Don’t, like a lot of agents, be lulled into complacency about the commercial general liability’s (CGL’s) “personal and advertising injury” coverage (Coverage B). Many agents overlook and even ignore the protection provided by this section of the CGL. The previous article began an in-depth look at Coverage B; this post spotlights the exclusions applicable only to the “personal and advertising injury” coverage part.
Each of the 16 current exclusions is individually discussed in this and the next installment, with a particular emphasis on the embedded exceptions. Five exclusions have been incrementally added and one (pollution) split into two separate exclusions since the 1998 (01 98) version of the form. For sake of explanation, the 1998 edition is used as the basis form because it was the first edition to combine the previously separately defined “personal injury” and “advertising injury” into one definition – resulting in the current term, “personal and advertising injury.”
The Original 10 (Ummm, Well, 11)
Ten “personal and advertising” injury exclusions were contained in the 1998 version of the CGL. In 2001 the previously singular pollution exclusion was divided into two separate exclusions. The resulting 11 “original exclusions” (per the 1998 version) are presented below applying the most current policy wording.
Knowing Violation of Rights of Another (exclusion “2.a.”): Individuals and entities have certain rights: privacy, truth (not being unjustly defamed), occupancy, personal safety, freedom of movement, use of ideas or innovation, property rights and others. Not all “rights,” however defined, are covered within the definition of “personal and advertising injury” (as presented in the two prior posts).
Two important conditions must be met for this exclusion to apply: 1) the insured must knowingly violate another’s rights; and 2) such violation must be by or at the direction of the insured. If the insured is unaware that the action violated or might violate the person’s or entity’s rights, the offense is not excluded. Likewise, an employee acting outside the acceptable and expected scope of employment does not preclude coverage for any other insured. Vicarious liability protection is extended to the insured entity as the exclusion only applies if the action was done by or at the direction of the insured. The first incarnation of this exclusion was in the 1998 edition of the form.
Material Published with Knowledge of Falsity (exclusion “2.b.”): Published, as used in this exclusion, constitutes any oral or written communication. Like exclusion “2.a.” above, the exclusion applies if: 1) the insured knows the information is false; and 2) the publication is by or at the direction of the insured. Coverage for misplaced trust in information provided by a usually good source and vicarious employer liability is preserved by the wording.
Material Published Prior to Policy Period (exclusion “2.c.”): No coverage exists for any oral or written publication FIRST broadcast before the current policy period. Limiting coverage to the policy in effect when the “offense” took place is the point of this particular exclusion. Doing so avoids the possibility that several policies will be called upon to pay the claim; this also avoids the stacking of limits. If the insured begins operations before buying insurance, it is possible that something said or written prior to the placement of coverage could give rise to a “personal and advertising injury” claim. Anything first broadcast before the inception of the policy is excluded; even if the “injury” is not suffered until sometime later.
Criminal Acts (exclusion “2.d.”): Unlike exclusion “2.a.,” which excludes intentional violation of civil (individual) rights, this excludes criminal (acts against the public) wrongs. The extent of this exclusion has changed, some consider drastically, to include vicarious liability protection for the insured entity. Prior wording excluded criminal acts if committed by any insured. Current policy language (which first appeared in the 2001 edition) states criminal acts are excluded only if committed by or at the direction of the insured. Criminal acts can range from misdemeanor offenses to felony actions leading to a defined “personal and advertising injury.” If a landlord incorrectly evicts an individual, he may be charged with breaking and entering, a criminal act, in addition to wrongful eviction (a civil act within the “personal and advertising injury” definition). The insurance carrier will not defend the criminal charges even though they may defend the civil charges (two separate courts).
Contractual Liability (exclusion “2.e.”): Coverage A (“Bodily Injury and Property Damage”) and Coverage B (“Personal and Advertising Injury”) both exclude liability assumed in and arising solely from a contract (if liability would exist in the absence of the contract, the policy will pay – regardless of the presence of a contract). But unlike Coverage A, the “personal and advertising injury” coverage part contains NO contractual exceptions. Coverage A excepts “insured contracts” from the exclusion, Coverage B does not contain such an exception. Any insured assuming another’s personal injury liability by contract does so at their own risk as there is no protection extended from the policy.
Contracts can present a unique challenge in regards to this exclusion, especially construction contracts. The legal profession lumps several injury types into one term – “personal injury.” In contrast, the insurance industry correctly uses two terms to describe different “injuries” – “bodily injury” and “personal injury” (see “Personal Injury Equals Bodily Injury“). Because of this difference, agents may find contracts requesting the insured to indemnify and hold a party harmless for “personal injury.” Likely the attorney intends the meaning to be “bodily injury,” but since the terms do not agree with policy language, a gap could arise (for both Coverage A and Coverage B).
