Mid-Continent Casualty Company v. Kipp Flores Architects, L.L.C.

Houses built based on infringing designs constitute an “advertisement” as defined in commercial insurance policies.

Opinion (PER CURIAM): Kipp Flores Architects, LLC ("KFA"), an architectural firm, agreed to supply Hallmark Design Homes, L.P. ("Hallmark"), a builder, with 11 different house designs. Hallmark was authorized to build one house based on each design, but was required to pay a license fee for any additional houses built. Hallmark built several hundred homes based on the designs without paying KFA the license fee. KFA sued Hallmark for copyright infringement and secured a jury verdict finding that Hallmark infringed on all of KFA's house designs and awarding KFA damages. Hallmark eventually went bankrupt, prompting KFA to seek coverage under the advertising liability section of several insurance policies issued to Hallmark by Mid-Continent Casualty Company ("Mid-Continent"). Although the policies generally excluded coverage for copyright infringement, there was a limited exception for "advertising injury" arising out of copyright infringement. The policies defined "advertisement" as "a notice that is broadcast or published to the general public or specific market segments about [Hallmark's] goods, products or services for the purpose of attracting customers or supporters." Both parties submitted motions for summary judgment, and the district court granted KFA's motion, from which Mid-Continent appealed. The undisputed evidence before the court was that Hallmark used the infringing houses themselves to market to customers. Mid-Continent, however, argued that the infringing houses could never be an "advertisement" under the policies because a house cannot be a "notice" and it cannot be "broadcast or published." Because it was undisputed that Hallmark's primary means of marketing its construction business was through the use of the houses themselves, "Hallmark's use of the infringing houses satisfies not only the policies expansive definition of advertisement and Texas law's similarly broad construction of the term, but also common sense." Under certain circumstances, a product itself can constitute an "advertisement" under a commercial insurance policy. The appellate court AFFIRMED the district court's judgment.