Maryland just handed down a duty-to-defend advertising-injury case, Maryland Casualty Company v. Blackstone International Ltd. (Md. 2015). CGL insurer does not need to defend a breach of contract claim where plaintiff seeks a share of the profit/equity in a joint venture and the allegedly stolen advertising ideas/work product was used to benefit that venture but the use of those ideas did not directly harm plaintiff.
I hate it when people discuss a case’s facts and include every irrelevant detail they can find, but this case is very factually specific. According to RMG, in 2006, Blackstone made a handshake deal with a RMG Direct, Inc. to make lamps and “other lighting products.” Blackstone made the lamps; RMG helped market them (although RMG did not get paid up front.) Over the next four years, RMG did a lot of marketing for the company, including a presentation to Wal-Mart. So far so good.
Now for the alleged torts. Blackstone told RMG that the deal with Walmart went nowhere. It had not. Blackstone was selling Wal-Mart the lamps under a different but largely identical label. RMG wanted its cut, but Blackstone stiffed it. RMG subsequently tried to formalize the handshake deal with Blackstone. Blackstone balked. RMG sued.
(But the most important fact turns out to be invisible. RMG never alleges that the stolen advertisements harmed RMG in any way. Rather, they represent RMG's investment in a deal, the benefit of which Blackstone deprived RMG of.)
RMG filed a batch of civil claims for violations of their agreements and a joint venture. Breach of contract and its equitable variants, fraud, accounting. For analytical purposes, the Court divided them into breach-of-contract based claims and unjust enrichment for reasons discussed below. The crux of the claims was that Blackstone owed RMG a cut of the profits and some equity.
Blackstone sent the complaint to its CGL insurer, Maryland Casualty, and claimed coverage under the advertising injury provision for all claims. Since RMG had provided marketing support and the policy covered claims “arising out of . . .[t]he use of another’s advertising idea in your ‘advertisement,” Blackstone argued that RMG’s claims were covered. Maryland Casualty denied coverage and eventually filed a declaratory judgment that it had no duty to defend.
Like the Court of Special Appeals, the Court of Appeals rejected any coverage for claims other than unjust enrichment. Blackstone had argued that when its policy covered all claims “arising from” advertising injuries, it expanded coverage to include all claims that related to advertising activity. The Court of Appeals analyzed the question under its three part test for determining whether advertising injuries had been alleged:
The [p]olicy requires that the underlying plaintiffs allege the potential for three things: (1) an ‘advertisement’; (2) an ‘advertising injury,’. . . ; and (3) a causal relationship between the advertising injury and the alleged damages.
See Walk v. Hartford Cas. Ins. Co., 382 Md. 1, 17, 852 A.2d 98, 107 (2004) for more details. The important part is causation.
The Court of Appeals first addressed the non-unjust-enrichment contract-based claims and found that they did not meet causation requirement. “ ‘Arising of” alone did not expand coverage to include “contract claims that happen to have a relationship with advertising activity.” The contract based claims failed the causal connection requirement because they “remained viable even if Blackstone had never used the disputed advertising ideas to sell its products.”
The Court then turned to unjust enrichment, the count for which the Court of Special Appeals had found potential coverage. The Court again focused on the causation issue and found that no causation existed. RMG’s damages had occurred because Blackstone had not shared the profits, not because Blackstone’s advertising had harmed RMG’s interests. In fact, Blackstone’s advertising had only made the profits of the joint venture more valuable. RMG was therefore harmed not by the advertising, but by Blackstone’ refusal to share profits. Characterizing that claims as unjust enrichment as an alternative to breach of contract did not change its basic nature.
Or at least, that opinion got five out of seven votes. I'll talk about the dissent next week if I have time.