Advertising Injury Coverage

Protecting Your Business From Advertising Injury Claims

Woman holding a product and emerging from a television screen
Image courtesy of [Erik Dreyer] / Getty Images.

Advertising injury is automatically covered by most general liability policies. It is included in Coverage B, Personal and Advertising Injury Liability Coverage. This article will explain the meaning of advertising injury. It will also describe the types of advertising offenses that are covered by a liability policy.

What is Advertising Injury?

Advertising injury means injury committed by a business in the course of advertising its products or services.

The injury may be committed against an individual or another business. The injured party typically suffers a financial loss. For example, your business publishes an ad that disparages another company, damaging its reputation. Your ad causes the injured party to lose customers. It sues your firm for compensatory damages to recoup the income it has lost.

Advertising injury involves acts (offenses) committed by a business in the course of advertising its goods, products or services. The offenses cause injury to another party. Advertising injury is one of two types of injury covered by Coverage B. The other is personal injury. Personal injury means offenses committed by a business while performing activities other than advertising. Examples of personal injury are false arrest and malicious prosecution.

Until the mid-1990s, advertising injury and personal injury were insured under two separate coverages.

These coverages have been combined. They are provided as a single coverage called Personal and Advertising Injury Liability.

Covered Offenses

A liability policy covers claims or suits that arise from offenses you commit while advertising your business. For a claim to be covered, it must result from an offense that falls within the definition of  personal and advertising injury.

The definition includes seven types of offenses, four of which relate to advertising activities. These are listed below:

  • Libel, slander, or product disparagement
  • Violation of the right of privacy
  • Use of someone else' advertising idea in your advertisement
  • Infringement of copyright, trade dress or slogan in your advertisement

For an advertising injury claim to be covered by your policy, the claimant must seek compensation for a type of offense cited above. If the claimant demands damages for some other type of offense, such as patent infringement, the claim will not be covered.

What is an Advertisement?

In the past, disputes have arisen between insurers and policyholders as to what constitutes advertising. Some policyholders have argued that communication between a business and a single customer qualifies as advertising. Insurers have disagreed, contending that advertising means communication with many customers, not just one. To clarify the policy's intent, ISO added a definition of advertisement. Nowadays, many policies include the definition that appears below:

A notice that is broadcast or published to the general public or specific market segment about your goods, products or services for the purpose of attracting customers or supporters.

Examples of Covered Claims

Most advertising injury claims are brought against a business by a competitor. Company A alleges that Company B committed an act that damaged Company A's business. Here are some examples of claims that would likely be covered by your liability policy:

  • You own a company that manufactures cookies. You create a television ad in which you state that the cookies made by a competitor contain sawdust. You believe this to be true, but it is false. Your competitor sues you for slander.
  • You own a chain of beauty salons. You create a print ad that contains a photo of one of your customer's. You did not obtain permission from the customer to use her photo. She sues your company for violating her privacy.
  • You own a construction company. A competitor of yours has created an online ad that contains dancing buildings. The ad is silly but eye-catching. You create your own ad using dancing buildings. Your competitor sues you for using its advertising concept without its consent.
  • A competitor of yours has developed an ad campaign using a catchy slogan. You create a slogan for your firm that is very similar to the one used by your competitor. Your competitor sues you for infringing on its slogan.

Exclusions

Here are some key exclusions that apply to Coverage B. This isn't a complete list of exclusions.

  • Knowledge of Falsity No coverage applies to verbal or written statements you make if you know they are false.
  • Knowing Violations No coverage applies for acts you commit if you know those acts will violate someone's rights. For example, you use a customer's photo in your ad without her permission even though you know your actions will violate her privacy.
  • Criminal Acts Claims alleging criminal acts are not covered.
  • Breach of Contract No coverage applies to claims alleging that you failed to fulfill the terms of a contract.
  • Contractual Liability No coverage is provided for advertising injury for which you are liable solely because of a contract you signed.
  • Price, Quality, and Performance No coverage applies to suits alleging that your product failed to meet the level of quality or performance, or the price stated in your advertisement. For example, you publish an ad stating that the price of a used car is $1,000. The price listed on the car at your dealership is $10,000. A customer sues you for false advertising.

Websites, Bulletin Boards, and Forums

Advertising injury coverage does not apply to the types of businesses listed below. These businesses need specialized insurance called media liability coverage.

  • Internet Service Providers
  • Website Designers
  • Publishing Companies
  • Advertising Agencies
  • Broadcasting Companies

If you have created a website for the purpose of promoting your business, are you considered an advertising or publishing company under your liability policy? The answer is no. Your company is insured for advertising injury unless you are in the business of designing websites for others, publishing other people's content, or developing advertisements for other companies.

Article edited by Marianne Bonner