Cases: “Solicitation” isn’t “advertising”

An insurance policy that covers loss caused by “advertising injuries” does not cover losses caused by a franchisee’s termination of its franchise agreement and soliciting its existing clients, says the California Court of Appeals in a rare published contracts opinion.

In the case, the franchisor sued for breach of contract, misappropriation of trade secrets, and unfair competition.  The franchisee, claiming that this was a covered “advertising injury,” demanded that its insurer provide a defense, and the insurer declined.  The policy defined “advertisement” as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.”  The franchisee argued that its actions, which involved a public announcement, a breakfast meeting with customers, and notice on the Internet counted as “advertising.”

The court disagreed.  Reading the clause broadly would essentially cover nearly any kind of business communication, said the court, and that obviously was not what was intended.  Whatever advertising covers—and the court did not find it necessary to develop a complete definition—it is not the same as ordinary solicitation, which was not covered.  Summary judgment for the insurer was affirmed.

Rombe Corp. v. Allied Insurance Co., 2005 Cal. App. LEXIS 600 (4th Dept. April 1, 2005).