Earlier this month, the California Supreme Court, in Yahoo Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, Supreme Court of California No. S253593, ruled in favor of Yahoo, Inc. (Yahoo!), a policyholder seeking insurance coverage for Telephone Consumer Protection Act (TCPA) claims.
The case came to the California Supreme Court as a certified question of law from the Ninth Circuit Court of Appeals. The Supreme Court reviewed the federal district court’s ruling, which dismissed Yahoo!’s insurance coverage action, and entered a judgment in favor of National Union Fire Insurance Company of Pittsburgh, PA (National Union). The high court disagreed, applying well-settled California rules of insurance policy interpretation, and found that the commercial general liability policy was ambiguous and must be interpreted in accordance with Yahoo!’s objectively reasonable expectations.
Congress passed the TCPA in 1991 to protect telephone users from unsolicited robocalls, robotexts, and junk faxes. Yahoo! has been named in a series of putative class action lawsuits alleging unsolicited text messages in violation of the TCPA. National Union declined to defend or indemnify Yahoo! in these lawsuits, claiming that the policy language in its commercial general liability insurance policy unambiguously bars coverage.
Yahoo’s policy provided “personal injury” coverage, which covers liabilities arising from five specified “offenses” including the “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” The California Supreme Court was asked to determine whether this standard-form language requires an insurance company to defend its policyholder against claims that the policyholder violated the TCPA by sending unsolicited text messages that did not reveal private information about the claimants.
The two courts considered how the clause “that violates a person’s right of privacy” applies to the policy language prior to it – “[o]ral or written publication, in any manner, of material.”
The federal district court used the rule of the last antecedent, which instructs a court to find that a qualifying word or phrase refers to the language immediately preceding the qualifier, unless that interpretation is inconsistent with the intention of the language. In its analysis, the district court found that the clause “that violates a person’s right of privacy” only modified the word “material.”
The district court found that “material” only violates a person’s right of privacy if the invasion relates to the content of the published material. The district court reasoned that since the TCPA claims against Yahoo! revolved around the improper transmission of the text messages, not the improper content of the messages, the coverage provision did not apply.
Yahoo! appealed to the Ninth Circuit, which requested that the California Supreme Court decide if “a commercial liability policy that covers ‘personal injury,’ defined as ‘injury . . . arising out of . . . [o]ral or written publication . . . of material that violates a person’s right of privacy,’ triggers the insurer’s duty to defend the insured against a claim that the insured violated the Telephone Consumer Protection Act by sending unsolicited text message advertisements that did not reveal any private information.” The California Supreme Court accepted the Ninth Circuit’s request and rephrased the question to include reference to the fact that the policy at issue had been modified by an endorsement regarding advertising injuries.
Yahoo! urged the California Supreme Court to find that the modifying language, “that violates a person’s right of privacy,” applied to the entire phrase “[o]ral or written publication, in any manner, of material,” thus acknowledging coverage for “any publication-based right-of-privacy violation, including right-of-seclusion violations.”
In ruling for Yahoo!, the court applied standard rules of contract interpretation to resolve this facially ambiguous language. The court found that, neither of the proposed readings of the language conclusively resolved the ambiguity. On one hand, reading the restrictive clause “that violates a person’s right of privacy” as modifying the entire phrase “[o]ral or written publication, in any manner, of material,” arguably makes the word “material” superfluous because the effect of this reading would be the same if the word “material” was omitted.
However, other aspects of Yahoo’s policy suggest that the policy covers any publication-based right-of-privacy violation, including right-of-seclusion violations. The court acknowledged that the slander provision and the advertising injury exclusion refer only to content-based injuries, but those have different wording from the policy language at issue. Further, the personal injury coverage was expanded by an endorsement to remove the TCPA liability exclusion and “provided additional coverage for conduct-based ‘personal injury’ offenses, separate and distinct from content-based ‘advertising injury’ offenses.” Yahoo! argued that this distinction supports a reading that the policy broadly applies to injuries based on conduct that violates a person’s privacy, whereas the advertising injury is limited to content that violates a person’s privacy.
The California high court found the federal district court’s use of the rule of the last antecedent was flawed since that rule most readily applies where there is “a list of several items, and the modifier comes immediately after the last item on the list.” For example, in White v. County of Sacramento, 31 Cal. 3d 676, (1982), the California Supreme Court applied the rule of last antecedent to a California statute defining punitive action as “any action which may lead to dismissal, demotion, suspension, reduction in salary, written reprimand, or transfer for purposes of punishment.” There, the phrase “purposes of punishment” only modified the word transfer. In this litigation, however, the policy language at issue does not contain a list directly followed by a modifier. Instead, the policy language contains a phrase, “[o]ral or written publication, in any manner, of material” immediately followed by a modifying phrase, “that violates a person’s right of privacy.”
Ultimately, because the Court was unable to resolve the ambiguity as a matter of law, the Court explained that the policy language must be interpreted to fulfill Yahoo!’s objectively reasonable expectations.
What is next?
Now that the California Supreme Court has weighed in on this issue, the case will return to the Ninth Circuit Court of Appeals. The Ninth Circuit will likely reverse the district court’s dismissal and remand for further proceedings. Importantly, an endorsement in National Union’s policy removed the exclusion for injuries arising from violations of the TCPA – a standard exclusion widely used in the insurance industry. This fact certainly supports Yahoo!’s objectively reasonable expectation of coverage for TCPA claims.
The bigger picture
In finding coverage, California joins the state supreme courts in Florida, Illinois, Massachusetts, and Missouri in finding that the privacy coverage in standard-form general liability insurance policies extends to all sorts of privacy interests, including the right to be let alone, the right of seclusion. State supreme courts have uniformly interpreted this coverage broadly, as they should. Insurance companies could easily limit their policy language to certain types of privacy rights.
In addition to providing an important pro-policyholder outcome, the California Supreme Court’s decision supports the overall view that state courts are better equipped than federal courts to handle and resolve complex insurance coverage questions utilizing state law principles of insurance contract interpretation. The Ninth Circuit wisely asked the California Supreme Court to weigh in on this issue, recognizing the limitations of federal courts in such cases. Federal courts merely make predictions of state law. State supreme courts are the final arbiters of state law.