Gauntlett on Intellectual Property/Antritrust Insurance : Insurance Policyholder Advocate & Attorney David Gauntlett : Gauntlett Law Firm : Insurance Recovery, Policy Interpretation : Irvine, Orange County, California

Analyzing whether personal jurisdiction arose in order to address the issue, it determined that JT’s, standing in place of the insured, freely chose to involve itself in the merits of the action, and even stipulated to have the court decide the summary judgment motion before the time prescribed by Cal. Code Civ. Proc. § 437c, subd. (a), thus waiving any jurisdictional objections to participation in the motion and to permitting the appellate court to resolve this issue.

The court relied upon the last antecedent rule in determining that there was no potential coverage. It thus took an approach directly contrary to that enunciated one day later by the Florida Supreme Court in addressing an issue certified to it by the Eleventh Circuit. Penzer v. Transportation Insurance Co., ___ So. 3d ___, 2010 WL 308043 (Fla. 2010).

Therein, the court found that plain meaning rules applied. Penzer, 2010 WL 308043, at *5 n.6 (“Because we apply a plain meaning analysis, we need not consult the rules of construction that apply when there is an ambiguity. Therefore, we reject Transportation’s rule of construction arguments, including the doctrine of noscitur a sociis.”).

The two concurrences in Penzer found that the Eleventh Circuit should have reached the issue of ambiguity and on that basis confirmed the same result. None applied a strict contextual analysis as did the California Court of Appeal.

In Terra Nova Insurance Company v. Fray-Witzer, 869 N.E.2d 565, 572 (Mass. 2007), the Massachusetts Supreme Court similarly analyzed whether unsolicited facsimile advertisements violated the TCPA. The Court found the facsimile advertisements to fall within the category of “[o]ral or written publication of material,” and also analyzed whether it was a violation of the “right to privacy” in the context of the precise policy language. Id.

[W]e must construe the phrase “right of privacy.” In interpreting these words, the judge relied entirely on two decisions from the Federal courts of appeals, namely, Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631 (4th Cir.2005), and American States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939 (7th Cir.2004). In the American States decision, the United States Court of Appeals for the Seventh Circuit noted that the “right of privacy” can be understood to mean either the right to secrecy, such as a person wishing to conceal a criminal conviction or bankruptcy, or a right to seclusion, such as a person asserting a desire to be free from door-to-door sales people ringing the doorbell at night. . . . [The] language at issue here pertains only to the right of privacy as that phrase concerns secrecy. . . . The court in Resource Bankshares Corp. . . . relied heavily on the American States analysis in interpreting policy language that was different from the language at issue here. [Emphasis added.]

JT’s Frames narrowly construed the right to privacy and mischaracterized American States by holding that a “right of privacy” violation is only implicated if a right to seclusion is implicated. JT’s Frames, 181 Cal. App. 4th at 445. In ACS Systems, the Panel recognized that “sending unsolicited faxed advertisements constitutes ‘making known’ of ‘written . . . material’ to the recipient.” But the outcome was different in ACS Systems because the policy language at issue there required the unsolicited fax to implicate the right of privacy based on the “material” in the fax itself, because of the “making known” language in the policy.

The JT’s Frames court said that it viewed the reasoning of American States Insurance Co. v. Capital Associates of Jackson County, 392 F.3d 939, 941 (7th Cir. (Ill.) 2004), as dispositive, observing:

“These three advertising injury offenses therefore all involve the insured’s making known or unauthorized taking or use of content which injures someone.” (147 Cal.App.4th at p. 151, 53 Cal.Rptr.3d 786.) It followed that construing the provision “ ‘[m]aking known to any person or organization written or spoken material that violates an individual’s right of privacy’ ” in context led to the conclusion that “[t]he covered advertising injury offense involves communication or making known of written or spoken material whose content injures someone else.” (Ibid.; accord, Resource Bankshares v. St. Paul Mercury Ins. Co. (4th Cir.2005) 407 F.3d 631, 641 . . . .)

Id. at 448-49.

The court reached a ruling consistent with that of a number of cases that the sender of the fax may be uncertain of violating the TCPA but knows that the faxes deplete the recipient’s consumables as every junk fax invades the recipient’s property interest in consumables. This is intentional, and the outcome is not covered.

Proceeding methodically to define the terms in the policy, the court, applying Florida law, stated:

Three terms – “publication,” “material,” and “right of privacy” – are particularly relevant, and none are defined by the policy. Consequently, the first step towards discerning the plain meaning of the phrase is to “consult references [that are] commonly relied upon to supply the accepted meaning of [the] words.” . . .

