Depending on the source, between one half to two-thirds of adults in the United States take a dietary supplement of some kind every day. A dietary supplement is a product for ingestion that contains a dietary ingredient intended to add further nutritional value to (supplement) the diet, such as vitamins, minerals, herbs, amino acids and enzymes. Multivitamins, green tea extract and fish oil are just a few examples of the supplements that a multi-billion dollar supplement industry has said will make consumers healthier. With an estimated 80,000 dietary supplements on the market in the United States, skepticism has weighed in: What is actually in the supplement? Is the advertising accurate? Lawsuits claiming false advertising against supplement manufacturers are on the rise, and as a result, these claims are also being considered from an insurance coverage perspective.
Most recently, the U.S. Court of Appeals for the Sixth Circuit decided that a dietary supplement manufacturer has no coverage under its liability policies for a false advertising lawsuit brought by a competitor. Vitamin Health, Inc. v. Hartford Casualty Ins. Co., — Fed. Appx. —, 2017 WL 1325263 (6th Cir. Apr. 11, 2017). In an unpublished opinion, the Sixth Circuit upheld a Michigan district court's decision that no advertising injury coverage exists because the lawsuit alleged that the insured's statements related to its own product, but not disparagement of another's product.
A Bitter Pill to Swallow — Lawsuit Claiming False Advertising of Supplements
Vitamin Health, Inc. manufactures supplements for eye health, including Viteyes® AREDS 2. Its supplements are intended to reduce the risk of developing age-related macular degeneration, a condition that leads to vision loss. Vitamin Health advertises its supplements as "AREDS 2-compliant," indicating to consumers that they contain the combination of vitamins recommended by the second Age-Related Eye Disease Study (AREDS), a 2013 study conducted by the National Eye Institute of the National Institutes of Health.
Bausch & Lomb also manufactures supplements for eye health, including PreserVision® AREDS 2 products. Bausch & Lomb filed a lawsuit in September 2013, against Vitamin Health alleging patent infringement. Thereafter, Bausch & Lomb added a false advertising claim, alleging that after the lawsuit was filed, Vitamin Health "purported to change the formulation" of its product to contain a vitamin combination that does not comport with the AREDS 2 formula, but Vitamin Health continued to falsely advertise its products as AREDS 2-compliant.
Vitamin Health notified its business liability insurer, Hartford Casualty Insurance Company, of the suit and requested a defense because the false advertising claim fell within the insurance policies' personal and advertising injury coverage. Hartford disagreed and declined a defense. Vitamin Health filed a lawsuit against Hartford in January 2015, in a Michigan district court to resolve the insurance coverage dispute, but limited to Bausch & Lomb's false advertising claim against Vitamin Health.
A Closer Look at Personal and Advertising Injury Coverage
Commercial General Liability (CGL) policies typically provide coverage for claims of "bodily injury," "property damage" and "personal and advertising injury." Since 1986, coverage for personal and advertising injury liability has been included on the standard Commercial General Liability Coverage Form developed by the Insurance Services Office Inc. (ISO). Yet, three decades later, this coverage is the least familiar part of the CGL policy. Therefore, before discussing the Sixth Circuit's decision addressing personal and advertising injury coverage, let us consider some basics about the coverage.
Personal and advertising injury is ordinarily defined in general liability policies, including the standard ISO form for the CGL policy, to include the offenses that are covered, such as false imprisonment, malicious prosecution, slander, libel and disparagement, among other offenses. Coverage for advertising injury offenses is generally designed to address third-party claims based on certain communications of the insured in advertising goods, products or services.
The policies issued to Vitamin Health include coverage for personal and advertising injury, which extends coverage for disparagement, or more specifically: "oral, written or electronic publication of material that ... disparages a person's or organization's goods, products or services." The key issue in Vitamin Health's case against Hartford was whether Bausch & Lomb's suit could arguably be read to allege that Vitamin Health disparaged Bausch & Lomb's products in Vitamin Health's publication of material.
