California Supreme Court Issues Landmark Ruling Affecting CGL Insurers
On November 17, 2022, the California Supreme Court issued its Opinion in Yahoo, Inc. v. National Union Ins. Co. of Pittsburgh, PA. This landmark decision affecting CGL insurers holds that class action complaints alleging violations of the federal Telephone Consumer Protection Act of 1991 (TCPA), 42 U.S.C. § 227, are covered under a CGL policy's "personal and advertising injury" coverage applicable to injury arising from the offense of "[o]ral or written publication, in any manner, of material that violates a person's right of privacy." The Court decided the issue on a question of state law certified to the Court from the Ninth Circuit.
The Court concluded that a statutory claim under the TCPA is a claim that the defendant has violated a person's right to be free of disturbance by others, or the privacy right of the right of seclusion, and is therefore a violation of a person's right to privacy. (Op'n., p. 1.) The Court contrasted that right of seclusion with the privacy right of secrecy, i.e., the right not to have one's private or personal information disclosed in the content of a communication. (Id.) Starting from the premise that the TCPA involves a right of privacy, the Court went on to conclude that such a claim is encompassed by the standard "personal and advertising injury" coverage of a CGL policy and triggers a duty to defend and indemnify, unless the standard policy language has been modified by an endorsement.
In discussing the burden of proof regarding the scope of insurance coverage, the Court reiterated the test for interpreting ambiguous policy language as used in its prior decision in Boghos v. Certain Underwriters at Lloyd's of London (2005) 36 Cal.4th 495, 501, and disapproved of earlier formulations of the test. (Op'n., pp. 8-9, esp. fn. 7.) The Court stated the test as follows: " `If the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], we interpret them to protect " `the objectively reasonable expectations of the insured.' " [Citations]. . . ' " (Op'n., p. 8.) Footnote 7 is perplexing because the cited cases have been understood to state an objective standard of reasonableness. Furthermore, the Court's later statement that the Court interprets language in favor of "protecting the insured's reasonable expectations" (Op'n. , p. 11) creates further confusion about why the Court felt it necessary in its footnote no. 7 to reject older cases using that very same test.
Key to the Court's ultimate holding was the Court's determination that the language stating the right of privacy offense was facially ambiguous when the Court applied the rules of usage of the English language. (Op'n. , pp. 10-11, 19.) After declaring the policy language ambiguous, the Court rejected prior California Court of Appeal and other out-of-state decisions that had previously concluded that the personal injury offenses in a CGL policy afford coverage only when the content of the published material violates a person's right to privacy, thus covering only right to secrecy liability. (Op'n., pp. 19-21.) Instead, the Court agreed with the Florida Supreme Court decision in Penzer v. Transport Ins. Co. (Fla. 2010) 29 So.3d 1000, interpreting virtually identical policy language, to decide that the right to privacy offense also provides liability coverage when the manner of the publication violates a person's right to be free from a disturbance by another, or the right to seclusion. (Op'n. pp. 19-22.)
The Court concluded: "We answer the Ninth Circuit’s question as follows: A CGL insurance policy that provides coverage for “personal injury,” defined, in part, as “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 violations of the right of seclusion if such coverage is consistent with the insured’s objectively reasonable expectations. Such a policy can also trigger the insurer’s duty to defend the insured against a claim that the insured violated the TCPA by sending unsolicited text messages that did not reveal any private or secret information, provided that the alleged TCPA violation amounts to a right-of seclusion violation under California law." (Op'n., p. 23.)
The Court did opine that an insurer could re-write its policy language or modify the standard policy language by endorsement if it wanted to achieve a different result. (Op'n., p. 15, fn. 9.)
While the Court's decision purported to leave for determination in the federal lawsuit the remaining interpretative issue of whether coverage for the right of seclusion fulfilled Yahoo!'s objectively reasonable expectations of coverage (Op'n., p. 18), the Court's holding appears to predetermine the outcome of that issue.
The Yahoo Opinion therefore creates a very bad precedent for CGL insurers and one which insurers should be prepared to counter by drafting new "personal and advertising injury" coverage form language or endorsements that modify existing form language. Indeed, for pending claims involving TCPA claims for which reservations of rights or coverage denials were issued, insurers may have to reevaluate their coverage positions and their potential indemnity exposures.