The first term, “publication” is defined as “communication (as of news or information) to the public: public announcement” or as “the act or process of issuing copies (as a book, photograph, or musical score) for general distribution to the public.” Webster's Third New International Dictionary 1836 (1981). The definition also refers the reader to the definition of “publish.” Id. To publish is “to place before the public (as through a mass medium): DISSEMINATE.” Id. at 1837. Here, sending 24,000 unsolicited blast-facsimile advertisements to Mr. Penzer and others is included in the broad definition of “publication” because it constitutes a communication of information disseminated to the public and it is “the act or process of issuing copies ... for general distribution to the public.”

“Material” has several definitions, two of which are “of, relating to, or consisting of matter,” and “something (as data, observations, perceptions, ideas) that may through intellectual operation be synthesized or further elaborated or otherwise reworked into a more finished form or a new form or that may serve as the basis for arriving at fresh interpretations or judgments or conclusions.” Id. at 1392. In this case, the faxed paper containing the unwanted advertisement meets the definition of “material” since a faxed advertisement “consist[s] of matter,” and “something that may ... be synthesized or further elaborated or ... may serve as the basis for arriving at fresh interpretations or judgments or conclusions.”

A “right” is “something to which one has a just claim” or “something that justly accrues or falls to one: something that one may properly claim: one's due.” Id. at 1955. This plain meaning of “right” invokes the legal authority one must possess in order to assert a proper claim.

Because the policy provides coverage for a violation of a “ right of privacy,” which can only arise from the law, it is not necessary to separately discern the plain meaning of “privacy.” . . . Stated another way, the plain meaning of “right of privacy” is the legal claim one may make for privacy, which is to be gleaned from federal or Florida law, rather than defined by a dictionary. In this case, the source of the right of privacy is the TCPA, which provides the privacy right to seclusion. See Valley Forge, 307 Ill.Dec. 653, 860 N.E.2d at 315 (“The receipt of an unsolicited fax advertisement implicates a person's right of privacy insofar as it violates a person's seclusion, and such a violation is one of the injuries that a TCPA fax-ad claim is intended to vindicate.”) . . . .

As stated previously, the policy provision provides coverage for a written publication of material that violates a person's right of privacy. The facts of the instant case demonstrate that there was a written dissemination of 24,000 facsimiles that violated the TCPA. . . . Therefore, applying our plain meaning analysis, we hold that Transportation's insurance policy provides coverage for sending unsolicited fax advertisements in violation of the TCPA.

Id. at *3-4.

The court rejected a grammatically based canon of statutory construction, the doctrine of the last antecedent as a grounds for reaching a contrary result.

It was not an absolute rule.

See United States v. Hayes, 129 S.Ct. 1079, 1086, 172 L.Ed.2d 816 (2009) (“The rule of the last antecedent ... ‘is not an absolute and can assuredly be overcome by other indicia of meaning.’ ”)

[T]he doctrine cannot be applied in a way that ignores the plain reading of the language. . . . Here, . . . we find that the clause “that violates a person's right of privacy” is applicable as much to “publication” as to “material;” therefore, the clause should be read as applicable to all. . . .

Furthermore, even if the phrase “that violates a person's right of privacy” only modifies the term “material,” it does not follow that only the secrecy right to privacy is implicated because “material” could also invade one's seclusion. See Motorists Mut. Ins. Co. v. Dandy-Jim, Inc., 182 Ohio App.3d 311, 912 N.E.2d 659, 666 (Ohio Ct.App.2009) (“ ‘The Act presumes that all advertising, so long as it is unsolicited, is an offensive intrusion into the recipient's solitude .’ In other words, the unsolicited faxed advertisement itself is the ‘material’ that is offensive and violative of the individual's right of privacy.” . . .

Id. at *5.

The court found it unnecessary to reach the doctrine noscitur a sociis because it deemed no ambiguity arose.

Two concurring opinions agreed with the result that suggested the ambiguity was an alternative basis for the decision following the logic of Terra Nova Ins. Co. v. Fray-Witzer, 869 N.E.2d 565, 573 (Mass. 2007).

The bottom line is that if the insurer, as the drafter of the language, intended to limit coverage to material whose content violated the right of privacy, then it could have easily done so by simply adding a phrase as follows: Oral or written publication of material, the content of which violates the right of privacy. Transportation Insurance Company did not do so and thus left the policy open to a reasonable interpretation in favor of coverage.

