The consistent increase in false advertising claims targeting consumer-facing companies has revealed a significant gap in insurance coverage.
The causes behind these legal actions are diverse, encompassing consumers’ evolving and often changing health concerns, sustainability awareness, patriotic buying habits, and even straightforward dissatisfaction with fast-food offerings.
“Natural,” “green,” “organic,” “pure,” “healthy”, “premium” and “Made in the USA” are among the potential flashpoints, but the list is long, and, apparently, growing.
Plaintiffs have multiple avenues to pursue claims, supported by a large number of law firms eager to take on these cases. The expansion of social media has made it easier than ever to rally support for class actions, while the vast advertising opportunities offered by the Internet and the rise of influencers have significantly increased exposure.
However, liability insurance policies are generally unlikely to cover these claims, a fact that many policyholders and brokers may not fully realize. Cyber insurance policies with media liability endorsements typically exclude false advertising claims, and standard media policies usually do not cover such losses.
Attorneys at Knobbe Martens, writing in the fast-food industry publication QSR Magazine, recently noted that annual false advertising class action lawsuits in the early 2020s had quadrupled compared to a decade earlier. Meanwhile, lawyers at Proskauer Rose have cautioned about a growing wave of claims related to so-called “forever chemicals.”
Regulators have also stepped up their efforts. The Federal Trade Commission (FTC) recently took action against Kohl’s Inc. and Walmart Inc. for falsely advertising rayon textiles as bamboo, resulting in a 2022 settlement that the Department of Justice estimated would cost the companies a combined $5.5 million in civil penalties. In addition, the FTC has introduced new rules aimed at curbing fake reviews and undisclosed influencer endorsements.
In the U.S., both consumers and competitors are empowered by a robust framework of state and federal laws. Chief among them is the Lanham Act, the primary legal avenue for competitors to bring false advertising claims. While the Act allows for “puffery”—broad, subjective claims meant to promote a product—it strictly prohibits false or misleading statements about a company’s own products or those of a competitor. Notably, the Lanham Act takes a broad view of what constitutes advertising and does not require plaintiffs to prove actual harm, only that the potential for harm existed.
Recent false advertising cases have included a wide range of industries, with mattress manufacturers—perhaps unexpectedly—emerging as frequent targets. In one notable example, Williams-Sonoma was fined $3.2 million last year for violating the FTC’s “Made in the USA” labeling rules. Other lawsuits have focused on producers of food and beverages, such as honey and so-called “green” juices, as well as pharmaceutical companies and household goods manufacturers.
Last year, Subway faced a lawsuit alleging it had skimped on meat in its sandwiches, following a separate legal battle in 2023 over the quality of its tuna. In other sectors, consumers of digital products recently gained enhanced protections in California—the unofficial epicenter of class-action litigation—through an expansion of the state’s false advertising laws false advertising laws.
Litigation outcomes can often be unexpected. One of the most well-known examples is the decade-old “Red Bull gives you wings” case, in which plaintiffs claimed the slogan falsely implied superior performance benefits compared to other caffeinated products. The Austrian energy drink company agreed to a $13 million settlement, with legal fees reportedly adding several million more to the total cost.
Unaware of Exposures
Potential targets are often unaware—sometimes naively—of their exposure to such claims. Many fail to grasp the full financial impact, which can include regulatory fines, compensation payouts, and substantial legal fees, as well as broader consequences like lost revenue and declines in share value. The risk to brand reputation is equally significant. In a recent webcast, lawyers from Knobbe Martens also highlighted a range of practical challenges that can arise, including internal morale issues and strain on business partnerships.
Many companies mistakenly assume they are adequately insured—if they consider their exposure at all. This misconception is often fueled by a lack of media liability expertise, both within organizations and sometimes even among outside legal advisors. Insurance brokers have also frequently fallen short in communicating these risks, often due to their own limited understanding of the coverage gaps involved.
Buying False Advertising Extension
Given the widening protection gap, policyholders should evaluate whether to add a false advertising extension to their media liability coverage. Even if the alleged misconduct occurs online, cyber insurance policies typically exclude this type of risk—making a dedicated media liability policy with the appropriate false advertising extension essential.
False advertising insurance offers broad protection, regardless of the specific legal avenue pursued—provided the insured complies with the conditions set out in the endorsement. Regulatory enforcement actions related to false advertising and deceptive trade practices are also generally covered, assuming those conditions are met. However, civil fines and penalties may still fall outside the scope of coverage.
The London market and Lloyd’s lead the way in offering this coverage, bolstered by their deep expertise in media liability.
Brokers can guide companies on the specific terms and conditions of false advertising coverage, helping them understand their risk exposures and implement prudent management strategies.
This requires careful consideration of how insureds engage with social media, ensuring that any influencers involved strictly adhere to approved messaging. It also involves defining who has the authority to approve advertising campaigns and marketing initiatives, as well as who oversees branding efforts. These individuals must diligently seek legal counsel to assess whether any advertising, marketing, or branding activities could be considered misleading or misrepresentative of the product.
Engaging external legal counsel is crucial, but it is essential that the law firm possesses true expertise in media liability. Just as in the insurance industry, this specialized knowledge can often be difficult to find within the legal profession.
False advertising lawsuits—and class actions more broadly—are most commonly associated with the U.S. However, it’s important to recognize that EU law also offers protections against false claims related to product cures and environmental credentials, with additional safeguards varying across member states. In the UK, consumers are protected from misleading advertising under legislation enacted in 2008. Collective redress mechanisms are gaining momentum in both regions, while the litigation funding market remains largely unregulated and is experiencing rapid growth.
Thus, this is not solely a U.S. concern; on both sides of the Atlantic, potential defendants are often inadequately insured.
Undoubtedly, consumer protections are essential in an era where the line between truth and fiction is increasingly blurred. However, for all types of consumer-facing companies, false advertising claims represent a rising risk that must be managed with careful consideration.
