insurer must defend Expedia because its false advertising exclusion didn’t cover false claims about hotels

National Union Fire Ins. Co. v. Expedia, Inc., 2020 WL
5369261, No. C19-0896RSL (W.D. Wash. Sept. 8, 2020)

While receiving bad news in the underlying false advertising
claims (watch this space), Expedia did manage to keep its insurer involved in the defense, despite
a false advertising exclusion that turns out not to have been broadly worded

National Union provided Special Risk insurance to defendant
Expedia which included “Special Professional Liability” and “Media Content”
coverage. In 2016, a class action lawsuit was filed in the Northern District of
California against Expedia by four hotel operators, accusing Expedia of “a bait
and switch marketing scheme whereby it advertises deals at hotels with which it
had no contractual relationship and, when a customer attempts to make a
reservation at one of those hotels, Expedia gives the impression that there are
no rooms available on the requested dates and drives the traffic to its
contracting partners.” When Expedia tendered defense of the lawsuit to National
Union, National Union agreed to defend while reserving its rights, then filed
this action for a declaration of its obligations.

National Union didn’t dispute that the coverages applied; it
had the burden of showing that an exclusion nonetheless bars coverage.

The underlying lawsuit alleges, that when customers search
for their hotels on Google or one of Expedia’s websites, Expedia displays the
hotels as if it the customer were able to make a reservation through its
websites. But, because Expedia has no ability to book rooms at their hotels, it
allegedly switches them to other hotels by falsely implying that the chosen
hotel is sold out or that rooms are unavailable for the selected dates. The
remaining claim is false advertising in violation of the Lanham Act: “Expedia
made false or misleading statements in on-line travel and booking services
which misrepresented the nature, characteristics, and qualities of the hotels’
services and commercial activities” (emphasis added).

“Exclusions from coverage are strictly construed against the
insurer because they are contrary to the protective purpose of insurance.” The
Media Content coverage covers “any act, error or omission, negligent
supervision of employee, misstatement or misleading statement” in any form of
media content which results in, among other things, an infringement of
trademark or trade dress. There is an express exclusion for claims “alleging,
arising out of, based upon or attributable to (1) false advertising or
misrepresentation in advertising of an Insured’s products or services . . . or
(3) any infringement of trademark or trade dress by any goods, products or
services, including any goods or products displayed or contained” in any form
of media content. (The Specialty Professional Liability policy covers “any
negligent act, error or omission, misstatement or misleading statement in an
Insured’s performance of Professional Services for others….” There are
exclusions for claims “alleging, arising out of , based upon or attributable to
any misappropriation of trade secret or infringement of patent, copyright,
trademark, trade dress or any other intellectual property right….” and claims
“alleging, arising out of, based upon or attributable to false advertising or
misrepresentations in advertising.”)

For the Media Content exclusion, the parties disagreed about
whether the phrase “of an Insured’s products or services” mattered. “National
Union argues that anything and everything Expedia says in its advertising is in
furtherance of its own business interests and is therefore uncovered.” Expedia
argued that the exclusion was limited only to misrepresentations about its own
products or services, not those of another, contrasting it with the SPL
exclusion which had no such additional language.

The court agreed with Expedia. As written, the false
advertising must be “of an Insured’s products or services,” and if National
Union truly intended to exclude all false statements Expedia made in
advertising, there would be no need to add the phrase “of an Insured’s products
or services.” Citing a practice guide to insurance litigation, the court noted
that the exclusion “is generally thought to refer to inaccurate and misleading
representations…concerning the insured’s own product, rather than that of
another entity.” “Otherwise, protections expressly granted, such as coverage
for claims arising out of disparaging comments aimed at the another’s product,
would be negated by the exclusion. Such an interpretation would be

Nor did the trademark exclusion apply, given that “the hotel
operators’ Lanham Act claim can succeed without having to show that they have a
protectable trademark or that Expedia infringed on their intellectual property

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