ACC Focus on the New Jersey Chapter - February 7, 2011 (Print All Articles)
2011 is already proving to be a successful year for NJCCA. Recently, we obtained 2011-2013 New York CLE approval for many of our programs. So if you’re a member of the NJ and NY bar why not come out and kill two birds with one stone. Please check our website for details of upcoming programs. We are hard at work on other programs and social events and encourage your participation in any and all of them. Please contact me or our Executive Director Gail Girard for more details. In the meantime, please mark your calendars for our 4 major events of the year:
Do you have an idea for a program and/or event, please let us know as NJCCA is the organization for in-house counsel and we want to provide you with the best CLE programs that we can. We want your input, so please do not hesitate to contact anyone on our Executive Committee or Board of Directors with your suggestions.
Best regards, Evan
INSURANCE COVERAGE FOR GREENWASHING CLAIMS: It Depends on the Packaging
J. Wylie Donald and Stephanie Platzman-Diamant
Greenwashing can have serious consequences for companies in the form of enforcement actions by the FTC and lawsuits
In an age of increased environmental consciousness, many companies believe that “green” marketing yields more greenbacks. And for good reason — in a recent survey, over 60% of consumers surveyed across eight developing and developed countries “want to buy from environmentally responsible companies.”1
Some “green” products, however, may fail to live up to their eco-friendly claims (or at least someone will say they do). “Greenwashing” is the term coined to describe the practice of companies’ deceptively representing their products as environmentally friendly.2 Besides being dishonest, engaging in greenwashing can have serious consequences for companies in the form of enforcement actions by the Federal Trade Commission (“FTC”)3 and lawsuits by both consumers and competitors.
The FTC has guidelines for environmental marketing claims, commonly known as the “Green Guides.”4 While the Green Guides themselves do not have the force of law, actions inconsistent with the guidelines may result in the FTC taking “corrective action,” if, after investigation, it has reason to believe that the behavior falls within the scope of conduct declared unlawful by Section 5 of the FTC Act.5 The Green Guides list several examples of environmental marketing that may give rise to “greenwashing” claims. These include unqualified claims of “recyclability;” deceptive claims of recycled content, “degradability,” “compostability,” or ozone “friendliness;” overstatement of a product’s environmental friendliness; and selective description of a product’s environmental safety.6 In conjunction with FTC actions against “greenwashers,” civil litigation has been filed asserting the Green Guides as the standard against which alleged greenwashing is measured.7
Greenwashing Claims on the Rise?
The FTC has published proposed revisions to its Green Guides. It began the review process in 2008 — a year earlier than scheduled — because of an increase in claims asserting improper green advertising.8 If adopted, the proposed revisions will make the Green Guides both stricter and broader in scope.9 For example, while the current Green Guides permit unqualified claims that a product has a “general environmental benefit” (e.g., “green” or “eco-friendly”) if the marketer of that product can substantiate all express and implied claims, the proposed revisions categorically forbid these type of claims as being “difficult, if not impossible, to substantiate.”10 The proposed revisions further state that marketers should use clear and prominent language limiting unqualified certifications or seals of approval to a particular benefit that can be substantiated.11 Additionally, the proposed revisions provide guidance for claims regarding renewable materials, renewable energy and carbon offsets, which are not contained within the current Green Guides.12
Consumers’ perceptions of claims of environmental benefit were among the concerns driving the FTC’s revision of the Green Guides.13 The FTC conducted a study of consumers’ reactions to advertisers’ “green” claims.14 The study found that 52 percent of respondents viewing an unqualified claim that a product was “green” believed that the product had a specific attribute (e.g., that the product was made from recyclable materials, or that the product was compostable).15 Similarly, 49 percent of respondents viewing an unqualified claim that a product was eco-friendly” believed that the product had a specific environmental benefit.16 On the other hand, when the general environmental claims were qualified, 31 percent of the individuals surveyed believed that the claim implied specific environmental benefits in addition to the stated attributes.17
Even without stricter regulatory guidelines, consumer claims of deceptive environmental marketing have been on the rise. For example, since 2007, at least four consumer lawsuits have alleged that companies have falsely advertised their products’ environmental impact.18 One can also expect a rise in the number of lawsuits alleging unfair competition due to false claims of environmental benefits, under both the federal Lanham Act (which permits a company to recover for damages caused by false statements made by its competitor about its product or the competitor’s own product) and state enactments of the Uniform Deceptive Trade Practices Act.19
The anticipated rise in a new type of claim naturally begets the question, “Will my liability insurance cover it?” Because greenwashing claims are of recent vintage, courts have not had the opportunity to address coverage for them under traditional commercial general liability (“CGL”) policies. Whether the defense of a greenwashing claim is covered, however, will ultimately depend on how it is pled in the underlying lawsuit when compared to the relevant policy. Assuming a plaintiff is successful, whether the insurer will indemnify for any judgment or settlement will depend on how the facts themselves correlate to the policy language. In this commentary, we attempt to read the tea leaves on this emerging issue by examining cases pertaining to insurance coverage for advertising injury claims.
