Purchasers of extensive agricultural property claimed financial loss as a result of misrepresentations and omissions in the investment prospectus furnished by the organization that marketed the property. They sued the marketing company for negligent misrepresentation, unfair competition and negligence. A default judgment was entered against the marketer when it failed to defend.

The record showed that the marketing company's attorney had informed its excess liability insurer of the lawsuit but that the insurer had not been involved in the proceedings. The purchasers of the property sued the insurer directly, seeking payment of the judgment under coverage for advertising injury provided in the policy. The insurer filed a motion for dismissal of the complaint on the grounds that the allegations were not covered by the pertinent insuring provisions. The purchasers appealed grant of the motion by the trial court.

The purchasers stressed that "advertising injury" was defined in the policy to include "....any negligent act, error or omission in the use of advertising or merchandising ideas." They argued that "the incorrect statements and significant omissions" in advertisements, upon which they relied, were within the scope of the definition.

The appeal court disagreed. It noted that the definition of "advertising injury" named six specific causes of injury: "libel, slander, defamation, piracy, infringement of copyrights, and invasion of the right of privacy." This was followed by the general words "....or any negligent act, error or omission in the use of advertising or merchandising activities."

The court cited precedent to the effect that the general language could not be relied on for coverage here. In effect, it must be construed in the context of enumerated causes of injury from advertising activities. No reasonable person would expect the general words to embrace misleading investment advice.

The judgment of the trial court was affirmed in favor of the insurance company and against the purchasers of the property.

(CAHILL ET UX., Plaintiffs-Appellants v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellee. United States Court of Appeals for the Ninth Circuit. No. 94-55943. March 25, 1996. CCH 1996 Fire and Casualty Cases, Paragraph 5648.)