Insurers sometimes lose cases because they don’t have the facts needed to support a coverage defense.  Other times they have the facts, but the court determines that the policy language does not mean what the insurer says it does. 

And, of course, there are other reasons, including the one in First Mercury Ins. Co. v. Triple Location, LLC, No. 19CV2395 (N.D. Ill. April 29, 2021).  Here, even if the insurer had the right facts and policy language, it would have still lost.  The problem for the insurer: the policy language, that may have applied, was inconsistent with other policy language.

At issue in Triple Location was coverage for Club O, a gentlemen’s club, for a suit brought by professional models who alleged that the club used their photographs on Facebook and Instagram, without consent, to promote the club.  The models alleged that the club “create[d] the false impression that [they] ha[d] consented or agreed to promote, advertise, market, and/or endorse Club O,” which caused them to “sustain[] injury to their images, brands, and marketability by [their] shear affiliation with ... a strip club.”  They further alleged that the club “totally and completely destroyed” any “copyright that existed in their photos by morphing, editing, or otherwise altering the original photographs.”

Club O sought “personal and advertising” coverage under liability policies issued by First Mercury.  As you would expect, the relevant provisions, concerning the potential availability of coverage, were for (1) oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products, or services; (2) “oral or written publication, in any manner, of material that violates a person’s right of privacy; and (3) infringing upon another’s copyright, trade dress or slogan in the insured’s advertisement.

Not important for discussion here, the court concluded that, for duty to defend purposes, certain “personal and advertising” exclusions did not apply.  In general, these exclusions were tied to the insured’s intentional conduct and the court concluded that the complaint alleged negligent conduct.  This is not an usual outcome in a situation like this.

First Mercury also asserted a “Field of Entertainment” exclusion:

This insurance does not apply to ... “personal and advertising injury” ... actually or allegedly arising out of, related to, caused by or attributed to by any of the following, but only as each applies to the “Business of The Insured in The Field of Entertainment.”

a. Invasion of the right to privacy;

b. Infringement of copyright, whether under statutory or common law; libel, slander or other forms of defamation; ...

“Business of The Insured in The Field of Entertainment” is defined to include “[t]he ownership, licensing, operation maintenance or use of merchandising programs, advertising or publicity material or paraphernalia, characters or ideas, whether or not on premises of the insured or in possession of the insured at the time of the alleged offense or 'occurrence[.]’”

While the court expressed doubt about the exclusion’s applicability, the insurer never had the chance to argue otherwise.  The court concluded that the Field of Entertainment exclusion was inconsistent with the grant of coverage for “personal and advertising” injury:

“Adopting First Mercury’s position that the endorsement negates its duty to defend Triple Location in the underlying suit would mean that the policies cover ‘personal and advertising injury’ caused by negligence associated with privacy right or copyright infringement in ‘[the insured’s] ‘advertisement[s]’’ or with ‘[t]he use of another’s advertising idea in [the insured’s] ‘advertisement[s],’ yet exclude the very same injury if it arises out of the insured’s ‘advertising.’ . . . Given the stark incompatibility of these dueling provisions, the endorsement creates an ambiguity about the scope of coverage that, at least for purposes of the duty to defend, must be resolved in Triple Location's favor.”  (emphasis in original)     
   
The moral of the story, for policy drafting, is clear.