Personal and Advertising Injury Liability Coverage.
Generally, CGL policies provide coverage for certain misstatements under the “personal and advertising injury” coverage. Those provisions provide the policyholder with coverage for damages arising out of thirdparty claims for injury allegedly caused by statements made by the policyholder in certain circumstances, including marketing and advertising. Greenwashing claims would fall within advertising injury liability coverage because they typically arise from a company’s promotional statements.
Many liability carriers model their CGL policies on the standard CGL form published by Insurance Services Office, Inc., universally known as ISO. The most recent edition of Coverage B Personal and Advertising Injury Liability of this form as of this writing in November 2010 states: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies.”20 The form goes on to define “personal and advertising injury” as
If one is subject to a claim for “greenwashing,” one can generally see the outlines of coverage under provisions d. and f., provided that the allegation can be construed as asserting a disparagement of another’s product or the use of another’s advertising idea.
Showing that a claim falls within a policy’s grant of coverage is only half the battle. To ultimately obtain coverage the policyholder must also avoid the application of any asserted exclusions. One potentially applicable exclusion is the 2007 ISO form’s Quality or Performance of Goods — Failure to Conform to Statements (“Failure to Conform”) exclusion.
Unfortunately, the 2007 ISO Form has not been extensively litigated so insight into the operation of its provisions must also be gleaned from decisions concerning earlier forms. Several published cases pertaining to advertising injury liability deal with language similar to that of the 1986 ISO form, which provides coverage for “personal injury” and separately for “advertising injury.” The 1986 form defines “advertising injury” as
The “misappropriation of advertising ideas” coverage in the 1986 form strongly parallels the 2007 form’s “use of another’s advertising idea.”
Advertising Injury Cases Involving Disparagement.
“Disparage” is not a defined term in either the 2007 or 1986 ISO form. Accordingly, courts have looked to dictionaries to inform their understanding. In Virtual Business Enterprises, LLC v. Maryland Casualty Co.,25 for example, the Delaware Superior Court relied on an on-line dictionary to establish that a reasonable meaning for “disparage” was "to lower in rank or reputation; ... to depreciate by indirect means.”26 Further, it is not required that a specific party be named for disparagement to occur. Federal courts in California and Illinois have recognized claims for coverage for implied disparagement, where the insured touted the superiority of its product, necessarily implying the inferiority of its competition.27
Knoll Pharmaceutical Co. v. Automobile Insurance Co. of Hartford demonstrates the application of implied disparagement. The underlying lawsuits involved actions (mostly class actions) by consumers and third-party payors against Knoll Pharmaceutical Co. (“Knoll”) and other defendants regarding the sale and marketing of Synthroid, a synthetic form of a thyroid hormone, used to treat thyroid disease.28 The underlying complaints alleged, among other things, that Knoll “concealed or suppressed information about cheaper bioequivalent drugs, falsely represented that there were no equivalents, and charged individual consumers and their insurers more than they would have been able to [charge] if the correct information had been known, in violation of federal antitrust and racketeering laws and state fraud statutes.”29 Among other things, the underlying complaints pointed to Knoll’s corporate predecessor’s advertisement for Synthroid stating that “there is no substitute for Synthroid,” that there was “no proven bioequivalent product,” and that “no adequate and well-controlled studies have demonstrated bioequivalence among levothyroxine sodium [Synthroid’s active ingredient] products.”30
Knoll’s CGL policies provided coverage for “advertising injury…arising out of,” among other things, “oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”31 Knoll’s insurers refused to defend it in the underlying lawsuits, causing Knoll to file a declaratory judgment action, which sought various types of relief, including a declaration that the insurers had the duty to defend it in the underlying lawsuit.32
The insurers argued that they did not have a duty to defend Knoll because the underlying claims did not fall within their policies’ advertising injury coverage.33 The insurers asserted that the underlying allegations did not constitute “oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”34 The insurers further argued that the terms “slander,” “libel,” and “disparagement” entail an element of reputational injury to the plaintiff or its goods, and thus, the underlying complaint must allege direct injury from these offenses in order to trigger the duty to defend.35
The court disagreed with Knoll’s insurers, holding that they owed a duty to defend Knoll in the underlying lawsuits.36 The court reasoned that the while the underlying complaints did not allege direct injury from the offenses enumerated in the policies, the allegations nonetheless fit within the policies’ definition of advertising injury:
Advertising Injury Cases Involving “Misappropriation of Advertising Ideas or Style of Doing Business.”