Id. at *7.

Court’s ruling in Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill.2d 352, 307 Ill.Dec. 653, 860 N.E.2d 307 (Ill.2006), which is inconsistent with the earlier Federal Court Order and superseded and controlled.

As the court explained,

To the extent that the federal courts' interpretation differs from that of the Illinois Supreme Court, the Illinois Supreme Court's ruling in Valley Forge controls. In the present matter, the only term in dispute is “right of privacy.” According to the analysis in Valley Forge, “ ‘right of privacy’ connotes both an interest in seclusion and an interest in the secrecy of personal information.” Since an unsolicited fax advertisement violates an individual's seclusion, TCPA claims fall within the “advertising injury” provision. Applying the present facts to the standard articulated in Valley Forge, plaintiff has satisfied its burden of proof that the Bernstein settlement comes within the “advertising injury” coverage. It is undisputed that the TCPA claim brought against plaintiff arose from an unsolicited fax advertisement. Although the complaint in the Bernstein action did not raise the issue of privacy, a violation of privacy is implicit in a TCPA fax-ad claim. Therefore, the Bernstein settlement comes within the “advertising injury” coverage in defendants' policies.

Id. at *5.

Thus, seeing an erroneous individual versus business exclusion raised by the insurer, the Court found it did not preclude reimbursement obligations for settlement.

Although defendants' policies specifically state that the “advertising injury” must arise from a violation of a “person's right of privacy,” the plain and ordinary meaning of the policies do not preclude coverage if the individual receives the unsolicited advertisement at his place of business. Since plaintiff has established that the TCPA action was filed by an individual, and because there is no evidence to suggest that any of the class members were business entities, plaintiff has met its burden. Therefore, plaintiff does not have to allocate between fax advertisements received on business faxes as opposed to residential faxes.

Id. at *5.

Relying on Judge Coar’s prior finding that “no presently admissible evidence in the record that claimants received faxes prior to the policy effective date” existed, it was of no moment that the settlement class was designated for a broader time frame, i.e., April 4, 1997 to December 8, 2004 whereas the policy period was February 3, 2002 to February 3, 2003. Id. at *6.

The court found no allocation necessary of the amount of settlement. With respect to an allocation between coverage types, the appellate court of Illinois recently concluded that

[An insured is] “not required to allocate [ ] liability within [a] settlement.” Relying on the reasoning formulated in U.S. Gypsum Co. v. Admiral Insurance Co. and Commonwealth Edison Co. v. National Union Fire Insurance Co., the court concluded that it was impossible to determine how much of the settlement was attributable to each claim without having a “mini-trial” and requiring the insured to “prove its own liability.” The court's finding in Binney & Smith can easily be applied to the facts in the instant matter. The underlying complaint against plaintiff alleged “property damage” and “advertising injury” through an unsolicited fax advertisement in violation of the TCPA. Neither the settlement agreement nor the complaint in that matter distinguished between the two claims.

Id. at *6.

The court determined that a sufficient showing was made. A settlement occurred in reasonable anticipation of liability for a coverage loss. It reasoned:

In the present matter, plaintiff notes that Bernstein's willingness to negotiate for $6 million, and eventually settle for $1.95 million, was reasonable in light of its potential exposure in excess of $300 million. Although plaintiff denies any wrongdoing, it points out that the “TCPA is essentially a strict liability statute” which suggests that it would have been difficult to prevail against the Bernstein class at trial. In addition, plaintiff's motion for summary judgment was denied by the Illinois state court on the TCPA claim. Finally, the third amended complaint in the Bernstein action appears to establish a prima facie case under the TCPA. In light of these facts, plaintiff has satisfied its burden of proof that it settled in reasonable anticipation of liability.

Id. at *8.

An award of damages of $1.95 million of which $1.085 million was distributed to charities as a cy pres award was still fully compensable is as the Illinois Supreme Court has defined the term “damages” as “money paid to make good an insured loss” and having a “remedial purpose.” Id. at *8.

The court left open the issue of whether the prior acts exclusion could bar the indemnification due to the production of three sales orders between facts Fax.com and plaintiff beginning on June 7, 2001 prior to the policy inception date. Although the documents’ authenticity was challenged as inadmissible hearsay, this arguably raised a genuine issue of material fact.

