Yahoo, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA

Insurance Coverage & Bad Faith Newsletter - Winter 2022

Yahoo, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA

(December 2022) - In Yahoo, Inc. v. National Union Fire Ins. Co. of Pitts. PA, 14 Cal.5th 58 (November 17, 2022), the California Supreme Court answered the following question certified by the Ninth Circuit Court of Appeals in connection with a declaratory relief action, wherein, Yahoo, Inc. (“Yahoo”) contended that National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) was obligated to defend Yahoo against a class action alleging violation of the Telephone Consumer Protection Act (“TCPA”):

Yahoo! appealed, and the United States Court of Appeals for the Ninth Circuit certified a question of state law to this court. We granted the Ninth Circuit’s request and rephrased its question (see Cal. Rules of Court, rule 8.548(f)(5)). As rephrased, we are called upon to answer the following 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 endorsement with regard to advertising injuries, trigger the insurer’s duty to defend the insured against a claim that the insured violated the [TCPA] of 1991 (47 U.S.C. § 227) by sending unsolicited text message advertisements that did not reveal any private information?”

The Supreme Court described the potential ambiguity in the phrase “oral or written publication, in any manner, of material that violates a person’s right of privacy” (the “invasion of privacy clause”) as follows:

Here, it is unclear whether the restrictive clause “that violates a person’s right of privacy” modifies a group of words of just a single word. Specifically, it is ambiguous whether the clause modifies the entire phrase “[o]ral or written publication, in any manner, of material” or whether it modifies only the word “material.” 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. Under this reading, even if the published material were something that was not in the least private (for example, weather forecasts or sports scores), its publication in a manner that violated a person’s right of seclusion would still amount to a covered privacy violation. But if the clause “that violates a person’s right of privacy” modifies only the word “material,” then it follows that something about the material itself, viewed in isolation, must violate a person’s right of privacy, which in turn implies that it must do so by reason of its informational content. Thus, the coverage provision is facially ambiguous, and the ambiguity is critical to resolution of the question of coverage in this case.

The Supreme Court applied the following rules of interpretation to resolve the facially ambiguous language:

In such situations, our first step is to consider whether the standard rules of contract interpretation can resolve the facial ambiguity in the policy’s language. Then, if the application of those rules fails to resolve the ambiguity, we interpret the provision in favor of protecting the insured’s reasonable expectations. “Only if these rules do not resolve a claimed ambiguity do we resort to the rule that ambiguities are to be resolved against the insurer.” (Boghos v. Certain Underwriters at Lloyd’s of London, supra, 36 Cal.4th at p. 501; see Minkler v. Safeco Ins. Co. (2010) 49 Cal.4th 315, 321-322; Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265.)

Based on the above rules of interpretation, the Supreme Court acknowledged that use of the word “material” immediately before the restrictive clause “that violates a person’s right of privacy” implies the policy does not cover the right-of-seclusion liability. Rather, it is the “content” of the material which violates such right. However, the Supreme Court also recognized that the language also supports an interpretation which extends to seclusion violations of privacy (i.e., conduct rather than content violations). The Supreme Court noted as follows:

In its brief in this court, Yahoo! says: “In the National Union Policies, the ‘personal injury’ coverage was deliberately expanded by manuscript endorsement [(i.e., Endorsement No. 1)] to cover specialized risks beyond what was covered by the standard form language. The endorsement removed certain exclusions, including the TCPA liability exclusion, and provided expanded coverage for conduct-based ‘personal injury’ offenses, separate and distinct from contentbased ‘advertising injury’ offenses.” Relying on this conduct-content distinction, Yahoo! argues that, in the context of the coverage provision, the restrictive clause “that violates a person’s right of privacy” should be interpreted broadly to include conduct that violates a person’s right of privacy (i.e., right-of-seclusion violations), whereas in the context of the advertising injury exclusion, the same restrictive clause should be limited to content that violates a person’s right of privacy (i.e., right-of-secrecy violations).

The arguments favoring Yahoo!’s broad reading of the coverage provision at issue are far from conclusive. However, Yahoo!’s arguments serve to persuade us that the policy remains ambiguous even when we apply the standard rules of contract interpretation in an effort to clarify the policy’s meaning. The restrictive clause “that violates a person’s right of privacy” can reasonably be read to modify the entire phrase “[o]ral or written publication, in any manner, of material,” and the standard rules of contract interpretation do not foreclose that reading.

The Supreme Court went on to hold that not enough information existed to determine whether the ambiguous language can be resolved by examining Yahoo’s reasonable expectations of coverage.

Hence, the Supreme Court found as follows:

To summarize, we do not find Yahoo!’s broad reading of the coverage provision to be conclusive. Rather, we agree with Yahoo! that the coverage provision is ambiguous and that the standard rules of contract interpretation do not resolve the ambiguity. 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. Finally, if the foregoing procedures do not resolve the ambiguity, then we resort to the rule that ambiguities are to be resolved against the drafter, and here the insurer is considered to be the drafter

Lastly, the Supreme Court rejected application of the “last antecedent rule” for purposes of interpreting the invasion of privacy clause. The Supreme Court found as follows:

In our view, the rule of the last antecedent, as articulated in our case law, does not resolve the ambiguity in the policy language at issue here. The rule of the last antecedent states that “qualifying words, phrases and clauses are to be applied to the words or phrases immediately preceding [them] ....” (Renee J. v. Superior Court, supra, 26 Cal.4th at p. 7 4 3, italics added.) As noted above, the rule is most readily applied where there is a list of several items, and the modifier comes immediately after the last item on the list. (See People ex rel. Lockyer v. R.J. Reynolds Tobacco-Co., supra, 107 Cal.App.4th at p. 530; see also Sutherland, Statutes and Statutory Construction, supra, § 267, pp. 3 49-351.) Here, however, there is no list of items followed immediately by a modifier; instead, there is the phrase “[o]ral or written publication, in any manner, of material” followed immediately by a modifier. In applying the rule of the last antecedent, if we identify the possible antecedents as either (1) the word “publication,” or (2) the word “material,” then the word “material” would be the last antecedent. But if, instead, we identify the possible antecedents as either (1) the entire phrase “[o]ral or written publication, in any manner, of material,” or (2) merely the final word of that phrase, “material,” then both potential antecedents would qualify as the last antecedent, as each would immediately precede the modifying restrictive clause. Accordingly, the rule does not resolve, in the present case, whether the relative clause “that violates a person’s right of privacy’’ modifies just the word that immediately precedes it (i.e., the word “material”) or whether the clause modifies the entire phrase that immediately precedes it (i.e., the phrase “[o]ral or written publication, in any manner, of material”). Therefore, we reach a different conclusion from the courts in ACS Systems, supra, 14 7 Cal.App.4th 137 and JT’s Frames, supra, 181 Cal.App.4th 429, and find that the rule of the last antecedent does not resolve the ambiguity that characterizes coverage provisions like the one at issue here.