Neither the 1986 ISO form nor the current ISO form defines the term “advertising idea[s].” Generally, an advertising idea concerns the solicitation of business or manner in which one advertises.40 Cases involving misappropriation of another’s advertising idea provide some guidance on how courts may find coverage for some types of greenwashing claims. In those cases, policyholders sought coverage for third-party claims alleging that they somehow falsely presented their products to the marketplace, and that the false presentation caused injury to the third-party claimant in the form of lost sales or devaluation of its product. These types of cases provide a useful framework for considering coverage for greenwashing claims because greenwashing claims typically deal with a company’s overstating or misstating its product’s environmentally friendly attributes.
One such case is Atlapac Trading Co., Inc. v. American Motorists Insurance Co.41 There, the plaintiff in the underlying lawsuit, Tama Trading, Inc. (“Tama”) alleged that Atlapac Trading Company, Inc. (“Atlapac”) falsely labeled its olive oil products as “pure olive oil” when instead they consisted of blends of other oils.42 Tama further alleged that Atlapac’s false labeling and marketing included pricing its blended oils well below the prices that Tama offered for its olive oil.43 Tama claimed damages in the form of lost sales due to Atlapac’s ability to charge lower prices for its less-than pure olive oil.44 Atlapac tendered a claim for defense in the underlying action to American Motorists Insurance Company (“American Motorists”), which denied coverage.45
Among other things, Atlapac argued that Tama’s allegations of false designation of origin, false description and common law unfair competition potentially triggered coverage under the policy provision granting coverage for advertising injury damages arising out of “misappropriation of advertising ideas or style of doing business.”46 Further, Atlapac argued that “misappropriation of advertising ideas and style of doing business” is ambiguous and should be constjrued to provide coverage for the underlying allegations.47
The court agreed with Atlapac, finding that it was “objectively reasonable for [Atlapac] to have expected coverage” because Atlapac “was buying coverage against lawsuits brought for various offenses committed in the course of its advertising activities.”48 Thus, it was reasonable for Atlapac to have expected that claims for false designation of origin under the Lanham Act and common law unfair competition would be covered under the policy.49 The court further found that Atlapac’s use of “the term ‘pure olive oil’ could reasonably be construed as an advertising idea or style of doing business.”50 Atlapac’s expectation of coverage under the policy was therefore reasonable.51
In American Simmental Association v. Coregis Insurance Co.,52 the court applied reasoning similar to that in Atlapac in finding that the insurance company had a duty to defend a cattle breeding association in an underlying lawsuit alleging that the association’s advertising certain cattle as “fullblood” lowered the value of the underlying plaintiffs’ cattle.In the underlying lawsuit, owners of “fullblood” Simmental cattle sued the American Simmental Association (“ASA”) alleging that the ASA falsely advertised non-fullblood cattle as fullblooded Simmental cattle, which in turn caused the underlying plaintiffs to lose customers and sales and damaged their reputations as Simmental breeders.53
The ASA is a not-for-profit association that registers and promotes the designation of the Simmental breed of cattle.54 In 1988, the association’s members adopted a rule to include a classification for cattle with “foreign ancestry” (i.e., originating from either Germany, Switzerland, France or Austria), which did not consider the genetic purity of cattle receiving this designation.55 In 1991, Tom Risinger, an ASA board member, allegedly began importing German bulls and attempted to register them as “fullblood” Simmentals with the Canadian Simmental Association, which informed him that the German cattle were ineligible for “fullblood” designation because they had Angus genetics.56 Risinger then successfully registered the German cattle with the ASA as “fullblood.”57 In 1991, the ASA amended its by-laws to replace the title “foreign ancestry” with “fullblood,” which had the effect of designating cattle as “fullblood” based solely on whether the animals originated from Germany, Switzerland, France, or Austria.58 In 1994, the ASA, through a series of rule changes, formally adopted the revised fullblood designation for cattle with the requisite proven foreign ancestry.59 Thus, there was no longer a requirement that the “fullblood” cattle have only Simmental genetics.60
