The California Supreme Court recently answered a certified question from the U.S. Court of Appeals for the Ninth Circuit, holding that a commercial general liability ("CGL") insurance policy that provides coverage for "injury ... arising out of ... [o]ral or written publication, in any manner, of material that violates a person's right of privacy" can cover liability for intrusion on the right of seclusion arising from violations of the federal Telephone Consumer Protection Act (TCPA) if such coverage is consistent with the insured's objectively reasonable expectations.
A copy of the opinion is available at: Link to Opinion
An insurer refused to defend and indemnify a media and tech company against five class action lawsuits alleging the company violated provisions of the TCPA by sending unsolicited spam "robotext" messages. The company settled some of the claims and sought to recover defense costs from the insurer under a CGL policy.
The policy at issue here provided liability coverage for injuries "arising out of . . . [o]ral or written publication, in any manner, of material that violates a person's right of privacy." The parties also had negotiated an endorsement removing an exclusion for claims arising under the TCPA.
The company argued that its policy, as modified by the endorsement, gave rise to the potential for coverage of the TCPA claims alleged against it in the class action lawsuits, and therefore the insurer was obligated to defend the company in those suits, and it breached its contract by declining to do so.
A federal trial court rejected the company's argument and granted the insurer's motion to dismiss, concluding that the TCPA lawsuits did not fall within the policy's coverage provision because they did not allege an injury arising out of the "publication... of material that violates a person's right of privacy."
The company appealed, and the U.S. Court of Appeals for the Ninth Circuit certified a question of state law to the California Supreme Court, which granted the Ninth Circuit's request and rephrased its question. See Cal. Rules of Court, rule 8.548(f)(5).
As rephrased, the California Supreme Court addressed the following question: "Does a commercial general liability insurance policy that provides coverage for 'personal injury,' defined as 'injury . . . arising out of . . . [o]ral or written publication, in any manner, of material that violates a person's right of privacy,' and that has been modified by endorsement with regard to advertising injuries, trigger the insurer's duty to defend the insured against a claim that the insured violated the [TCPA] by sending unsolicited text message advertisements that did not reveal any private information?"
The California Supreme Court began by noting that the law of privacy recognizes, among other things, a right to secrecy and a right to seclusion. Furthermore, the Court explained that privacy injuries that involve the right of seclusion are sometimes actionable under the TCPA, provided the violation involves the use of telephonic equipment. Specifically, the TCPA protects the seclusion interests of telephone users by placing restrictions on automated telephone calls ("robocalls") and unsolicited facsimile machine advertisements ("junk faxes"). See § 227; Duguid v. Facebook, Inc. (9th Cir. 2019) 926 F.3d 1146, 1149. Additionally, the Court pointed out that the TCPA's prohibitions have also been interpreted to apply to text messages. Duguid, supra, 926 F.3d at p. 1149; Satterfield v. Simon & Schuster, Inc. (9th Cir. 2009) 569 F.3d 946, 954.
In this vein, the parties here stipulated that the TCPA creates a statutory cause of action to redress telephonic intrusions that can violate the common law right of seclusion, and the parties also agreed that the TCPA is not concerned with disclosures that violate the common law right of secrecy. See Los Angeles Lakers, Inc. v. Federal Ins. Co. (9th Cir. 2017) 869 F.3d 795, 806.
Upon a de novo review of the relevant CGL policy, the California Supreme Court found it unclear whether the restrictive clause "that violates a person's right of privacy" modified a group of words or just a single word. Specifically, it was ambiguous whether the clause modified the entire phrase "[o]ral or written publication, in any manner, of material" or whether it modified only the word "material."
Using the standard rules of contract interpretation, the California Supreme Court reasoned that the addition of the word "material" immediately before the restrictive clause "that violates a person's right of privacy" arguably suggested that something about the content of the material itself, viewed in isolation, must violate a person's right of privacy. Thus, since content is irrelevant to right-of-seclusion violations, the inclusion of the word "material" implied that the policy did not cover right-of-seclusion liability.
However, the California Supreme Court observed that other aspects of the insurer's policy suggested that, in the policy's coverage provision, the restrictive clause "that violates a person's right of privacy" modified the entire phrase "[o]ral or written publication, in any manner, of material," thus creating coverage for any publication-based right-of-privacy violation, including right-of-seclusion violations.
Accordingly, the California Supreme Court answered the Ninth Circuit's question by holding that the coverage provision was ambiguous and that the standard rules of contract interpretation do not resolve the ambiguity.
Where, as here, the standard rules of contract interpretation do not resolve an ambiguity in the operative language of an insurance policy, the Supreme Court determined that it should "interpret [that language] to protect '"the objectively reasonable expectations of the insured." ' " Boghos v. Certain Underwriters at Lloyd's of London, supra, 36 Cal.4th at p. 501. However, the Court concluded that the company's reasonable expectations must be determined in further litigation.
Finally, if the foregoing procedures did not resolve the ambiguity at the trial court level, then the California Supreme Court pointed to the rule that ambiguities are to be resolved against the drafter, and here the insurer was considered to be the drafter of the specific coverage language whose meaning was in dispute.
Ralph T. Wutscher
Maurice Wutscher LLP
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