Let’s say you open a bakery right across the street from an older, more established one. To attract business away from it, you run an ad saying that bakery is a great place to eat—if you like dining with rats and roaches. However, if you can’t prove they really do have vermin, they can sue you. This type of lawsuit is covered under most general liability insurance policies—when you can prove the claim is true. The offense is called advertising injury. Here’s how to protect your business from such a claim.
What Constitutes an Advertisement?
For indemnification purposes, an advertisement is defined by the Insurance Services Offices (ISO) as: A notice broadcast or published to the general public or a specific market segment about your goods, products or services for the purpose of attracting customers or supporters. According to the ISO, communication with a single individual is not considered advertising; the message must be intended for a large group.
Covered Claims Included
Slander against a competitor, privacy violations, concept infringement and trademark infringement are the most common types of cases in this category. If you run a picture of a person—or quote them in an ad—without their permission, they can come after you. If one of your ads mirrors a competitor’s too closely, they can also drag you before a judge. Additionally, if you advertise your business using the trademarked slogan of another company, you’re likely to find yourself in litigation. Again though, you’ll only be covered if you can prove you didn’t know you were committing any of these acts. Otherwise, policy exclusions will leave you high and dry.
What Is an Exclusion?
Said simply, if it can be proven you knew you were engaging in false advertising, you’ll be denied coverage. This includes making false statements and knowingly using a person’s image or words without their permission. Other factors capable of triggering exclusions include criminal acts, breach of contract, contractual liability or failures to meet price, quality or performance claims.
As an example of the latter, if you state all of your meals cost less than $10 in an ad, but you have an item on the menu for $20 when customers show up, they can sue you for false advertising and your policy won’t cover you. Similarly, if you get a catering job and promise to deliver enough food for 40 people—but only show up with enough for 20—you won’t be covered.
It should also be noted advertising injury coverage does not apply to internet service providers, website designers, publishing companies, ad agencies, or broadcasting companies. If you’re operating as one of those entities, you’ll need media liability coverage.
Long story short, if you’re honest about yourself and your competitors, seek the permission of anyone you feature or quote and do what you say you will do (when you say you will do it and how you say you will do it), plaintiffs won’t have a leg on which to stand. If you’re sued anyway, the advertising injury clause of your general liability insurance will cover you for court costs, attorney’s fees and the like.
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