Declining to find any of the insurer’s proffered exclusions applicable, a federal district court in Minnesota sided with the insured — a strip club that was sued for using models’ images without permission in its online advertising efforts. The district court granted the insured club’s motion for summary judgment, finding that the policy’s businessowners liability coverage section afforded coverage for the underlying false advertising suit, since the insurer had not met its burden to establish that any exclusion applied to bar coverage.
In Illinois Casualty Co. v. Kladek Inc., an insurer sought a declaration from the court that it had no duty to defend or indemnify the club for an underlying lawsuit stemming from its unpermitted use of several models’ photos on its various social media pages for advertising purposes. In the underlying lawsuit, the models accused the club of negligence, unjust enrichment, and violating the Lanham Act, Minnesota’s Uniform Deceptive Trade Practices Act, and Minnesota’s common law of publicity through appropriation. The club’s insurer argued that it had no duty to defend or indemnify the club because various exclusions worked together to bar coverage for all of the claims.
In finding that there was coverage for the models’ claims, the court began by noting that all of the claims fell within the insuring agreement of the businessowners liability coverage section in the first instance. As such, the burden fell on the insurer to establish that any potential exclusions applied to bar coverage. The court addressed each of the insurer’s proffered exclusions in turn. First, the insurer argued that the consumer protection law exclusion applied to bar coverage for some of the claims. Turning to the core of the underlying claims, the court, in a substance-over-form analysis, found that the exclusion was inapplicable as it was narrowly tailored to bar coverage for “consumer protection laws that bar fraud, unfair competition, and/or deceptive business practices,” and the models’ underlying statutory claims addressed “various types of conduct, not all of which can be labeled ‘consumer fraud.’”
With respect to the insurer’s proffered electronic chatroom exclusion, which barred coverage for claims “arising out of any electronic chat room, bulletin board, or blog the insured hosts, owns, or over which any insured exercises control,” the insurer argued it applied because the club’s social media pages constituted “bulletin boards.” Applying the plain meaning of the term, given that it was undefined in the policy, the court found the insurer’s argument that the club’s social media pages were bulletin boards rather than social media platforms unpersuasive.
And finally, the court found that the multimedia perils exclusion also did not preclude coverage because there were ambiguities in the policy language with respect to the interplay between the policy’s cyber endorsement provision and the businessowners liability coverage section, which meant that the language had to be interpreted against the insurer and in favor of coverage.
At bottom, it is important for insurers to remind themselves of certain bedrock principles of insurance contract interpretation as part of their coverage analysis, such as the burden falling on insurers to establish the applicability of exclusions and the fact that, in most jurisdictions, ambiguities are often strictly construed against insurers in favor of coverage.
