A commercial general liability (CGL) insurance policy may provide coverage for Telephone Consumer Protection Act (TCPA) class actions, the California Supreme Court has ruled, answering a certified question from the Ninth U.S. Circuit Court of Appeals.
Yahoo faced multiple class actions brought by plaintiffs that alleged they received unsolicited text messages in violation of the TCPA. Yahoo turned to National Union Fire Insurance Company for defense and indemnity in the lawsuits, but the insurer declined coverage.
Yahoo then sued National Union for coverage, accusing the insurer of breach of contract. Yahoo argued that it negotiated a modified CGL policy covering the period when the alleged TCPA violations occurred.
The standard, unmodified, version of the policy at issue provided liability coverage for “personal and advertising injury,” defined to include an injury arising out of any of seven specified offenses, including “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” It also contained an explicit exclusion from coverage of injuries arising out of the TCPA.
Yahoo negotiated for a non-standard CGL contract which were reflected in various endorsements attached to the policy. Endorsement No. 1 removed the exclusion for injuries arising from violations of the TCPA. It also removed coverage for advertising injuries but did cover injuries to privacy.
Yahoo argued that the policy, as modified by Endorsement No. 1, at the very least gave rise to the potential for coverage of the TCPA claims against it.
In the first instance, the district court granted National Union’s motion to dismiss on the grounds that the modified policy foreclosed coverage for injuries arising out of the TCPA. Yahoo appealed and the Ninth Circuit sought guidance from California’s highest court. The California Supreme Court agreed to answer the 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 endorsements with regard to advertising injuries, trigger the insurer’s duty to defend the insured against a claim that the insured violated the [TCPA]?”
After a detailed review of California law on policy interpretation, the court answered in the affirmative, provided that such coverage was consistent with the “reasonable expectations” of the insured.
The coverage provision was facially ambiguous and the standard rules of contract interpretation did not resolve the ambiguity. Therefore, the court looked to the insured’s reasonable expectations and relied upon the rule that it must interpret unresolvable ambiguities in favor of the insured, based upon the principle of contra proferentem, reading ambiguities against the drafter.
Although the court questioned whether the “sophisticated parties” involved made it inappropriate to ask whether the insurer can be considered the sole drafter, “even in the case of a manuscript endorsement, ambiguities should be resolved in favor of coverage when the specific ambiguous language is ‘adopted verbatim from standard form policies used throughout the country,’” the court said.
“In the present case, despite the characterization of Endorsement No. 1 as a manuscript endorsement – which would normally imply that it contains nonstandard, negotiated provisions – the disputed coverage language under review is standard form language adopted verbatim from insurer-drafted policies. Under such circumstances, the insured – Yahoo – cannot be charged with creating the ambiguity that led to the dispute, and therefore it is appropriate for courts to interpret any unresolvable ambiguities in Yahoo’s favor.”
To read the opinion in Yahoo, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA., click here.
Why it matters: A victory for TCPA defendants with CGL policies that cover injuries arising out of violations of the right to privacy, the decision from the unanimous California Supreme Court joins other states that have found similar form insurance policies to cover privacy disputes. Readers should review their policies carefully, as you never know what you might be covered for.