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    Columns

    Celebrity Endorsements: Protecting Your Brand

    Pitfalls abound; smart insurance and legal advice is required upfront.

    Celebrity Endorsements: Protecting Your Brand
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    By Greg Doherty, Bolton & Company12.04.17
    Celebrities are ubiquitous in American society. Our “culture of celebrity” as some have called it, can be very powerful, especially when it comes to endorsing products. And few products besides food and new cars are riper for celebrity endorsements than dietary supplements and related products, such as meal replacement products, functional foods, nutricosmetics, weight loss programs, and similar products that purport to help us feel and look better.

    The clients I have counseled on celebrity endorsement of their products always want to know how their general liability policy (including product liability) will insulate them from various kinds of legal accusations commonly brought against them, the brand owner, under certain “what if” situations, such as:

    • What if the FTC comes after us and our endorser for false or deceptive advertising?
    • What if a class action lawsuit is brought against us for false advertising, either a civil action or possibly from a state attorney general’s office?
    • What if we are sued by someone that says “your product didn’t work for me as you advertised it would?”
    This article will answer these and other questions with regard to liability insurance. Just as important, the article will address the need to have a competent attorney—one familiar with the pitfalls of celebrity endorsements—who can counsel you on the inevitable contractual issues that arise when dealing with the Beverly Hills lawyer who will be representing the celebrity.

    Insurance Coverage: Not Much There
    Unfortunately, there is a widely misleading coverage part in commercial general liability policies called “personal and advertising injury” (PAI). I say unfortunate because it’s prominent on the front page of the policy, but without a definition. It’s only when you read deep into the policy that you see the definition of that term limits it to the following torts. (Torts are generally characterized as intentional acts where the legally protected rights of others, if violated or infringed, may result in a financial loss to them.) Some examples of what is covered by PAI are:

    • False arrest or detention
    • Malicious prosecution
    • Wrongful eviction
    • Oral or written publication of libelous or slanderous material
    • Use of someone else’s advertising idea in your advertisement.
    As you can see, there is nothing in these examples that comes close to stating that an allegation of false advertising would be covered.

    There are also certain exclusions that apply to PAI. One of these exclusions was pivotal in a recent U.S. District Court case involving a dietary supplement company, Driven Sports, Inc., which sued its insurance company (General Star), claiming it should be covered for false advertising class action lawsuits under the PAI section.

    The specific exclusionary wording relied upon by General Star in this case is virtually standard in all commercial insurance policies sold in the U.S., and is called the Failure to Conform Exclusion. Essentially, it says no coverage is afforded arising out of the failure of your goods or products to conform to any statement of quality or performance made in your advertisement.

    So What Is Covered?
    The essential allegation required to trigger coverage under a general/product liability policy is “bodily injury,” which means somebody is alleging that the brand owner’s product caused them to get physically ill or die. And the simple fact is that many, if not most, legal actions (regulatory or otherwise) brought against brand owners allege many things, but not “bodily injury.” 

    So beware, your insurance will give you almost no sleep at night when you are contemplating the retention of a celebrity endorser.

    Legal/Contractual Issues
    So now what? How do brand owners protect themselves in the absence of any meaningful insurance coverage?

    Although I am not an attorney, I can give you some advice on negotiating a contract with a celebrity endorser, and that is: Get a good attorney, one that is familiar with the complexities of structuring a contract with a celebrity endorser. In particular, the indemnification provisions of the inevitable written agreement between you and the celebrity are going to be very important because, as we have seen, liability insurance is likely not going to cover you for the legal actions often precipitated by celebrity endorsements.

    Over the years, I have come to learn that some people believe a commercial liability policy will unilaterally guarantee your promise to indemnify another party in a written contract. In other words, no matter how onerous or oppressive the terms of the indemnity may be, some people believe “why should I worry? I have something called contractual liability in my policy that covers me for everything in the indemnity agreement.”

    Nothing could be further from the truth. Contractual liability coverage does not unilaterally cover your indemnification of another party. The policy will cover you for what it promises to cover you for, and is further littered with written exclusions stating exactly what is not covered.  If the legal action giving rise to an insurance claim is covered by the policy, that’s just fine. But if the indemnity agreement or another provision in the contract has wording we’ve seen, such as “your liability insurance will provide coverage to insure the performance of (your) indemnity obligations contained in paragraph X,” you are in for a nasty surprise when your insurer denies a claim based on what the policy does—or does not—cover.

    The takeaway from this article is quite simple: If you are considering a celebrity endorser, do not rely on your liability insurance to cover you for much of anything in the event you are sued for those things commonly alleged when a celebrity endorser is involved. Find a good lawyer who already knows this and will structure a contract that limits your indemnification of the celebrity to a narrow band, and in turn seeks indemnity from the celebrity for certain torts or wrongful acts he or she may commit.


    Greg Doherty
    Bolton & Company

    Greg Doherty is a commercial insurance broker with Bolton & Company Insurance Brokers and Employee Benefits Consultants, Pasadena, CA. He is the executive vice president and managing director of the Dietary Supplement Practice Group for the firm, which specializes in the nutritional product and dietary supplement industries, including but not limited to contract manufacturers, raw materials suppliers, distributors/retailers. Mr. Doherty has four decades of experience as a broker, focusing solely on the dietary supplement industry for the last 14 years. He can be reached at gdoherty@boltonco.com; Phone: 626-535-1409; Website: www.gregdoherty.net.
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