Shortly after the ASA formally adopted the revised full-blood designation, the underlying plaintiffs, who were members of the ASA and Simmental breeders, filed a two-count complaint against the ASA and Tom Risinger.61 Among other things, the complaint alleged that in August 1992, Risinger and the ASA published an advertisement in the official publication of the ASA, indicating that the German cattle imported by Risinger had 100 percent Fleckvieh Simmental genetics.62 The underlying plaintiffs alleged that the defendants’ representation of the Risinger cattle as “fullbloods” was false, and caused the value of their animals to diminish by at least 50 percent.63
St. Paul Fire & Marine Insurance Company (“St. Paul”) issued a CGL policy to the ASA, which provided, among other things, coverage for “advertising injury.”64 Shortly after the underlying complaint was filed, the ASA tendered its defense to St. Paul, which refused to defend.65
After the ASA tendered its defense, the underlying plaintiffs filed two amended complaints adding counts alleging violation of the Lanham Act and negligence.66 The Second Amended Complaint alleged that the defendants falsely designated the animals with the title of “fullbloods,” in their “advertisement,” “promotion,” and “representation” of the Risinger cattle as “fullbloods.”67 The complaint further alleged that the ASA’s false advertising and promotion was disseminated to purchasers of Simmental cattle and Simmental breeders, who were deceived by the false advertising and promotion.68
The underlying plaintiffs further alleged that the ASA’s misrepresentation was likely to influence the purchasing decisions of those to whom the false advertising and promotion were disseminated, and injured the underlying plaintiffs by causing them to lose customers and sales resulting in business losses and impairment of the underlying plaintiffs’ ability to compete.69 The underlying plaintiffs also alleged that the defendants’ misrepresentations, advertisements, and promotions would likely cause the underlying plaintiffs irreparable harm by damaging their reputations as Simmental breeders, as well as the reputation of their Simmental genetics.70 The ASA tendered the Second Amended Complaint to St. Paul, and St. Paul denied coverage, because, among other things, the complaint did not allege damages for injuries caused by any of the “advertising injury” offenses found in the St. Paul policy.71
The district court entered a directed verdict in favor of the ASA on all causes of action in the underlying litigation, and the Eighth Circuit Court of Appeals subsequently affirmed.72
The central issue in American Simmental was whether St. Paul breached its duty to defend the ASA. The relevant insurance policy provided coverage for
The court held that St. Paul had a duty to defend pursuant to the advertising injury coverage provided by the policy it sold to the ASA. Looking to the pleadings in the underlying lawsuit, the court reasoned that the “fullblood” designation “carried with it unique economic value in the hands of the rightful users.”74 The court further reasoned that the ASA designated as “fullblood” cattle that were not entitled to the designation, and that by advertising these animals as “fullblood” in its magazine and elsewhere, the ASA diminished the value of the designation in the hands of the underlying plaintiffs — the rightful users of the designation.75 The court, therefore, concluded that “the ‘fullblood’ designation was a unique ‘advertising idea’ [or] ‘style of doing business.’”76 Thus, there was coverage under the St. Paul policy.
