Insurer Has Duty to Defend Lanham Act “False Advertising” Claims Despite False Advertising and Trademark Exclusions

The United States District Court for the Western District of Washington, applying Washington law, has held that exclusions for false advertising and trademark infringement in a media liability policy did not bar defense coverage for a claim alleging that Expedia violated the Lanham Act.  Nat’l Union Fire Ins. Co. v. Expedia, Inc., 2020 WL 5893326 (W.D. Wash. Oct. 5, 2020).

Hotels unaffiliated with Expedia sued Expedia, claiming that it violated the Lanham Act’s prohibition on false descriptions by displaying, in search engine results and on its website, the names and addresses of the unaffiliated hotels in a manner that suggested to consumers that they could use Expedia to book rooms at the unaffiliated hotels.  When a consumer attempted to book one of these hotels, Expedia purportedly directed the consumer to a different hotel that was affiliated with Expedia.  Expedia also allegedly displayed phone numbers that appeared to be associated with the unaffiliated hotels but which, in fact, connected consumers to agents who would try to re-direct the consumer to an Expedia-affiliated hotel.

Expedia sought coverage for the lawsuit under a media liability policy and coverage litigation ensued.  In the coverage action, the parties stipulated for the purpose of motion practice that the “Media Content” insuring agreement was triggered.  The parties disputed whether the allegations fell within either the “False Advertising Exclusion” (which barred coverage for “false advertising or misrepresentation in advertising of an Insured’s own services”) or the “Trademark Exclusion” (which barred coverage for “infringement of trademark or trade dress” in connection with “products or services” displayed in media maintained by the insured).  The insurer moved for summary judgment claiming that, based on the application of these exclusions, it had no duty to defend Expedia in the lawsuit.

With regard to the False Advertising Exclusion, the debate centered on whether the information that Expedia displayed about the unaffiliated hotels was advertising “of an Insured’s own services.”  The insurer argued that the information about unaffiliated hotels was still “for” Expedia’s “own services,” because it was intended to further Expedia’s business by generating bookings.  The Court disagreed, holding that the False Advertising Exclusion did not negate the insurer’s duty to defend.  The Court explained that the insurer’s interpretation impermissibly read the restrictive clause out of the policy and was inconsistent with the unaffiliated hotels’ allegations, which were specifically directed to misrepresentations regarding the unaffiliated hotels’ services, rather than Expedia’s.

The Court next held that the Trademark Exclusion also did not extinguish the insurer’s duty to defend because the unaffiliated hotels could make out a “false advertising” claim under the Lanham Act without establishing that their trademarks had been infringed.  According to the Court, even if no trademarks are involved, such claims can proceed upon evidence of false statements in a defendant’s advertisement about the services of the plaintiff that may materially deceive a consumer.

Finding neither exclusion applicable, the Court denied the insurer’s motion for summary judgment on the existence of a duty to defend.



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