Illinois Casualty Company v. Kladek, Inc.
- Donovan Frank
- 0:22-cv-03214
- U.S. District Court · District of Minnesota
- 18
In Illinois Casualty Company v. Kladek, Inc., Judge Frank denied the insurer's motion for summary judgment and granted the insured nightclub's motion, declaring that Illinois Casualty Company must defend Kladek against lawsuits brought by models whose photos were used without permission on social media.
Businesses that hold commercial general liability or businessowners insurance policies and face lawsuits involving unauthorized use of individuals' images or likenesses on social media platforms; models and other individuals whose images are used without permission in commercial advertising; insurers issuing policies with cyber endorsements and advertising injury coverage.
What happened
In Illinois Casualty Company v. Kladek, Inc., a gentlemen's club called King of Diamonds (operated by Kladek, Inc.) was sued by a group of models who claimed the club used their photos on Facebook, Instagram, and Twitter without their permission or payment. The club's insurer, Illinois Casualty Company (ICC), filed a separate lawsuit asking the court to declare that it had no obligation to defend or pay for those claims under the club's business insurance policy. Both sides asked the court to rule in their favor without a trial, presenting cross-motions for summary judgment (a request for a final ruling based on undisputed facts and legal arguments alone).
ICC argued that three policy exclusions barred coverage: a 'Law Exclusion' for consumer fraud statutes, an 'Electronic Chatroom Exclusion' for bulletin boards and chat rooms, and a 'Multimedia Exclusion' tied to a separate cyber coverage add-on. The court rejected all three arguments. It found that the models' core claims were about unauthorized commercial use of their images — not consumer fraud — so the Law Exclusion did not apply. It found that Facebook, Instagram, and Twitter are social media platforms, not electronic chat rooms or bulletin boards that Kladek hosted or controlled, so the Electronic Chatroom Exclusion did not apply. And it found that the Multimedia Exclusion language was internally contradictory and ambiguous, which under Minnesota law must be interpreted in favor of coverage, not against it.
Judge Frank declared that at least some of the models' claims fall within the personal and advertising injury coverage of Kladek's Businessowners Liability Coverage, and that ICC therefore has a legal duty to defend Kladek in the underlying lawsuit. ICC's motion was denied and Kladek's motion was granted. The court left open the separate question of whether ICC will ultimately have to pay any damages (the duty to indemnify), finding that question premature at this stage.
The detailed version
- Illinois Casualty Company v. Kladek, Inc., Civil No. 22-3214 (DWF/DJF)
- Donovan W. Frank, United States District Judge
- July 23, 2025
Background
Kladek, Inc., doing business as King of Diamonds Gentlemen's Club, was sued in a separate underlying action (Moreland et al. v. Kladek, Inc., Civ. No. 21-1975) by twenty models who alleged the club posted their images on its Facebook, Instagram, and Twitter accounts without consent or compensation. The underlying claims include: (1) false endorsement, unfair competition, and/or false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (2) violation of Minnesota common law right of publicity through appropriation; (3) negligence; (4) violation of Minnesota's Uniform Deceptive Trade Practices Act (MDTPA); and (5) unjust enrichment.
Kladek held a Businessowners Policy issued by ICC. ICC filed this declaratory judgment action seeking a ruling that it owed no duty to defend or indemnify Kladek under the policy. The policy had two relevant components: the Businessowners Liability Coverage Form (covering personal and advertising injury) and a Cyber Protection Endorsement (separate, claims-made coverage). A prior arbitration proceeding had already determined that ICC owes Kladek a duty to defend under the Cyber Endorsement, but that panel did not address coverage under the Businessowners Liability Coverage, which was the subject of these cross-motions.
Legal Standards
Under Minnesota law, an insurer must defend if any claim is arguably covered by the policy. To escape the duty to defend, the insurer must show that every claim clearly falls outside the policy. Ambiguities are construed against the insurer and in favor of coverage. Words of inclusion are read broadly; words of exclusion are read narrowly.
ICC's Motion — Three Exclusions Argued
1. Law Exclusion (exclusion d(12)): ICC argued that the models' Lanham Act and MDTPA claims fell within an exclusion barring coverage for liability arising out of violations of any 'consumer fraud protection law, regulation, ordinance, order, or directive barring fraud, unfair competition, and/or deceptive business practices.' The court disagreed, finding that the models' Lanham Act claim is fundamentally a commercial advertising injury claim — the models alleged that their images were used without authorization or compensation, not that any consumer was defrauded. The court found ICC failed to show the Law Exclusion applied to the Lanham Act claim and declined to rule on whether it applied to the other statutory and common law claims, since the existence of any arguably covered claim triggers the duty to defend.
2. Electronic Chatroom Exclusion (exclusion k): ICC argued that Facebook, Instagram, and Twitter qualify as 'electronic chat rooms' or 'bulletin boards' that Kladek 'hosts, owns, or over which [Kladek] exercises control,' thus triggering an exclusion for personal and advertising injury arising out of such platforms. The court rejected this, applying plain-meaning definitions: a chat room enables real-time communication among users; an electronic bulletin board is a system for sharing information; social media platforms are distinct. The court found Kladek did not host, own, or control those platforms — it merely used them to post promotional content. ICC failed to meet its burden to establish this exclusion applies.
3. Multimedia Exclusion: The Businessowners Liability Coverage states it does not apply to 'Multimedia Liability' (as defined in the Cyber Protection Endorsement), 'except to the extent that coverage may be provided under the Cyber Protection Form.' ICC argued that because the underlying claims involve posting images on internet sites — a 'multimedia peril' under the Cyber Endorsement — all claims are excluded from Businessowners Liability Coverage. The court found the Multimedia Exclusion language to be ambiguous and internally contradictory: it could be read to mean that once Cyber Endorsement coverage is established, Businessowners Liability Coverage applies; or it could be read the opposite way, as ICC argued. Additional ambiguities included: inconsistent labeling on the Cyber Endorsement, conflicting statements about whether the endorsement modifies or stands apart from the main policy, and the mismatch between an occurrence-based main policy and a claims-made Cyber Endorsement. Kladek's expert opined the Cyber Endorsement is standalone coverage, not a modification of the Businessowners Liability Coverage. Under Minnesota law, ambiguities are resolved in favor of coverage and against the insurer. The court ruled the Multimedia Exclusion does not preclude coverage.
Ruling
ICC's motion for summary judgment is DENIED. Kladek's motion for summary judgment on its counterclaim for declaratory judgment is GRANTED. The court declares that the underlying suit includes one or more claims covered under the Businessowners Liability Coverage and that ICC must defend Kladek in the underlying lawsuit under that coverage.
Duty to Indemnify
The court expressly reserved the question of whether ICC must ultimately pay any damages (the duty to indemnify), finding that determination premature at this stage. ICC preserved its rights on that issue.
Note on Illusory Coverage
The court noted, without formally ruling on it, that it found compelling Kladek's alternative argument that ICC's broad reading of the exclusions would render the policy coverage illusory — i.e., the exclusions would swallow the coverage entirely.
Reviewer note from the AI+
Read the full 18-page opinion on CourtListener, the free public archive maintained by the Free Law Project.