What Is Advertising Injury Coverage?

How Does Advertising Injury Coverage Work?

Advertising injury is a kind of 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, if your business publishes an ad that disparages another company, damaging its reputation, that company may lose business because of your ad. The injured party then sues your business for compensatory damages to recoup the income it has lost.

If this happens, your business is likely covered under its general liability policy. Most policies have Coverage B, Personal and Advertising Injury Liability Coverage.

Advertising injury and personal injury were once 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

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.

Coverage B of your 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."

This definition includes seven types of offenses, four of which relate to advertising activities:

• Libel, slander, or product disparagement
• Violation of the right to privacy
• Using someone else's 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 a definition similar to that which 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, but you should always check with your insurance agent:

• 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 customers. 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.

Are There Exclusions?

Here are some key exclusions that apply to Coverage B. This isn't a complete list, so check with your insurance agent to better understand your policy.

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.

Frequently Asked Questions (FAQs)