Contractual risk transfer and negotiating/correcting contract provisions is outside the intended scope of this article; but agents need to be aware of this contractual exclusion. There are only two possible solutions, convince the underwriter to remove the exclusion (not likely to happen), or attach the “Limited Contractual Liability Coverage for Personal and Advertising Injury” (CG 22 74). Sadly, the CG 22 74 only extends contractual liability protection under “personal and advertising injury” to the offenses of false arrest, detention or imprisonment (the first defined offense).
Breach of Contract (exclusion “2.f.”): A breach of contract arises when one party to the contract is deprived of certain promised benefits or protection due to the other party’s unintentional or intentional failure to comply with the contractual agreement. The exclusion’s exception may offer a clue regarding its application in relation to “personal and advertising injury” coverage. Violation of “an implied contract to use another’s advertising in your advertisement” is excepted from the breach of contract exclusion. Comparing the breach of contract exception with the “named peril” coverage offered in the “personal and advertising injury” definition, it appears that the exclusion’s main focus is the misappropriation of another’s advertising in violation of a specific contract. Consider, for example, an insurance carrier gives an agency contractual permission to distribute advertising or promotional materials containing the company logo, but only in the agent’s state of domicile. The campaign proves so successful, the agent distributes the material in two surrounding states. Distribution outside the contractually permitted area is a breach of contract and is not covered by the policy. If, however, the agent calls the carrier’s marketing department and asks if it can distribute material with its logo, and the carrier says it’s OK (with no explicit instructions), any suit because the agent distributes outside the state of domicile is covered as there was an implied contract of use in any manner desired.
Quality or Performance of Goods – Failure to Conform to Statements (exclusion “2.g.”): This does not equate to a “products liability” exclusion. “Personal and advertising injury” coverage has nothing to do with the product itself; it’s the effect on an individual’s or entity’s reputation caused by false or “faulty” advertising that is excluded. A local hardware store, in an attempt to sell off its inventory of Acme widgets, runs an ad that reads, “Acme brand widgets, guaranteed to make your yard green and weed-free.” An Acme widget is a yard trimmer and edger, it is unlikely (impossible) that one’s use will make the user’s yard green and weed-free; the product will not live up to its advertising. Any demands for money or suits against the manufacturer or hardware store will be denied under Coverage B; as will Acme’s suit against the hardware store for damaging its reputation by improper use of its product and trademark in an advertisement.
Wrong Description of Prices (exclusion “2.h.”): Two reasons for this exclusion; 1) “bait and switch” – the practice of deliberately advertising artificially low prices or artificially high inventories to entice shoppers to visit the store, then attempt to sell them higher price articles using spurious tactics – is considered false advertising and is illegal; and 2) advertising goods is a business decision, and incorrectly printed pricing is a business risk not covered by insurance.
Insureds in Media and Internet Type Businesses (exclusion “2.j.”): The exclusion’s title says it all; there is no “personal or advertising injury” protection for any entity in the publishing, web or Internet business. One reason is the “named peril” type of coverage extended by this coverage part is inadequate to cover these businesses’ exposures; second, the exposure for entities engaged in these types of businesses has moved from one of general liability to the level of professional liability. A media professional liability is the appropriate place to protect entities engaged in media and Internet operations.
Four exceptions to the “2.j.” exclusion require mention. The first three provide coverage for: false arrest, detention or imprisonment (“14.a.”); malicious prosecution (“14.b.”); and wrongful eviction, entry or invasion of private occupancy (“14.c.”). The final exception states that “the placing of frames, borders or links, or advertising, for you or others anywhere on the Internet, is not by itself, considered the business of advertising, broadcasting, publishing or telecasting.” Such work has to be the major source of income to be considered “in the business of….”
Pollution (exclusion “2.m.”); and Pollution-Related (exclusion “2.n.”): ISO divided these into two separate exclusions in the 2001 CGL edition. Prior to this division, both were part of the same exclusion. Essentially, any “personal or advertising injury” related to any type of release, clean up or testing related to pollution is excluded. Pollution exclusions in the “personal and advertising injury” section first appeared in the 1993 version of the CGL.
These eleven “personal and advertising injury” exclusions existed in the 1998 version of the CGL. The next post details the remaining five, presenting the exclusions in the order they were added. Three were added to the list of exclusions in the 2001 edition; one was added to each of the 2004 and 2007 versions.