A surplus lines unit of Munich Reinsurance Co. does not have to defend or indemnify a group of Texas strip clubs that face a $1.4 million damages award for a group of models whose images they wrongly used in advertising campaigns, a federal appeals court ruled.
The 5th U.S. Circuit Court of Appeals on Friday overturned a lower court and ruled in Princeton Excess and Surplus Lines Insurance Co. v. A.H.D. Houston Inc. that exclusions contained in Princeton’s policies bar coverage for the clubs known as Treasures, Centerfolds and Splendor.
In the underlying 2017 case, which is on appeal with a Texas appeals court, a state court found the clubs had illegally used the models’ images in various sexually charged social media and internet posts encouraging patrons to visit the clubs.
Princeton had issued two commercial liability insurance policies to the clubs, including personal and advertising injury liability coverage. Both policies contained slightly different exclusions.
Princeton sought a summary judgment that the exclusions precluded coverage, but the trial court ruled in favor of the policyholders and the models.
In the first policy, the “field of entertainment exclusion” eliminates coverage for most advertising injuries, but provides sufficient coverage for other injuries, such as the use of an another’s “advertising idea”, to be a legitimate policy, the appeals court ruled.
Coverage under the second policy turned on its “exhibition and related marketing exclusion,” the ruling states. The lower court found that the exclusion essentially eliminated all advertising injury coverage” rendering the coverage provided under the policy “illusory.”
The appeals court ruled that the lower court incorrectly split the personal and advertising injury coverage provided under the policy into separate categories rather than viewing the coverage holistically.
The policy terms show that “the policy’s Personal and Advertising Injury coverage comprises a single category of coverage, and further that the Exhibition and Related Marketing Exclusion removes much, but by no means all, of that coverage,” the ruling states.
In its majority decision, the appeals court ruled that Princeton “does not have a duty to defend or indemnify the Clubs in the underlying lawsuit because neither (policy) provides coverage for the claims alleged by the Models.”