In Yahoo Inc. v. Nat’l Union Fire Ins. Co., No. S253593, 2022 Cal. LEXIS 6887, at *2-3 (Nov. 17, 2022), the California Supreme Court, on certification of the issue from the Court of Appeals for the 9th Circuit, found that TCPA claims were covered under Yahoo!’s manuscript CGL policies. The Court summarized:
Privacy injuries that involve the right of seclusion are sometimes actionable under the federal Telephone Consumer Protection Act of 1991 (TCPA) (47 U.S.C. § 227 (section 227)), provided the violation involves the use of telephonic equipment. Specifically, the TCPA protects the seclusion interests of telephone users by placing restrictions on automated telephone calls (“robocalls”) and unsolicited facsimile machine advertisements (“junk faxes”). (See § 227; Duguid v. Facebook, Inc. (9th Cir. 2019) 926 F.3d 1146, 1149.) Subject to certain exceptions, the TCPA prohibits making “any call . . . using any automatic telephone dialing system . . . to any telephone number assigned to a . . . cellular telephone service.” (§ 227(b)(1)(A)(iii).) The TCPA also prohibits, again subject to exceptions, using “any . . . device to send, to a telephone facsimile machine, an unsolicited advertisement.” (Id., § 227(b)(1)(C).) Significantly, the TCPA’s prohibitions have been interpreted to apply to text messages (“robotexts”), not just to voice telephone calls. (Duguid, supra, 926 F.3d at p. 1149; Satterfield v. Simon & Schuster, Inc. (9th Cir. 2009) 569 F.3d 946, 954.) Many commercial general liability (CGL) insurance policies provide coverage against liability for privacy violations, but it is not always clear what specific types of privacy violations are covered. The insurance policy at issue here, for example, provides liability coverage for injuries “arising out of . . . [o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” The question we must resolve is whether this language provides liability coverage for right-of-seclusion violations litigated under the TCPA. We conclude that it does, assuming such coverage is consistent with the insured’s reasonable expectations.
Yahoo! was the subject a TCPA class action arising out of its text message campaign. The Court described the CGL coverage issued by the Defendant.
The standard version of National Union’s policy provided liability coverage for “personal and advertising injury,” which the policy defined as injury arising out of any of seven specified offenses, including “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” The standard policy, however, excluded injuries arising from the distribution of material in violation of the TCPA. Endorsement No. 1 modified National Union’s standard policy in three important ways. First, Endorsement No. 1 removed the exclusion for injuries arising from violations of the TCPA. Second, Endorsement No. 1 provided liability coverage only for “personal injury” (as compared to “personal and advertising injury” in the standard version of the policy), and it defined “personal injury” to include injury arising from any of five offenses (as compared to seven offenses in the standard version of the policy). The list of five offenses, however, still included injuries arising from “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” Therefore, although Endorsement No. 1 removed coverage for advertising injuries, coverage for injuries to privacy remained. Third, and related to the second change, Endorsement No. 1 expressly excluded liability coverage for “advertising injury,” which it defined as injury arising from any of four offenses, including “[o]ral or written publication, in any manner, of material in your ‘advertisement’ that violates a person’s right of privacy.”5 (Italics added.) Therefore, although Endorsement No. 1’s coverage provision created liability coverage for privacy injuries, the same endorsement expressly carved out liability coverage for privacy injuries caused by material in a Yahoo! advertisement.
The Supreme Court found the terms of the Policy ambiguous as applied to the claim at issue.
Yet other aspects of Yahoo!’s policy suggest that in the policy’s coverage provision, the restrictive clause “that violates a person’s right of privacy” modifies the entire phrase “[o]ral or written publication, in any manner, of material,” thus creating coverage for any publication-based right-of-privacy violation, including right-of-seclusion violations. For example, even if the slander provision and the advertising injury exclusion refer only to content-based injuries, those provisions are worded differently from the provision now before us. The specific provision at issue here (“[o]ral or written publication, in any manner, of material that violates a person’s right of privacy”) does not include language that similarly requires such a narrow interpretation. Moreover, it may be that the parties affirmatively intended to modify the policy to cover right-of-seclusion injuries litigated under the TCPA. 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 content-based ‘advertising injury’ offenses.” (Italics added.) 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.
Because the Policy was ambiguous, the rules of construction required the Court to turn to the insured’s reasonable expectation.
As regards the next and final step — the rule that we interpret unresolvable ambiguities in favor of the insured — the application of that rule must take into consideration the specific circumstances in which the policy was drafted. The rule derives from the principle of contra proferentem (“against the drafter”), and it is justified on the grounds that the drafter of a contract should bear the responsibility for ambiguities the drafter could have resolved. (See Abraham, A Theory of Insurance Policy Interpretation (1996) 95 Mich. L.Rev. 531, 533.) Therefore, the rule favoring the insured does not necessarily apply where the insured is one of the contract’s drafters. Here, sophisticated parties have bargained over the terms of a manuscript endorsement, and the ambiguous coverage provision appears in that manuscript endorsement. In this situation, it is appropriate to ask whether the insurer can be considered the sole drafter of the provision and therefore whether the insurer is solely responsible for the ambiguity in that provision. But even in the case of a manuscript endorsement, ambiguities should be resolved in favor of coverage when the specific ambiguous language is “adopted verbatim from standard form policies used throughout the country.” (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 823, fn. 9; see id. at pp. 823-824.) In the present case, despite the characterization of Endorsement No. 1 as a manuscript endorsement — which would normally imply that it contains nonstandard, negotiated provisions — the disputed coverage language under review is standard form language adopted verbatim from insurer-drafted policies. Under such circumstances, the insured — Yahoo! — cannot be charged with creating the ambiguity that led to the dispute, and therefore it is appropriate for courts to interpret any unresolvable ambiguities in Yahoo!’s favor. (See Minkler v. Safeco Ins. Co., supra, 49 Cal.4th at p. 321; State of California v. Allstate Ins. Co., supra, 45 Cal.4th at p. 1018.) 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 of the specific coverage language whose meaning is in dispute.
The Supreme Court explained why it felt the U.S. District Court got it wrong.
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. 743, 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. 349-351.) 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, 147 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.