therefore it was outside the policy’s terms. Consequently, the insured filed this declaratory judgment action against Hartford. The applicable insurance policy provided coverage for injuries “caused by an offense committed in the course of advertising [the insured’s] goods, products or services; but only if the offense was committed in the ‘coverage territory’ during the policy period.” The policy further limited coverage for advertising injuries to certain enumerated categories, including “misappropriation of advertising ideas or style of doing business” and “infringement of copyright, title or slogan.” The insured contended that Facstore’s claims fell within these two categories. The Trial Court granted summary judgment in favor of the insured. The motion judge held that the duty to defend was triggered even though Facstore did not allege that the insured advertised the offending or violating product. The Appellate Division reversed and remanded to the trial court for the entry of summary judgment in favor of Hartford. The Appellate Division agreed that the copyright infringement claim fell within an enumerated category, but because Facstore’s allegations did not assert any injury caused by the insured’s advertising, no obligation to defend was triggered. The Appellate Division panel further emphasized that coverage could be triggered only by injury caused by the insured’s advertising of the misspropriated product, and that the only allegation relating to advertising occurred back in 1999—long after the policy had terminated. The Supreme Court affirmed the Appellate Division’s ruling and held that under the advertising injury provisions of the comprehensive liability policy, the insurer was not required to defend the claim against the insured because the alleged harm was not caused by the advertising act. Under the policy, a duty to defend attached if a claimant’s injury was “caused by” an offense committed “in the course of” advertising and if the injury fell within one of the enumerated categories. Here, Facstore never alleged that the insured advertised the offending product, let alone that the advertising caused the injury. Moreover, even if Facstore had complained of incidental marketing activities, that would not be sufficient to bring the claim within the policy language. For the “advertising injury” provisions of the policy to apply, the harm must be “caused by” the advertising act itself and not by the underlying circumstances. This case is important as it is instructive for insurance companies to be careful and exact when drafting provisions in
insurance policies. The New Jersey Supreme Court and Appellate Division appear to be in agreement with respect to this issue and if insurance companies make policy language as specific as possible, it will likely lead to savings in  litigation costs and other unnecessary expenses. Although this case arises out of an intellectual property claim, it would certainly be applicable with other types of insurance policies. Needless to say, a certain couple of words or phrases in a policy could mean the difference in whether an insurance company must accept or deny a claim.

– Peter A. Swift, Esq.