Insurer not obligated to defend strip clubs sued for privacy violations
Three strip clubs sought coverage for a state-court judgment from Princeton Excess and Surplus Lines Insurance Company.
Princeton Excess & Surplus Lines Insurance Company has won reversal of a judgment that had found the company owed defense and indemnity to three strip clubs that had been sued for privacy violations. The case is Princeton Excess & Surplus Lines Ins. Co. v. A.H.D. Houston, Inc., 2023 U.S. App. LEXIS 22504 (5th Cir. 2023).
A group of models sued three Texas strip clubs for using their images in advertisements without consent. They claimed the ads implied the models endorsed or worked at those clubs. The models sued the clubs in state court for invasion of privacy. The state court found in favor of the models for almost $1.5 million (the underlying suit). The clubs sought coverage for the damages through Princeton Excess and Surplus Lines Insurance Company.
Two commercial general liability policies were in effect for the time period relative to the case, both insured by Princeton. The policy definitions for “personal and advertising injury” were identical and included, in relevant part, injury arising out of one or more of the following offenses:
- Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.
- Oral or written publication, in any manner, of material that violates a person’s right of privacy.
- The use of another’s advertising idea in your “advertisement.”
- Infringing upon another’s copyright, trade dress or slogan in your “advertisement.”
The models’ claims fell into the “personal and advertising injury” category under both policies. Though the relevant policy definitions were identical, the exclusions were not. The first policy had an exclusion for “field of entertainment,” which excluded coverage for liability based on IP infringement, invasion of privacy, defamation, unauthorized use of ideas, and copyright violations for part (d) through part (g) of personal and advertising injuries.
The second policy had an “exhibitions and related marketing” exclusion that excluded coverage for part (d) through part (g) of personal and advertising injuries arising out of exhibitions and related marketing, which included the creation and publication of visual media in any form as well as advertising and publicity for operations and material related to media creation.
Princeton filed a declaratory action against the clubs and the models (the defendants), claiming it did not owe either defense or indemnity to the clubs for the underlying action, naming both the clubs and the models as defendants; all three parties — Princeton, the models and the clubs — filed their own motions for summary judgment.
The defendants claimed there was coverage under part (f) of the definition for personal and advertising injury because the clubs’ use of the models’ images constituted improper use of another’s advertising ideas. They also claimed that the “exhibitions and related marketing” exclusion in the second policy rendered coverage for personal and advertising injury illusory. The District Court for the Southern District of Texas found in favor of the models and the clubs. Princeton appealed.
First policy coverage
The models argued that the “field of entertainment exclusion” under the first policy precluded coverage only for “invasion of privacy” claims, while their claims were for violations of the right to privacy. This argument fell flat because the models had won their state court suit against the clubs, which was the underlying suit in the case before the Fifth Circuit, specifically for “invasion of privacy–misappropriation” claims.
The defendants’ argument that coverage applied under part (f) for use of another person’s advertising idea met a similar end. There was no definition for “advertising idea” either in the policy or in Texas law. Images and ideas, ruled the court, were distinct concepts; the improper use of the models’ images amounted to misuse of a product, not misuse of an idea. Summary judgment for the defendants was reversed.
Second policy coverage
The argument that coverage under the second policy was illusory hinged on whether “personal and advertising injury” should be treated as a single concept or as separate concepts. Treating them separately, as the district court had done, meant coverage for advertising injuries was illusory, and therefore the exclusion did not apply. The defendants asserted that past courts had treated personal and advertising injuries as distinct from one another under commercial general liability policies, so it would behoove the Fifth Circuit to do so in this case.
This argument failed for two reasons. First, considering the historical treatment of personal and advertising injury would force the court “to look beyond the eight corners of the complaint in the underlying lawsuit and the insurance policy at issue,” which was impermissible under Texas law. Second, the policy language indicated the parties contemplated personal and advertising injury as a single concept because there was a single policy definition for “personal and advertising injury,” not separate definitions. As the opinion put it, “to slice and dice the policy language as the district court did in nullifying the exclusion is contrary to the policy’s text and structure, and therefore to the intent of the parties.” Summary judgment for the defendants was again reversed.
Having reversed summary judgment for the defendants under both policies, the Fifth Circuit ruled that Princeton was not obligated to defend or indemnify the clubs in the underlying suit.
Editor’s Note: An insurer only owes the duty of defense to insureds if the underlying suit could give rise to coverage. The existence of potential for coverage is often determined by the “eight corners rule,” which states that a court may only consider the four corners of the complaint and the four corners of the insurance policy in making that determination. In this case, the defendants’ argument that courts have separated personal injury from advertising injury in the past failed because that argument required the judges to consider facts outside the “eight corners rule.”
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