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Advertising Claim Creates Potentiality of Coverage

Maryland Court of Special Appeals applies “potentiality” rule of insurance coverage for breach of contract action as an “advertising injury”

Blackstone It’l, Ltd. v. Maryland Cas. Co., ___ Md. App. ____, No. 2301 (Md. App. Feb 28, 2014).

Full Opinion: https://www.mdcourts.gov/opinions/cosa/2014/2302s12.pdf

In the recent decision of Blackstone Int’l v. Maryland Cas. Co., the Maryland Court of Special Appeals held that a plaintiff’s claim for damages for the defendant’s use of the plaintiff’s branding, packaging and marketing ideas fell within the scope of an “advertising injury” under the defendant’s commercial general liability insurance policy.

The underlying action was brought by RMG Direct, Inc. (“RMG”) against Blackstone International Limited Company (“Blackstone”).  RMG’s claims against Blackstone arose from an alleged venture agreement to design, sell and market specialized lighting products manufactured by Blackstone. According to RMG’s Complaint, however, Blackstone went on to use and distribute RMG’s marketing ideas in its own product packaging, website, trade publication advertisement, third-party catalogs, and marketing presentations to retailers such as Wal-Mart. RMG alleged claims for breach of oral contract, estoppel, unjust enrichment, and intentional misrepresentation.

In turn, Blackstone notified its insurers, Maryland Casualty Company and Northern Insurance Company of New York (collectively “the Insurers”) of the action but the Insurers denied that RMG’s claims fell within the scope of the “advertising injury” clause of Blackstone’s policy and refused to defend Blackstone in the lawsuit. Blackstone ultimately settled with RMG, but allegedly incurred over one million dollars in attorney’s fees. The Insurers refused to pay Blackstone’s attorney’s fees and instead filed suit in the Circuit Court for Baltimore County seeking a declaratory judgment that they had no duty to defend or indemnify Blackstone. Blackstone counterclaimed for indemnification. On motions for summary judgment, the circuit court granted the Insurer’s motion and Blackstone’s appeal followed.

The Court of Special Appeals reversed the decision of the circuit court, and in doing so discussed the well-settled “potentiality” rule of insurance coverage, which provides that an insurer has a duty to defend an insured in a lawsuit in which any one of the underlying plaintiff’s claims could potentially be covered under the insured’s policy. Further, an insurer is obligated to defend all claims, notwithstanding alternative allegations outside the policy’s coverage, until all potentially covered claims are resolved.

Under this law, Blackstone was entitled to have the Insurers reimburse all of its defense costs if they had a duty to defend at least one of the claims asserted by RMG. The court examined each of the allegations of RMG to assess whether anyone could potentially fall within the policy’s coverage for “advertising injury.”  The court was unpersuaded by the Insurer’s argument that the advertising content on Blackstone website was “contested,” and instead determined that the factual allegations of RMG’s complaint alone sufficed to show that the website was a potential advertisement that triggered the Insurer’s duty to defend.

The court was also unpersuaded by the Insurer’s argument that Blackstone’s product packaging did not constitute an “advertisement.” Rather, the court found the fact that Blackstone distributed advertising ideas on standardized packaging, with the evident intent to reach and attract a wide audience of shopper’s at the product’s retail location, fell within the purview of publication and therefore could be an “advertisement” under the insurance policy.
The court noted that, while the policy did contain exclusions for conduct that was intentional or rooted in breach of contract, the Insurers had expressly waived the right to assert those exclusions at the circuit court proceedings. Thus, the appellate court’s decision hinged only on whether RMG’s claims “arose out of” the use of RMG’s advertising ideas in Blackstone’s advertisements. In finding such nexus in RMG’s claim of unjust enrichment, and further finding that the covered claim survived the entirety of proceedings in the underlying suit, the court held that Maryland law obligated the Insurers to defend Blackstone against all of RMG’s concurrent claims.

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