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Unclear policies may require insurer to defend Yahoo against privacy lawsuits

A liability insurer may have a duty to cover Yahoo Inc. against class action lawsuits alleging 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 Supreme Court ruled that an endorsement in a general commercial liability policy does not clearly exclude damages for violating someone’s “right to seclusion”.

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

In 2013 and 2014, four class action lawsuits were filed against Yahoo in federal courts in California, Illinois, and Pennsylvania. They alleged that the tech company had violated the TCPA by sending advertisements via SMS to customers who signed up to use the Messenger service. Violators can be held liable for civil fines of up to $1,500 for each violation.

While none of the lawsuits led to any substantial rulings, the process dragged on for years. Yahoo asked a US international entity, National Union Fire Insurance Co. from Pittsburgh, to defend it. The insurer refused. Yahoo filed a lawsuit.

The U.S. 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 demand to the California Supreme Court asking it to clarify state law on insurance contracts as they cover privacy violation coverage that does not involve revealing private information.

The National Union policy excluded coverage for privacy violations, but an endorsement that Yahoo negotiated to add to the policy provides coverage for injuries “arising from . . . oral or written publication, by any means, of material that violates someone’s right to privacy.”

The case boiled down to a disagreement over English grammar; in particular the rule of last antecedent.

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

A person’s right to seclusion can be violated by any type of publication because it is the unwanted disturbance that is at stake – unwanted reception of sports scores and weather forecasts can cause a violation of privacy. In contrast, one’s right to secrecy is violated by the publication of specific material.

The court ruled that that coverage was only for damages caused by the publication of specific material. However, the Supreme Court said the wording could also be construed to cover other types of privacy violations, including sending unwanted text messages.

“Here it is unclear whether the restrictive clause ‘violating a person’s right to privacy’ modifies a phrase or just a single word,” the advisory said. “If the former is the case, the intrusive manner in which the material, not just the informational content, is published, may give rise to the privacy violation in question, and the violation would nevertheless be covered by the policy.”

The Supreme Court said it did not rule that National Union must pay for Yahoo’s defense in the lawsuits, only that the wording of the endorsement could affect coverage. It returned its answer to the certified question to the Ninth Circuit for further deliberation.

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