Property Casualty Focus

In Princeton Excess & Surplus Lines Insurance Co. v. A.H.D. Houston Inc., the Fifth Circuit Court of Appeals clarified the meaning of the undefined term “advertising idea” in the insuring agreement of a commercial general liability policy’s “personal and advertising injury” coverage section.

In that case, insurer Princeton Excess and Surplus Lines Insurance Co. (PESLIC) issued two commercial general liability policies to several Texas strip clubs. The strip clubs were sued in Texas state court by 16 models following the clubs’ use of the models’ likeness for advertising campaigns without the models’ consent. As the models alleged in their complaint, the clubs’ advertising material was manipulated to give the inaccurate impression that the models either endorsed the clubs or worked as strippers in the clubs. PESLIC filed a declaratory judgment action against the clubs and the models in federal court, seeking a declaration that no coverage was owed under the commercial general liability policies in connection with the models’ lawsuit.

In the district court, the models and clubs argued that coverage was available under the “Coverage B – Personal and Advertising Injury” coverage section of both commercial general liability policies, citing specifically to a subsection providing coverage for damages caused by the “use of another’s advertising idea in your ‘advertisement.’” The district court agreed with the models and clubs and found coverage under both policies, rejecting PESLIC’s reliance on certain exclusions in the process.

On appeal, PESLIC argued that the district court erred when it found that the clubs’ unlawful use of the models’ images constituted use of their “advertising idea,” contending that the “misappropriation of a person’s image is not an appropriation of that person’s ‘idea.’” The models countered that the district court was correct, arguing that their images constitute “‘advertising ideas’ by which they commercialize their brands.”

The Fifth Circuit began its analysis by noting that the term “advertising idea” was undefined in the commercial general liability policies and had not yet been addressed by Texas courts. The court nonetheless looked to its prior holding in Laney Chiropractic & Sports Therapy, P.A. v. Nationwide Mutual Insurance Co., in which the court held that no “advertising idea” was implicated where the defendant had unlawfully used a patented product and advertised that product on its website. Adopting the reasoning in Laney, the court held that the use of the models’ likeness was more akin to use of their “product” than their “advertising idea”:

[T]he Clubs’ misappropriation of the Models’ images did not amount to use of their “advertising idea” because at essence, the Models’ images are their products, not their advertising ideas. The Clubs took those products and used them without permission. Without more, taking and then advertising another's product is different from taking another’s “advertising idea.”

As such, the court concluded that the models’ lawsuit did not implicate the clubs’ use of another’s “advertising idea” under the personal and advertising injury coverage section of the commercial general liability policies. The court rejected the models’ and clubs’ other arguments in favor of coverage and concluded that there was no duty to defend under the policies.