Atlapac and American Simmental are useful in showing how courts may find advertising injury coverage for greenwashing claims.77 Both cases involve underlying claims that the insureds improperly used a designation (in Atlapac, “pure olive oil” and in American Simmental, “fullblood”) to advertise a product and that the improper designation caused damage to the underlying plaintiffs in the form of lost profit or value. One can imagine analogous claims in the greenwashing context. For example, Company A advertises its aerosol air freshener as “ozone friendly.” This claim, however, is deceptive because some of the product’s ingredients are ozone depleting substances.78 Company B markets a citrus oil-based non-aerosol air freshener that contains no ozone-depleting substances, which it advertises — accurately — as “ozone friendly.” Company B files a lawsuit, alleging that Company A falsely claimed in its advertisement, promotion, and representation of its air freshener that the product was “ozone friendly.” Company B further alleges that Company A’s false labeling and marketing included pricing its air freshener well below the prices at which Company B sold its air freshener, and claimed damages in the form of lost sales due to Company A’s ability to charge lower prices.
Applying the reasoning of the courts in Atlapac and American Simmental, there may be advertising injury coverage for Company B’s claims against Company A. The claims against Company A may constitute “misappropriation of advertising ideas,” as set forth in the 1986 ISO form, or “use of another’s advertising idea in your ‘advertisement’” as set forth in the 2007 ISO form. Like the “fullblood” designation in American Simmental, the term “ozone friendly” conceivably “carri[es] with it unique economic value in the hands of the rightful users.”79 Like Atlapac’s use of the term “pure olive oil,” Company A’s use of the term “ozone friendly” could reasonably be construed as an advertising idea.80 Thus, it would be reasonable for Company A to expect advertising injury coverage for claims brought by Company B as either “misappropriation of advertising ideas” or “use of another’s advertising idea in your ‘advertisement.’”81
The Failure to Conform Exclusion.
Would Company B’s claims against Company A fall within the 2007 Failure to Conform exclusion or the 1986 predecessor exclusion? “[F]or the failure to conform exclusion to apply, courts have held that the underlying complaint must contain specific allegations that the policyholder’s goods fail to conform to the quality or performance advertised.”82 One commentator characterizes this exclusion as “the flip-side to disparagement” (i.e., making negative comments about another’s product).83 In other words, if an insured contends that its competitor’s product is terrible, and faces a lawsuit, the claims against the insured would likely be covered advertising injury.84 On the other hand, if that same insured makes promises about its own product and then fails to deliver, the exclusion may apply.85
A recent case, Harleysville Mutual Insurance Co. v. Buzz Off Insect Shield, L.L.C.,86 sheds some light on how the Failure to Conform exclusion may apply with respect to claims of greenwashing. In Buzz Off, the Supreme Court of North Carolina held that the Failure to Conform exclusion barred coverage for claims brought by S.C. Johnson, Inc. (“SCJ”), which markets — among other things — OFF! brand insect repellant, against Buzz Off Insect Shield, LLC (“BOIS”) and International Garment Technologies (referred to individually and collectively with BOIS as “IGT”), who together manufactured and marketed insect-repellant clothing.87 Specifically, in the underlying action, SCJ alleged that IGT promoted its product by stating that it (1) “reduce[s] or eliminate[s] the need to apply an insect-repellant product on the skin,” (2) “protects uncovered skin from mosquito bites,” (3) prevents wearers from “receiv[ing] any mosquito bites,” (4) “is equivalent or superior in performance to topical insect repellants, such as those containing DEET [marketed by SCJ],” (5) provides protection from mosquito bites without “the ‘hassle’ of applying ‘messy’ insect-repellant products directly to the skin,” (6) “is highly effective through 25 washings,” and (7) “contains a version of natural insecticide that is derived from chrysanthemum flowers.”88 These claims appeared on BOIS’ website and on websites and in print advertisements of entities that manufactured clothing to be treated with the process that BOIS used to make its insect-repellant clothing and the advertising material of various retailers selling BOIS’ apparel.89 Among other things, SCJ alleged damage resulting from defendants’ advertisements allegedly containing false statements concerning the efficacy of BOIS apparel.90
