Calif. Supreme: Unclear Policy May Require Insurer to Defend Yahoo from Privacy Lawsuits

A liability insurer may have a duty to defend Yahoo Inc. from class-action lawsuits that alleged it violated the Telephone Consumer Protection Act by sending its customers unwanted text messages, the California Supreme Court ruled Thursday.

In a unanimous decision, the high court found that an endorsement in a general commercial liability policy did not clearly exclude damages for violating a person’s “right of seclusion.”

“Because the provision is ambiguous, we conclude that it must be interpreted in a way that fulfills Yahoo’s objectively reasonable expectations, which must be determined in further litigation,” the opinion says.

Timothy P. Law, a Philadelphia attorney with Reed Smith who helped United Policyholders file an amicus brief in the case, said a “chorus of state high courts” have ruled in favor of coverage for TCPA claims.

“The court held that general liability insurance policies extend to the full panoply of privacy rights, including the right to be free from unreasonable intrusions upon seclusion,” he said in an emailed statement. “This is a pro-consumer decision that will ensure insurance coverage, absent a specific and unambiguous exclusion, for the many ways companies and people can find themselves harmed by a violation of their privacy.”

Four class-action lawsuits were filed against Yahoo in 2013 and 2014 in federal courts in California, Illinois and Pennsylvania. They alleged that the technology company violated the TCPA by sending advertisements via text messages to customers who signed up to use its Messenger service. Offenders can be liable for civil penalties of up to $1,500 for each violation.

While none of the lawsuits resulted in substantial judgments, the litigation dragged on for years. Yahoo asked an American International unit, National Union Fire Insurance Co. of Pittsburgh, to defend it. The insurer refused. Yahoo filed a lawsuit.

The US District Court for Northern California ruled in favor of National Union, but Yahoo appealed to the 9th Circuit Court of Appeals. The 9th Circuit, in turn, sent a certified question to the California Supreme Court asking it to clarify state law on insurance contracts as they relate to coverage for privacy violations that do not involve revealing private information.

The National Union policy excluded coverage for privacy violations, but an endorsement that Yahoo negotiated to be added to the policy provides coverage for injuries “arising out of . . . oral or written publication, in any manner, of material that violates a person’s right of privacy.”

The case came down to a difference of opinion about English grammar; specifically, the rule of the last antecedent.

The Supreme Court said the language in Yahoo’s insurance policy is unclear as to whether injuries caused by publication or only injuries caused by disclosure of specific material was added to the coverage through the negotiated endorsement.

A person’s right of seclusion can be violated by any type of publication because it is the unwanted disturbance that is at issue — unwanted receipt of sports scores and weather forecasts can cause a privacy violation. A person’s right to secrecy, on the other hand, is violated by the publication of specific material.

The District Court ruled that that coverage was intended only for damages caused by the publication of specific materials. The Supreme Court, however, said the wording could also be understood to mean coverage was available for other types of privacy violations, including sending unwanted text messages.

“Here it is unclear whether the restrictive clause ‘that violates a person’s right of privacy’ modifies a group of words or just a single word,” the opinion says. “If the former, then the intrusive way the material is published, not just its informational content, might give rise to the privacy violation at issue, and the violation would, nonetheless, be covered by the policy.”

The Supreme Court said it was not deciding that National Union must pay for Yahoo’s defense in the lawsuits, only that the wording of the endorsement may affect coverage. It sent its answer to the certified question back to the Ninth Circuit for further deliberations.