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Law - Publishing
Column for August 2005-08-04

Insurance for Copyright Infringement Claims

Frank Tosto
Borden Ladner Gervais LLP
Frank Tosto
August 2005


An explosion in insurance litigation in the United States has given rise to the possibility that the violation of a person’s copyright may be covered under the guilty person’s Commercial General Liability (“CGL”) policy of insurance. American courts have determined that the “advertising liability/injury” endorsement providing insurance coverage in most CGL policies of insurance may provide coverage for intellectual property claims including copyright infringement. The debate about the availability of this kind of coverage is slowly finding its way into the Canadian courts. This issue is important to Canadian-based magazines mailed into the United States or sold on U.S. newsstands.


In order for insurance coverage to be extended for copyright infringement, an insured person must first establish that a copyright holder’s rights have been violated. For the purpose of this article it is assumed that an infringement has been proven.


Insurance coverage for these claims has typically been sought by litigants under the “advertising liability/injury” endorsement found in most CGL policies of insurance.

There are only three Canadian cases which have considered coverage for Intellectual Property claims under the “advertising liability/injury” endorsement. As this area expands, we will look to the decisions in the United States for guidance.

In Canada, if there is a mere possibility that an allegation in the underlying Statement of Claim is covered by the wording of an insurance contract, a duty to defend by an insurance company will arise. Courts look at the essence of what is disclosed in the Statement of Claim to figure out if it meets the coverage requirements in the insurance contract. This approach avoids making a coverage decision based on poorly drafted Statements of Claim, leaving the Court to decide what issues are really raised.

The duty to defend is separate from the duty to indemnify. A duty to defend means the insurer has to pay defence costs. The duty to indemnify is the requirement to pay damages, if awarded. The analysis of a duty to defend is where most coverage fights take place.

The framework of analysis in Canadian Courts seems to copy the three-part test being applied in the United States. Two of the recent Canadian cases have focused on the “causal connection” necessary to establish coverage. The other case addresses the issue of what constitutes advertising activities.

Grayson v. Wellington Insurance Co. represents the first reported decision in Canada where an insured sought coverage for copyright infringement under the advertising provision of a Commercial General policy of insurance. In Grayson, the British Columbia Court of Appeal unanimously decided that although a causal connection between the injury and the copyright infringement is required, the insured need only demonstrate some nexus or causal relationship and not necessarily a direct or proximal causal relationship to establish a duty to defend. In prairieFyre Software Inc. v. St. Paul Fire & Marine Ins. Co., the most recently decided case in Canada, the Ontario Court of Appeal determined that a direct causal link between the advertising activity and the offence is required as a condition of the policy.

Therefore, it appears that the state of the law in Canada is clearly in flux. The Ontario and British Columbia Courts of Appeal are not in agreement as to the nature of the requisite causal link nor are they in agreement as to the matters to be linked; that is to say, the British Columbia Court of Appeal suggests that the requisite nexus be between the injury and the infringement whereas the Ontario Court of Appeal suggests that the link be between the advertising activity and the offence.

Reform Party of Canada v. Western Union Ins. Co. is the only other case in Canada which addresses the issue of coverage for defamatory comments posted on a website. This case deals with the narrow issue of what constitutes advertising activities under a CGL, as most CGL policies do not define this concept. The British Columbia Court of Appeal concluded that the impugned activity must arise in the context of a publishing, broadcast or telecast which has a “…broad distribution of a message as opposed to a one-on-one oral statement or a letter directed to only one person”. Publications, however, would likely include magazine articles.


Canadian courts will likely look to decisions from the United States to assist in determining coverage. State courts have consistently applied a three part test in order to determine if a duty to defend exists where copyright infringement has been alleged. The test is as follows:

1. Does the underlying pleading allege copyright infringement or another enumerated offence?
2. Is the insured engaged in a course of advertising activity?
3. Does a causal connection exist between the offence and the advertising activity?

In order for coverage to be extended, the underlying claim must allege an enumerated offence under the “advertising liability/injury”. Copyright infringement is an expressly covered offence under this endorsement. Even if the three branches of the test are satisfied, one must determine if there are any applicable unambiguous exclusions which will then vitiate coverage.

1. Does the Pleading Allege Copyright infringement?

Determining whether the underlying pleading alleges copyright infringement is an elementary exercise and is easily determined by simply reading the underlying Statement of Claim. The majority of cases reviewed concede the fact that the underlying Statement of Claim alleges infringement.

2. Is the insured engaged in a course of advertising activity?

The policyholder must establish that the infringing activity was committed in the course of advertising the insured’s goods, products or services. If the offence did not occur in the context of the insured’s advertising activities, no coverage will be found to exist. Simple copyright infringement should not be covered by this endorsement.

Advertising is not defined in most policies and has therefore become the subject of much judicial consideration. The cases reviewed indicate two streams of thought involving the notion of advertising. The first line of cases suggest that the advertising itself must be directed to the public at large rather than a specific group to fall under the provisions of the endorsement. The second line of cases conclude that the advertising need only be directed at a defined group, small group or even individuals.

3. Causal Connection

A defence situation does not arise absent a causal connection between the insured’s advertising activities and the alleged offence. To give rise to a duty to defend, the insured must establish that the advertising activity constituted a violation of an enumerated offence (i.e. copyright infringement). Furthermore, the advertising itself must infringe on the copyright, as the noted offence, and not merely evidence an underlying infringement. In the absence of a causal connection, coverage is not established. The underlying pleading must also allege injuries from the plaintiff’s advertising. Absent injury to the third party, a duty to defend will not arise.

Like Canada, two lines of cases have developed concerning the necessary nexus. The first line of cases requires a direct causal connection between the advertisement and the offence. The second group of cases requires either a lesser, but for, causal connection or no causal connection at all.


Once all three branches of the test are satisfied, one need still determine if there are any applicable exclusions which would result in no coverage. If an unambiguous exclusion applies, a defence obligation will not be extended.


There are numerous cases in the United States addressing coverage for Intellectual Property claims under a standard form CGL policy of insurance. This trend in litigation is slowly finding its way to Canada. In some instances, there may exist insurance coverage for copyright infringement claims in Canada under CGL policies. Magazine owners should always, as a precaution put their CGL insurers on notice when served with any copyright claim, or the threat of one, since CGL policies may provide an unexpected protection.

Frank Tosto is an attorney with Borden Ladner Gervais LLP, and provides legal advice and representation on media law and intellectual property law issues including defamation, copyright and trade-mark. He can be reached at (403) 232-9435.