Looking, under Florida law, solely at the allegations of the complaint, the court noted that the pertinent complaint invokes neither Section 1681n nor Section 1681o, but only 1681c(g). The following questions of law are common to the putative class:

(i) Whether the Merchant accepts credit cards or debit cards for the transaction of business;

(ii) Whether the Merchant violated FACTA by printing more than the last five digits of the credit card . . .

(iii) Whether the Merchant's sole means of recording the payment card's account number or expiration date is by handwriting . . .

(iv) Whether the Merchant willfully failed to comply with the requirements imposed by FACTA.

Id. at *8.

The allegations of the Chavoustie and Turner complaints were both analyzed.

The pertinent personal and advertising injury coverage was “e. Oral or written publication, in any manner, of material that violates a person's right of privacy.”

The insurers argued that sharing the payment card receipt with the payment card holder alone did not violate any privacy rights under Florida law. The court noted:

In considering the breadth of the phrase, “publication, in any manner,” the Court finds it difficult to conceive of a more inclusive description of the categories of “publication” to be covered by an insurance policy, particularly in light of Florida's insurance policy construction canon requiring courts to interpret coverage clauses “in the broadest possible manner to [e]ffect the greatest extent of coverage,” Westmoreland, 704 So.2d at 179 (Fla. 4th Dist.Ct.App.1997) (citing Hudson v. Prudential Prop. & Cas. Ins. Co., 450 So.2d 565, 568 (Fla.2d Dist.Ct.App.1984); and putting insurers on notice that “ ‘when an insurer fails to define a term in a policy, ... the insurer cannot take the position that there should be a “narrow, restrictive interpretation of the coverage provided.” ’ ” State Farm Fire and Cas. Co. v. CTC Development Corp., 720 So.2d 1072, 1076 (Fla.1998) (citations omitted). Had Defendants wished to restrict the definition of “publication” to be narrowed to the meaning of that term under Florida defamation law or to be otherwise qualified, Defendants bore the burden of articulating that limitation.

Id. at *11 (citations omitted).

In line with this analytic approach, plaintiffs’ provision to a payment card holder of a receipt bearing that payment card holder’s expiration date and more than five digits of that payment card holder’s account number could constitute a publication. Id. at *11.

At most there were two plausible interpretations of the term “publication” and that should be preferred which would interpret against the insurer who drafted it. Id. at *13.

The insurers argued that there was no injury but only the potential to cause injury by creating a greater exposure to identity theft.

The court responded:

These contentions miss the mark. Plaintiffs argue that the policies' definition of “personal and advertising injury” . . . encompasses the injury alleged by Chavoustie and Turner in their complaints. “Personal and advertising injury” contemplates a different type of injury than “bodily injury,” “property damage,” “advertising injury,” or “personal injury,” to the extent that any of those terms may be defined by the applicable insurance policies.

Id. at *13.

The legislative history elucidates that the truncation provisions of the FACTA arose from a desire to prevent identity theft that can occur when a card holder’s private financial information, such as the card holder’s complete credit card number, is exposed on electronically printed payment card receipts. Id. at *15.

The alleged conduct in the Chavoustie and Turner actions implicated an injurious act, publication, and potential violation of the right of privacy. It reasoned:

In Chavoustie, the plaintiffs claimed that E.T. “failed to protect [the Chavoustie plaintiffs] against identity theft and credit and debit card fraud by printing more than the last five digits of the card number and/or the expiration date on the consumer receipts it provided to [the Chavoustie plaintiffs].” . . . They further alleged that as a result of E.T.'s alleged failure to truncate on electronically printed payment card receipts, the Chavoustie plaintiffs were “aggrieved by [E.T.'s] ... fail[ure] to comply with the requirements of FACTA.”

Id. at *16.

The statutory character of the damage awards was of no moment since both actual and statutory damages were remedies. The court reasoned:

As the Eleventh Circuit has rejected the argument that statutory damages under Section 1681n amount to punitive damages, this Court respectfully declines to accept USLI's invitation to conclude otherwise.

Id. at *18.

Looking to the “knowing violation of the rights of another” exclusion, the court did not aver that Creative reviewed or otherwise actually became aware of the information contained in the materials alleged to have been provided to Creative, thus requiring knowledge of the information. Id. at *21.

The exclusion for TCPA, CAN-SPAM and other statutory violations did not embrace this particular form of privacy invasion. The court reasoned:

[T]he FACTA seeks to protect the secrecy privacy interest in that it attempts to protect private financial information from becoming known to others. Therefore, the seclusion privacy interest, or the right to avoid intrusions into a private domain, which the TCPA and CAN-SPAM are intended to address, represents a different kind of privacy interest than the secrecy privacy interest at stake in the FACTA.