IGT had purchased CGL policies covering different time periods from Erie Insurance Exchange and Erie Insurance Company (collectively “Erie”) and Harleysville Mutual Insurance Company (“Harleysville”).91 After denying IGT’s requests for assistance in defending SCJ’s lawsuit, Harleysville filed a declaratory judgment action against IGT and Erie, claiming, among other things, that its policy excluded coverage for the injuries claimed in the underlying lawsuit.92 Erie counterclaimed and cross-claimed that its policies did not cover the underlying allegations.93
The Erie and Harleysville policies provided coverage for “personal and advertising injury” arising out of “[o]ral 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.”94 The policies contained a Failure to Conform exclusion, which barred from coverage “‘[p]ersonal and advertising injury’ arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your ‘advertisement’.”95
The court agreed with Harleysville and Erie that the Failure to Conform exclusion barred coverage for SCJ’s claims. The court reasoned that IGT’s allegedly false statements about its products were not false because IGT made representations that SCJ’s products were ineffective, but because it made allegedly false claims that its products’ performance was just as good as, if not superior to, that of SCJ’s products.96 The court further reasoned, “the alleged falsity of the advertisements arises from the failure of defendants’ products to actually perform as well as defendants claim they perform.”97 Thus, the underlying lawsuit “alleged facts indicating that the only falsity found in the defendants’ advertisements resulted from the failure of the defendants’ own products to be of their advertised quality and nature, placing the falsity of those advertisements squarely within the insurance policies "Failure to Conform Exclusion,” which relieved Erie and Harleysville of any duty to defend.98
Notwithstanding the Failure to Conform exclusion’s potential application to claims like those in Buzz Off, it should be recognized that the exclusion has no application to many claims for greenwashing that might be asserted. The Green Guides provide a variety of examples of deceptive advertising, which would not fall within the Failure to Conform exclusion:
Courts have yet to decide questions of insurance coverage for greenwashing claims. Policyholders faced with such claims should carefully review their policies and the allegations against them. Coverage can be found where the allegations disparage a competitor (even, in some jurisdictions, without mentioning the competitor) or can be said to misappropriate an advertising idea. The Failure to Conform exclusion may bar coverage for greenwashing claims if the statements allegedly giving rise to the claim bear upon quality or performance.
Prudent policyholders examine their policies when undertaking new activities to ensure potential liabilities and losses will be addressed. If coverage is limited or unavailable, then many businesses will mold their activities to bring them within coverage, or forgo the activities altogether. Familiar examples are the abandonment of asbestos, the implementation of anti-discrimination policies, and requirements for the operation of company vehicles. Marketing decisions should be treated no differently. Before an advertiser touts its product's or service’s green attributes, it may wish to consider whether it would have coverage for the same if someone sees things differently.
For further discussion of advertising injury cases involving disparagement or misappropriation of advertising ideas, see New Appleman on Insurance Law Library Edition § 19.06
1. Globe-net, Consumers Rank Greenest Brands (June 11, 2010),
NJCCA Offers Two New Discount CLE Programs for Members for 2011
The most cost effective CLE options anywhere!
Option 1: Includes all four NJCCA major events (listed below), plus attendance at any NJCCA-sponsored CLE program throughout the year that is offered at a package rate of $399.00.
Registration fee: ~$85
Option 2: Includes our three NJCCA major events with CLE programs (listed below), plus attendance at any NJCCA-sponsored CLE program throughout the year that is offered at a package rate of $250.00.
For large law departments, if you buy 10 or more packages, you will be eligible for a further discount and will be recognized as a corporate sponsor at each event.
SIGN UP BY APRIL 15, 2011 TO TAKE ADVANTAGE OF THESE DISCOUNT PROGRAMS!
To purrchase your discount package, go online:
If paying by check, please register online with Thriva (using the above hyperlink) and mail your payment with a copy of your Thriva registration receipt to: NJCCA, 15 Pierhead Drive, Barnegat, NJ 08005
Our New Members
NJCCA has passed the symbolic 1,200th member, here are some of our most recent new members.
Short notes of interest to and about our members
NJCCA is seeking "Member Notes" for inclusion in our monthly Chapter Newsletter in 2011
- Been Promoted?
- Switched Jobs?
- Won an award?
- Written an Article?
… Or anything else you'd like to share with the 1,200 members of NJCCA?
Please tell us your exciting news and we will publish it in an upcoming Newsletter (space permitting).