Home Builder’s Schematics Were Not Advertisements for Purposes of Advertising Injury Coverage

June 21, 2017 | Robert Tugander | Insurance Coverage

The U.S. Court of Appeals for the Eleventh Circuit has ruled that an insurance company had no duty to indemnify an insured home builder that allegedly infringed copyrighted house designs, finding that the builder’s schematics were not advertisements for purposes of the policy’s advertising injury provisions.

The Case

Home Design Services, Inc., sued Highland Holdings, Inc., alleging that it had infringed its copyrights by “advertising, designing, constructing, and participating in the construction of one or more residences which were copied largely or were exact duplicates of” three house plans registered by Home Design.

Highland sent the complaint to its insurer, which provided a defense.

Highland subsequently rejected the defense, negotiated directly with Home Design, and reached a settlement in which Highland, without “admitting [any] liability,” agreed to pay $650,000 “as full and final settlement of all claims raised or that could have been raised” in Home Design’s lawsuit.

Thereafter, Highland filed an action seeking a declaration that it was entitled to indemnification from its insurer under the “personal and advertising injury” provisions of its insurance policy.

The U.S. District Court for the Middle District of Florida granted summary judgment in favor of the insurer, and Highland appealed to the Eleventh Circuit. It argued, among other things, that the “layouts” or “schematic plans” that it had prepared, and to which Home Design had objected, were “advertisements[] because their very purpose was to broadcast [its] product (houses) to the public . . . and attract customers.”

The Circuit Court’s Decision

The circuit court affirmed.

In its decision, the circuit court ruled that a “schematic plan” by itself was not an “advertisement” under Highland’s insurance policy. It reasoned that a drawing that showed the layout of a house did not provide “notice . . . about [the] products or services” provided by the homebuilder. Moreover, the circuit court continued, a schematic plan could be used for more practical purposes than “attracting customers.”

The Eleventh Circuit concluded that although an advertisement might feature a schematic plan and although a “prudent purchaser of a home would review a schematic plan before authorizing construction,” a schematic plan was “not an advertisement.”

The case is Highland Holdings, Inc. v. Adams, No. 16-14981 (11th Cir. May 2, 2017).

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