Many businesses rely upon social media to raise awareness and enhance visibility of a new product or new line of business. Social media platforms such as Facebook are often used to generate buzz around an opening or a launch before it takes place. Anticipatory use of social media, however, can complicate insurance coverage if the right policies are not already in place. The Idaho Supreme Court recently upheld the denial of coverage to a business that had published a preview of a new logo prior to opening. Scout, LLC v. Truck Ins. Exch., 434 P.3d 197 (2019). The court held that a Facebook post by the insured pub showing a close facsimile of the anticipated logo constituted a “prior publication,” triggering an exclusion under the pub’s subsequently purchased commercial general liability policy. Although some other courts have reached different conclusions in relatively similar circumstances, the case stands as a cautionary tale for new businesses.
The plaintiff in Scout had purchased a restaurant in downtown Boise and planned to renovate and reopen the space as the Gone Rogue Pub. Shortly after purchase, Scout posted a picture of the planned logo on its Facebook page and registered the name with the Idaho Secretary of State. Prior to opening, no other advertising or publication used the logo. The following month, Scout purchased commercial general liability insurance, obtained the requisite licenses, and opened the pub. About two months later, the Oregon Brewing Company objected that the Gone Rogue logo and related merchandise violated its federally registered trademarks. When negotiations over licensing proved unsuccessful, OBC filed suit, alleging trademark infringement, unfair competition, Lanham Act violations, and similar claims. Scout notified its insurer, who acknowledged that the complaint alleged advertising injury under the policy but declined to defend on the basis of an exclusion for “material whose first publication took place before the beginning of the policy period.” Scout then settled with OBC and sued the insurer.
The district court dismissed the lawsuit, and the state supreme court affirmed, rejecting a series of arguments that any new business might make in Scout’s position. First, applying Idaho law, the court declined to force the insurer to consider facts outside the complaint, such as when the business had opened (though the court also held that that wouldn’t have changed the result).
More importantly, the court found that the exclusion unambiguously precluded coverage for any prior publication, regardless of whether that publication had been injurious to the claimant. The court distinguished a Seventh Circuit case which had reached the opposite conclusion when interpreting a similar exclusion. Capitol Indem. Corp. v. Elston Self Service Wholesale Groceries, Inc., 559 F.3d 616 (7th Cir. 2009). In Elston, a distributor had sold Newport cigarettes for some time and then began selling counterfeit cigarettes in the same Newport packaging. The Seventh Circuit held that the exclusion only applied to “prior publication of the same actionable, injurious material alleged in the underlying complaint.” Because the prior “publication” involving legitimate cigarettes was not actionable, the exclusion did not apply. The Idaho court rejected this approach, holding instead that the “relevant question is not when the claim first became actionable, but when the material giving rise to the claims was first published.” 437 P.3d at 205 (quoting Matagorda Ventures, Inc. v. Travelers Lloyds Ins. Co., 203 F.Supp.2d 704 (S.D. Tex. 2000)). Thus, the Facebook preview of the new logo was sufficient to trigger the exclusion and preclude coverage, regardless of whether the Facebook post in itself could have given rise to a claim.
Finally, Scout argued that, even if the Facebook posting constituted a prior publication, the complaint alleged separate violations committed after the policy period began that independently triggered coverage. For example, the complaint alleged placement of the infringing logo on glassware as well as “cybersquatting” through a new website, neither of which happened before the business opened. The court acknowledged that a duty to defend might arise despite a prior publication if a complaint also alleged sufficiently independent “fresh wrongs.”
The Idaho court, however, declined to apply the “fresh wrongs” doctrine, citing instead Street Surfing, LLC v. Great American E & S Ins. Co., 776 F.3d 603 (9th Cir. 2014), and Hanover Ins. Co. v. Urban Outfitters, Inc., 806 F.3d 761 (3rd Cir. 2015). In Street Surfing, the policyholder allegedly violated trademarks with respect to skateboards before the policy period and with respect to skateboard accessories after the policy period. The court concluded the alleged wrongs were substantially similar, noting that “if Street Surfing’s post-coverage publications were wrongful, that would be so for the same reason its pre-coverage advertisement was allegedly wrongful: they used Noll’s advertising idea in an advertisement.” 776 F.3d at 614. Similarly, the Hanover court declined to find “fresh wrongs” in a series of alleged trademark infringements by Urban Outfitters relating to the Navajo name and trademark. The Idaho court likewise concluded that, despite the presence of new claims after the policy period began, the complaint alleged a “constant agglomeration of continuing harm stemming from the use of the ROGUE mark.” 434 P.3d at 208.
As this case illustrates, anyone seeking to generate buzz around a new business through social media should consider the risk of an advertising injury claim and whether appropriate liability insurance has been secured.