Hjalmar Jesus Gibeli Gomez: Unanimous California Supreme Court Affirms Breadth of Policy-Interpretation Rules in Confirming That CGL Policies Cover TCPA Liabilities
In Yahoo, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA., the California Supreme Court confirmed that contra proferentem and other rules of policy interpretation apply even to language insurers argue is “manuscript” as long as the provisions in question use standard-form policy terms. There, the United States Court of Appeals for the Ninth Circuit asked the California Supreme Court to answer a certified question regarding whether a commercial general liability policy (CGL) covers defense costs related to claims under the Telephone Consumer Protection Act of 1991 (TCPA) (47 U.S.C. § 227). Following a thorough and thoughtful assessment of California law involving fundamental rules of policy interpretation, the California Supreme Court ruled in favor of the policyholder, Yahoo, Inc. (“Yahoo!”). The authors of this article represented amicus curiae, United Policyholders, in support of Yahoo! before the California Supreme Court.
The case arises from a series of lawsuits alleging that Yahoo! violated the TCPA by sending unsolicited text messages. In particular, the underlying plaintiffs claimed that Yahoo!’s text messages violated their privacy right of seclusion (i.e., the right to be free from disturbance by others), which was actionable under the TCPA. Yahoo! sought defense and indemnity from National Union, but National Union declined coverage. Yahoo! sued National Union claiming its denial of coverage was in error. The policy was a National Union standard CGL form modified by various endorsements, including Endorsement No. 1, which National Union argued was “manuscript” and, thus, not subject to the rules of policy interpretation that construe insurance policy terms against an insurance company that drafted them. As amended, the policy included coverage for liability resulting from injuries due to “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.”
National Union argued that the coverage extended only to the publication of “material,” such as private information, that violates an individual’s right to privacy (i.e., the right to prevent the disclosure of your personal information to others), and the text messages allegedly sent by Yahoo! did not disclose any personal information. Yahoo! argued that the coverage was not so narrow. Specifically, Yahoo! argued that the nature of the material was irrelevant, and that it was the act of publishing any type of material that resulted in the impairment of a right of privacy that triggered coverage. The district court ruled in favor of National Union and the Ninth Circuit certified the question to the California Supreme Court.
The California Supreme Court began by reiterating the rules of policy interpretation under California law. Specifically, that court stated that, while unambiguous policy provisions are enforced, when a provision is susceptible to more than one reasonable interpretation it is ambiguous; in those situations, the court must interpret the provision to protect the reasonable expectations of the policyholder. And if the court still cannot resolve the ambiguity, the provision is interpreted in favor of coverage.
The court held that both National Union and Yahoo!’s proposed interpretations were reasonable and supported by other aspects of the policy. Thus, the court determined that the coverage grant, which must be broadly construed in favor of coverage, was ambiguous. As a result, the court stated that it must look to whether it was objectively reasonable for Yahoo! to expect coverage. However, the court held that that issue cannot be resolved without further litigation regarding other aspects of the policy.
The court noted that, if additional litigation did not resolve the ambiguity, then coverage should be construed in Yahoo!’s favor pursuant to the principle of contra proferentem (i.e., ambiguities are construed against the drafter, the insurer). National Union argued that this rule should not apply because the relevant language was part of Endorsement No. 1, which was a “manuscript” (i.e., “negotiated”) endorsement that was negotiated by sophisticated parties. But the court pointed out that, although the endorsement was not part of the standard form, the language in the endorsement was taken verbatim from other standard forms used throughout the country. In other words, the court noted that National Union still drafted the language, even if it was in an endorsement not part of the original standard form. Thus, the court held that Yahoo! cannot be charged with contributing to the ambiguity and, therefore, it was still appropriate to resolve any ambiguity in Yahoo!’s favor.
In addition to confirming coverage for Yahoo!’s TCPA liabilities, the decision is significant for two additional reasons. First, it confirms that contra proferentem and other principles of policy interpretation apply to a “manuscript” provision or endorsement that uses standard-form policy terms drafted by the insurance industry. Second, it is a unanimous decision by the highest court in one of the biggest insurance markets in the country, one considered as a leader on insurance issues.