Illinois Court Finds Retail In-Store Display Constitutes Ad, Triggering Coverage

An Illinois appellate court, applying Illinois law, found that an in-store retail display constituted “advertisements” that gave rise to the claims in the underlying suit and, therefore, triggered the insurer’s duty to defend an intellectual property infringement suit under a business liability policy. The underlying lawsuit alleged numerous claims of intellectual property infringement involving the import and sale of square-shaped markers. The insurer issued a business liability policy to Creation Supply, Inc. (“Creation”).  The policy specifically excluded coverage for intellectual property infringement, but included an exception for infringement that arose out of advertisements. The insurer filed the declaratory judgment action against Creation alleging there was no coverage because the underlying case did not fall within the advertising exception.

According to Illinois law, to trigger insurance coverage for an advertising injury, three elements must be established: (1) the insured must have been engaged in advertising activity during the policy period when the alleged injury occurred; (2) the allegations in the underlying complaint must raise a potential for liability under one of the offenses listed in the policy; and, (3) there must be a causal connection between the alleged injury and the advertising activity. First, the appellate court found that the nature of the in-store display constituted an “advertisement” as contemplated under the policy because the display focused on the square-shaped aspects of the markers, instead of merely including a large bin of markers, which satisfied the first element. The court then noted that trade dress infringement was a covered “advertising injury” under the terms of the policy and that the underlying plaintiffs alleged trade dress infringement in their claim alleging violation of the Lanham Act, which, therefore, satisfied the second element. Lastly, the underlying plaintiffs alleged that trade dress infringement was caused by the advertisement, i.e. the in-store markers display contributed to consumer confusion as to the source of Creation’s products. Therefore, the complaint alleged a causal connection between Creation’s advertising activity and the alleged injuries, which, satisfied the third element to trigger coverage.

The court also held that the intellectual property exclusion did not preclude coverage because, by its own terms, the exclusion did “not apply to infringement, in your advertisement, of copyright, trade dress or slogan” and, although the underlying complaint did not specifically use the term trade dress infringement, the complaint still included such a claim through its allegations related to the Lanham Act. Additionally, based on Illinois law, the court refused to consider extrinsic evidence in making any of its determinations with regard to the defense coverage.   Selective Ins. Co. of the Southeast v. Creation Supply, Inc., No. 12 CH 24438 (Ill. App. Ct. Feb. 9, 2015).