Id. at *24.

Thus, the court concluded that plaintiff E.T. stated a cause of action against defendant Essex but concluded that Creative had not stated a viable cause of action against defendant USLI. The court reached the distinct conclusion regarding USLI because it found the exclusion for TCPA, CAN-SPAM and other statutory violations implicated as to its policy. It noted:

Because the FACTA is a statute that limits the information that such an electronically printed receipt provided to the card holder may include, and, indeed, prohibits the inclusion of certain information, the FACTA qualifies as a statute that “prohibits and limits the ... communicating or distribution of material or information,” within the ordinary meaning of the terms of this exclusion. As a result, USLI is under neither a duty to defend nor to indemnify Creative with regard to the Turner litigation.

Id. at *22.

The court found that an exclusion relied upon by the district court to avoid a defense was too broadly interpreted.

The SmartDownload utility does not provide an Internet connection, and, in fact, is useless without one; AOL therefore did not provide Internet access in making the SmartDownload utility available. Since the other enumerated activities included in the “online activities” exclusion also do not apply to the SmartDownload program, we reverse the district court's grant of summary judgment and remand for further proceedings.

Id. at *1.

the TCPA was to protect individuals from receiving unsolicited fax advertisements no matter what their content. See 47 U.S. § 227(b)(2)(B)(ii)(I) and 227(b)(2)(C). Id. at *4.

The unsolicited faxed advertisement itself is “material” that is offensive and violated the individual’s right of privacy. As the Valley Forge court, applying New Jersey law from the Supreme Court of Massachusetts observed, granting another’s claim would be tantamount to rewriting the policy for the insurer’s benefit.

The court also rejected the Insurer’s argument that a publication requires disclosure to a third person or party which did not happen here.

[A]n invasion-of-privacy claim based upon seclusion does not require that its factual underpinning include an allegation of publication to a third person. See, e.g., Sustin v. Fee (1982), 69 Ohio St.2d 143, 145-46 (“One who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns, is subject to liability to the other for invasion of privacy, if the intrusion would be highly offensive to a reasonable person.”).

Id. at *5.

The court found no difficulty in finding that faxed advertisements are an act of “publication” in the ordinary sense of the word.

The “few marginal, direct” contacts were sufficient to constitute an intrusion because the TCPA presumes that all advertising, so long as it is unsolicited, is an offensive intrusion upon the recipient’s solitude.

Rejecting the argument that since Ohio prohibits insuring against punitive damages and treble damages were authorized by the TCPA that public policy bars any indemnity.

But the claimants are not seeking punitive damages; they are seeking damages under the TCPA. The amounts of such damages are specified by the statute. The TCPA provides for the higher of actual damages, or damages of $500 per violation. 47 U.S.C. § 227(b)(3)(B). The award may be increased to “not more than 3 times the amount available under subparagraph (B)” if the violation was committed “willfully or knowingly.” 47 U.S.C. § 227(b)(3).

Id. at *6.

There was no evidence that TCPA was intended to be punitive in nature as it was not based on purely punitive or deterrent goals.

[There] is no showing that intentional malice required to obtain treble damages under the TCPA if the fax advertisements were sent “willfully.” . . . Thus, a willful or knowing violation of the TCPA is different from an intentionally malicious act that could give rise to punitive damages. See, also, Penzer v. Trans. Ins. Co. (C.A.11, 2008), 545 F.3d 1303, 1311 (public policy prohibiting insuring against punitive damage liability not applicable to TCPA claims because statutory damages not designed to be punitive and punitive damages require “wanton disregard for the rights of others”).

Id. at *7,

The court addressed each and every potential argument that could be asserted in connection with a coverage analysis of a “blast fax” claim implicating the TCPA. It rejected each in turn thoughtfully and succinctly, putting to rest questionable rejections of coverage that continue to proliferate despite clear law requiring a contrary result.

ruling in Insurance Corp. of Hanover v. Shelborne Associates, ___ N.E.2d ___, 2009 WL 884898 (Ill. App. Ct. (1st Dist.) March 31, 2009), entered three days before the April 2, 2009 Brother Int’l Order.

The court conceded that under New Jersey law subjective intent is applicable to determine an intent to injure.

The court found Melrose Hotel Co. v. St. Paul Fire & Marine Ins. