Review Your CGL Policy's False Advertising Coverage

by Gary Beaver

In Harleysville Mutual Insurance Company v. Buzz Off Insect Shield, LLC, et. al., plaintiff insurer filed a declaratory judgment action to determine if it owed coverage and a defense for defendants in a federal lawsuit in which claims were made alleging defendants made false ads. The trial court and NC Court of Appeals held that coverage existed. The N.C. Supreme Court reversed on April 15, 2010.

The defendants made insect-repellent clothing and were sued by a competitor for alleged false ads. The NC Supreme Court reviewed the CGL policies’ language and noted that they provided coverage for injury resulting from some false statements made in ads, but not injury caused by false statements an insured makes about its own products. The court then made a detailed analysis of the complaint in the false advertising lawsuit to determine whether the alleged false ads were covered and held that they were not.

The opinion provides a good application of the “comparison test” by which a court reviews the policies and complaint at issue “side-by-side….to determine whether the events as alleged are covered or excluded.” It is also an example of when defendants probably would have preferred that its competitor had overstated its claims, i.e., stated them more broadly rather than with the detail and specificity actually used so that the court might have found that coverage was at least a possibility which, in turn, would have given rise to the insurer’s duty to defend in the federal lawsuit even if a later determination was made that coverage did not exist.