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The registration and use of an Internet domain name that allegedly infringes another's trademark is an "advertising injury" within the meaning of an insurance policy, and thus requires the accused company's insurer to provide coverage, according to a recent ruling by the U.S. Court of Appeals for the Fourth Circuit. In the same ruling, the Fourth Circuit also held that the domain name, because it led customers to advertisements at the related website, constituted use of the trademark "in the course of advertising." State Auto Property and Cas. Ins. Co. v. Travelers Indemn. Co. of Am.

In 1996, Travelers Indemnity Company of America issued a policy to Nissan Computer Corp. ("NCC"), a North Carolina computer company, that provided coverage for any "'advertising injury' caused by an offense committed in the course of advertising [NCC's] goods, products or services." Travelers' policy defined "advertising injury" to include harms caused by NCC's "misappropriation of advertising ideas or style of doing business."

Thereafter, NCC decided to register the domain names nissan.com and nissan.net and also established websites at these addresses that advertised NCC's products and services as well as those of companies in the automotive industry. Predictably, Nissan Motor Company brought suit against NCC for trademark infringement and related claims.

When NCC sought insurance coverage by tendering its claims to Travelers and a second insurer, State Auto Property and Casualty Company (which had issued an identically worded policy during an adjoining time period), State Auto Property honored its policy. However, Travelers contended that coverage did not exist for three reasons: (1) the policy's language of "misappropriation" referred only to common-law misappropriation and did not include trademark infringement; (2) NCC's registration of domain names did not constitute an advertising injury; and (3) the damage that Nissan allegedly experienced did not occur "in the course of advertising" by NCC and was instead the result of advertising by other parties.

Notably, a federal trial court agreed with these arguments, and found in favor of Travelers on declaratory judgment.

The Fourth Circuit reversed on all three grounds. With respect to the meaning of misappropriation, the Court found that (1) North Carolina's Supreme Court likely would afford the term "misappropriation" a common and general meaning that includes trademark infringement; (2) the majority of courts that had considered the issue had given the term this broader meaning; and (3) the ambiguity should be resolved against the insurer, particularly where, as here, two insurers (with identically worded policies) differed over whether coverage existed.

Considering whether registration of a domain name constitutes an advertising injury, the Fourth Circuit found that a trademark constitutes an "advertising idea," the misuse of which can give rise to an advertising injury. And with respect to NCC's claim that it had not caused damage, the Court found that leading consumers to advertisements on a website is an act that occurs "in the course of advertising."

Although this decision turned on a federal appellate court's construction of one state's laws, the decision likely will have important ramifications for how insurance policies related to Internet activity are interpreted nationwide, and the coverage afforded to domain name registrants.

Written by Robert Begland, Litigation Associate

Related topics: DNS, Domain Names