Parsing the meaning of insurance clauses may in some respects resemble a trip to Middle Earth. There, the angelic Valar, dressed in judicial robes, wage war with the demonic Melkor, agent of the insurance industry bent on denying coverage to the elves and hobbits.

Recently, battle was joined over the “Hobbit” trademark itself, owned by the Saul Zaentz Company d/b/a Tolkien Enterprises, and used extensively (without a license) by Wozniak Travel, Inc. d/b/a Hobbit Travel. The elves at Hobbit Travel, upon examining the fine print of their insurance policies, decided that their insurer, General Casualty Company of Wisconsin, was on the hook. Melkor on behalf of General Casualty demurred.

The trademark case was pursued in federal district court. There, the court certified two questions of state law to the Minnesota Supreme Court:

1. Does the customary form of commercial general liability (CGL) policy, which covers “infringement of copyright, title or slogan,” cover trademark infringement?

2. Does the customary form of commercial umbrella liability (CUL), which covers “advertising injury,” cover trademark infringement?

The Minnesota Supreme Court accepted the questions and last month became only the second state supreme court to weigh in on the issue of trademark infringement insurance coverage, deciding in favor of coverage. In doing so, the court agreed with the Wisconsin Supreme Court and undermined a decision of the United States Court of Appeals for the Eighth Circuit, which had previously interpreted Minnesota law as denying coverage for trademark infringement.

The reasoning behind the decision regarding the CGL policy unfolded as follows:

“Title” refers to a concept that is similar to “trademark,” but broader: Title means the wording used to identify a product, service or work of authorship, and may encompass a trademark. Thus, infringement of trademark is necessarily infringement of title. Therefore the CGL unambiguously provides coverage against claims of trademark infringement.

As to the CUL policy, the court found no guidance in the language of the policy as to what constitutes “advertising.” The court determined that applicable case law has developed two competing definitions of “advertising,” and chose to apply the broader one. Its reason for doing so was that insurance contracts, being contracts of adhesion, are interpreted to expand the scope of coverage rather than contract it.

The broader definition of “advertising” that the court applied was: “Any oral, written or graphic statement made by the seller in any manner in connection with the solicitation of business.” (Under the narrower definition, “Widespread announcement or distribution of promotional materials,” the outcome may have been different.)

The court noted that the defendant, a travel agency, used the term and image of “hobbits” widely in its business, even painting hobbits on the sides of its chartered jets to characterize them as the “Airline to Middle Earth.” The defendant also used “hobbit” on its website and in its domain name. On that basis, it was not difficult for the court to conclude that the defendant used “hobbit” in advertising. Hence, the CUL policy provided coverage.

What are the morals of this story? First, if you are sued for trademark infringement, check your insurance policies; you may have coverage under both your CGL and CUL policies. Second, state courts are more likely to rule in favor of coverage than are some federal courts. Third, the more extensively you use the mark in question in a promotional manner, the more likely it is to be deemed “advertising,” and thus covered by the CUL policy.

If this becomes an issue for you, may you find solace among the hobbits and be spared the cunning of Melkor.