The disparagement offense is commonly considered when there are facts showing either express disparagement (also known as explicit disparagement), or implied disparagement (also referred to as implicit disparagement or disparagement by implication). When an insured is sued for publishing material that expressly disparages another organization's products by name (for example, "Another's Product is ____"), the question of whether an advertising injury offense has been alleged is far simpler. The more challenging questions arise when the published material does not expressly name the other organization or its products (such as, "Insured's Product is the Only One that Does ____"), or the published material is only about the insured's products (for example, "Insured's Product contains ___").
No Disparagement Where Alleged Misrepresentation Was About Insured's Own Product
In the insurance case, Vitamin Health argued that Bausch & Lomb's suit against it arguably falls within the personal and advertising injury coverage because Bausch & Lomb claimed that it is the first and only AREDS 2-compliant eye supplement and that Vitamin Health's use of the AREDS 2 designation has cost Bausch & Lomb sales of its products. In other words, Vitamin Health argued that it is alleged to have disparaged Bausch & Lomb by implication.
The district court rejected Vitamin Health's argument, and held that Bausch & Lomb's false advertising claim was not covered by the Hartford policies. In a May 2016 ruling, the district court found there can be no disparagement where, as here, the insured is alleged to have misrepresented the content of its own product, and not that of its competitor. "It simply cannot be shown, or inferred, that the false advertising claim is arguably a product disparagement claim," the district court said.
The district court also found coverage was barred by two exclusions of the policies, one of which is the quality or performance of goods — failure to conform to statements exclusion. The failure to conform exclusion typically bars coverage for claims "arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your advertisement." The court concluded the claim that Vitamin Health falsely represents its products as AREDS 2-compliant is a "statement of quality as to Vitamin Health's own products," which falls within the failure to conform exclusion (which eliminates coverage for the claim).
Vitamin Health appealed the district court's decision to the Sixth Circuit, and in the meantime, Bausch & Lomb's case against Vitamin Health proceeded to a jury trial on the patent infringement and false advertising claims. Just before the case went to the jury, in August 2016, Bausch & Lomb and Vitamin Health reached a settlement, the terms of which were not disclosed.
Eight months later, the Sixth Circuit reached a decision in the insurance case, agreeing with the district court's holding in favor of Hartford. The Sixth Circuit first pointed out that the word "disparagement" or any variation on that term did not appear in Bausch & Lomb's complaint against Vitamin Health. The court did not end the analysis there, however.
The Sixth Circuit proceeded to consider express disparagement. The court noted it previously held that under Michigan law, a disparagement claim requires a company to make a false, derogatory or disparaging communication about a competitor's product. The court found instead, Bausch & Lomb alleged that Vitamin Health made false and misleading statements about its own products. The court decided that Bausch & Lomb's suit could not be interpreted to include an express disparagement claim.
The court then addressed implied disparagement. The court mentioned there was no Michigan authority recognizing disparagement by implication, but the court said it need not decide that issue for a key reason: Vitamin Health did not make claims about the superiority of its own product, and therefore Vitamin Health had not shown that its own statements implicitly disparaged Bausch & Lomb's products. The court said, "Having directed us to no jurisdiction that recognizes disparagement by implication to include claims that allege that an insured has made false statements about its own products while not also making any comparison to another's products, Vitamin Health cannot succeed on this point." The court concluded there was no coverage (no defense or indemnity) under the policies for Bausch & Lomb's false advertising suit.
In insurance coverage matters, the analysis may not necessarily end with the insuring clauses of the policy, as policy exclusions may apply. But here, since the Sixth Circuit decided this case based on the insuring agreement of the policies, the court did not address the application of any policy exclusion.
You Are What You Eat? Or, You Are What You Advertise?
Courts tend to agree that the disparagement offense covers suits alleging that the insured published false statements in advertising about another's product (express disparagement), but not suits alleging that the insured falsely advertised its own product, unless the insured has impliedly disparaged another's product (implied disparagement). Therefore, the focus of the inquiry here, whether express or implied disparagement, is on the advertising. And, central to the implied disparagement inquiry is the existence of a comparison between the insured's product and another's product.
While the case discussed here involved a competitor's false advertising claim involving a dietary supplement, it is hard to imagine how the analysis would differ if the claim had involved an entirely different type of product. This is because for advertising injury coverage, simply put, the advertising is what it is all about.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
