In an insurance coverage dispute, the Fifth Circuit Court of Appeals ruled that a house design could constitute an “advertisement” that would trigger coverage under a general liability policy provision for “advertising injury.”
Kipp Flores Architects, LLC (“KFA”) is an architecture firm that designs homes and licenses its designs to companies that actually build homes.
Hallmark Design Homes, L.P., was a home-building company in the Houston area.
KFA agreed to provide Hallmark with 11 house plans, and Hallmark was authorized to build each house only once.
After building the first 11 houses under the license, Hallmark then built several hundred more copies without paying an additional license fee to KFA. When KFA discovered this, it sued for copyright infringement.
A jury found in favor of KFA. However, by that time Hallmark had filed for bankruptcy. KFA was allowed to make an unsecured claim in Hallmark’s bankruptcy in the amount of $3.2 million.
Hallmark’s insurance company, Mid-Continent Casualty Company, then filed a declaratory judgment action against KFA, seeking a declaration that it had no duty to indemnify Hallmark.
Mid-Continent claimed that Hallmark’s insurance policy did not cover copyright infringement but only advertising injury arising out of copyright infringement.
A district court found that the copyright infringement was in fact an “advertising injury” and the Fifth Circuit affirmed.
The Policy Language
Like many general liability insurance policies, the policy at issue included the following language:
We will pay those sums that the insured becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages.
The policy defined “advertisement” to mean:
a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.
The policy also expressly excluded coverage for infringement of copyrights, patents, trademarks, or trade secrets.
The Fifth Circuit noted that the infringing houses themselves were used to attract customers, and thus were forms of advertising:
Under the undisputed facts, Hallmark’s use of the infringing houses satisfies not only the policies’ expansive definition of “advertisement” and Texas law’s similarly broad construction of the term but also common sense.
The court thus concluded that Hallmark’s liability in the prior case was because of a covered advertising injury.
If you have questions about insurance coverage relating to intellectual property disputes please contact our office at 626-796-4000 or toll-free at 855-UR-IDEAS (855-874-3327) for a free initial consultation with one of our intellectual property attorneys. Please also visit us online for more information about our services.
Photo Attribution: “Jans-Martense-house-plans” by U.S. Department of the Interior – Library of Congress, Historic American Building Survey. Licensed under Public Domain via Wikimedia Commons.