California high court is weighing significant coverage issue

In Yahoo! Inc. v. National Union Fire Insurance Company of Pittsburgh, S253593, the California Supreme Court is considering a coverage issue that has generated significant conflict among the courts of California and other jurisdictions. The issue is whether a commercial general liability policy covering "publication" of material that violates a person's right of privacy applies to alleged violations of the Telephone Consumer Protection Act, 47 U.S.C. Section 227 that do not reveal any private information.

In Yahoo!, the class plaintiffs alleged that Yahoo violated the TCPA by sending unsolicited text advertisements. The Northern District of California concluded that such claims did not trigger coverage. In so doing, the district court observed that there are two types of privacy violations: secrecy and seclusion violations. The former concerns the right to prevent disclosure of private information to third parties, whereas the latter involves the right to be left alone. As the district court held, only secrecy privacy violations involve a publication as required for coverage under California law.

In support, the district court relied on ACS Sys., Inc. v. St. Paul Fire and Marine Ins. Co., 147 Cal. App. 4th 137 (2007), and State Farm Gen. Ins. Co. v. JT's Frames, Inc., 181 Cal. App. 4th 429 (2010). In ACS, the court found no coverage for TCPA violations under a provision covering the "making known" of material that violates an individual's right to privacy. The ACS court reasoned that TCPA violations are not covered because they do not involve any "making known," or disclosure, of secret material to third parties. In JT's Frames, the policy covered "publication" of material that violates a person's right of privacy. The JT's Frames court similarly found no coverage for TCPA claims. It reasoned that under the "last antecedent" rule, the phrase "that violates a person's right of privacy" modifies the word "material." Accordingly, the material in question must violate a person's right of privacy, requiring a disclosure to third parties. Further, the context of the policy supported its holding, since the surrounding provisions (e.g., the provision regarding libel or slander) also required a disclosure of information to third parties. Applying similar reasoning, the district court in Yahoo! concluded that the alleged sending of unwanted texts under the TCPA was a seclusion privacy violation that did not involve any disclosure of information to third parties as required for coverage.

On appeal, the 9th U.S. Circuit Court of Appeals opined that ACS and JT's Frames were in conflict because ACS distinguished out-of-state cases that, like JT's Frames, involved policies requiring a "publication" (rather than a "making known") of material that violates a person's right to privacy. According to the 9th Circuit, JT's Frames concluded that such cases involved "differ[ent]" policy language that "did not define 'right of privacy' or 'oral or written publication.'" The 9th Circuit further stated that there were out-of-state authorities that threw into question whether JT's Frames' application of the last antecedent rule was correct. Further, the 9th Circuit observed that there was so much conflict among the courts nationwide that it was not willing to hazard a guess as to how California would resolve the issue. It therefore certified to the California Supreme Court the issue of whether sending unsolicited text message advertisements under the TCPA that do not reveal any private information triggered a duty to defend under the coverage for "publication ... of material that violates a person's right of privacy."

In certifying the issue, the 9th Circuit noted that its resolution is particularly important given the common use of the policy provision in question.

Of course, the issue is also significant given the number of class actions that arise under statutes which, like the TCPA, proscribe seclusion privacy violations, such as California's Song-Beverly Credit Card Act (Civil Code Section 1747.08) (prohibiting requesting a customer's private information in connection with credit card transactions) and Penal Code Section 637.2 (permitting a civil claim for violations of Penal Code Section 632, which prohibits electronically recording or eavesdropping upon confidential communications without consent).

Moreover, as the district court held, it appears clear under California law that seclusion privacy violations do not trigger coverage because they do not involve or require a "publication" to third parties. As a result, a finding of coverage would arguably read the "publication" requirement out of the policy. 