Fifth Circuit Holds that a House Can Be Considered an “Advertisement” for Insurance Purposes

Under the policy, Mid­Continent “will pay those sums that [Hallmark] becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies.” The policy excluded injuries arising from “infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” But, as an exception, the exclusion did not apply to defending infringement “in [Hallmark’s] ‘advertisement’ of copyright, trade dress or slogan.”

Mid­Continent defended Hallmark under a reservation of rights, and KFA later won $3.2 million in damages for copyright infringement. After that, Mid­Continent filed a declaratory judgment action and then a motion for summary judgment in the Western District of Texas, seeking a declaration that it had no duty to indemnify Hallmark because the policy excluded damages arising from copyright infringement. KFA filed a cross­motion for summary judgment, arguing that, as an explicit exception, the policy provided for coverage of copyright infringement claims that arose from advertising. The district court granted KFA’s cross­motion, and Mid­Continent appealed shortly thereafter.

On appeal, the Fifth Circuit, in a per curiam opinion, determined that the additional houses constituted an “advertisement” of a copyright for purposes of coverage under the policy. According to the court, an advertisement could be considered “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.” And, “[w]hile ‘broadcast’ generally implies radio or television advertisement, ‘publish’ is much more comprehensively defined as ‘to make public or generally known’ or ‘to make generally accessible or available for acceptance or use . . . to present to or before the public.’” Noting that an advertisement of a copyright fell within the policy’s coverage, the court concluded that the actual construction of the houses made the public generally aware of the copyrighted works. To support this position, the court reasoned that KFA used model homes for marketing and also put up yard signs to direct traffic to those model homes. According to the court, KFA was, in essence, advertising through a copyright under the coverage of the insurance policy.

Mid­Continent Cas. Co. v. Kipp Flores Architects LLC, Nos. 14­50649, 14­50673 (5th Cir. Feb. 26, 2015) (unpublished) (King, David, Owen, JJ.).