Recent Changes in Insurance Policy Forms Leaving Companies Exposed to Risk of Copyright Claims

Historically, companies being sued in copyright lawsuits have been able to secure at least some coverage for those claims under the “Advertising Injury” coverage in their general liability policies. These claims pose a major risk to companies across virtually all industries, with new copyright infringement lawsuits filed daily. The lawsuits cost tens of thousands of dollars (or more) to defend, and can result in large judgments for damages and attorneys’ fees. When the lawsuits allege that one of the ways the policyholder infringed was through their advertising, defendants with general liability policies have often been able to shift much (if not all) of the exposure to their insurance companies. However, there has been a recent trend by insurance companies to change their policy forms and use language that provides substantially less coverage for these kinds of claims. Buyers of insurance might still see that the policies they’re buying have “Advertising Injury” coverage that includes “copyright” claims. Nevertheless, these subtle changes to the actual language in the forms (which few policyholders ever actually read before buying their policy) eliminate most, if not all, of the benefits of the coverage. Careful companies buying insurance and concerned about the risk of copyright infringement lawsuits need to watch out for these two changes that could leave them exposed to costly lawsuits.

First, carriers are revising the definition of “Advertising Injury” so that it includes a far more limited range of infringing acts. The “Advertising Injury” coverage in general liability policies has always been difficult to navigate for anyone unfamiliar with insurance. However, in the past, those policies have typically covered the infringement, in the policyholder’s advertisement, of another person’s copyright. For example, if a policyholder is sued in a lawsuit alleging they infringed on the plaintiff’s copyright, and one of the ways they are alleged to have infringed is by using the protected work in the policyholder’s advertising, then the policyholder would be covered for that claim. Under those older policies, it would not matter what kind of copyrighted work was at issue – it could be a song, literary work, fabric design, photograph – any work that is subject to protection under the Copyright Act. All that mattered to trigger coverage was that the copyrighted work was allegedly infringement upon in the policyholder’s advertising. Now, however, there has been a new trend in insurance policy language cutting that copyright coverage way back by revising the language so Advertising Injury means only infringing a copyrighted advertisement. The only claims that are covered by this new language are those alleging that the policyholder’s advertisement infringed upon the plaintiff’s copyrighted advertisement. In other words, there’s no longer any coverage for claims alleging infringement any kind of copyrighted work except an advertisement. With this subtle change, the carrier has eliminated coverage for infringement for any other work (which could have been covered under earlier policies). This coverage provides far less protection than what has been historically available, and leaves policyholders exposed to any lawsuit alleging infringement of other kinds of copyrighted works.

Second, some carriers are revising the intellectual property exclusion in their Advertising Injury forms so that the copyright coverage applies only if the claim has no other allegations of intellectual property infringement other than those expressly covered under the policy. A brief summary of insurance law is important background to help understand how this subtle change has essentially eliminated all material benefit for this coverage. Generally speaking, when a lawsuit alleges some claims that are covered and some claims that are not, the insurance company has a duty to defend against the entire action, even as to the non-covered claims. If a policyholder is sued for allegedly manufacturing, selling, distributing, and advertising goods that infringe on the plaintiff’s copyrighted work, an insurance company would have to defend the entire action, even though the only act of infringement that is potentially covered is the advertising. Depending on the outcome of the claim, the insurance company might only have to indemnify the policyholder for the damages attributable for the advertising (that is, the covered allegation), but it has to defend the whole case. Now, carriers are trying to evade this foundational doctrine of insurance law with new language in their exclusions saying that the claim is covered only when it alleges infringement through the policyholder’s advertisement and involves no other acts of infringement. If the claim also alleges infringement through other means (e.g., by manufacturing, selling, or distributing infringing goods), an exclusion is triggered and the carrier is off the hook completely. As a practical matter, this language eliminates coverage for the overwhelming majority of copyright claims, because such lawsuits almost never allege the policyholder’s advertising as the sole means of infringement. The inclusion of any other method of infringement, which is the case in virtually all copyright lawsuits, negates coverage. Thus, policies with this new language will almost never be available to respond to copyright claims that policyholders are likely to actually ever see.

Insurance companies are, of course, free to draft their policies however they please. If they want to provide minimal coverage for copyright claims, that’s their prerogative in the open market. It is up to policyholders and their brokers to thoroughly review their policy forms before buying coverage to make sure that it appropriately covers their risks and exposure. Far too often, those reviews focus solely on the metrics of the policy (coverage limits, deductibles, and premiums) and ignore the lifeblood of the coverage: the policy language. Diligent policyholders must be on the lookout for these kinds of subtle changes in policy language that could leave them open to serious exposure to copyright claims that pose a significant and costly risk to their bottom line.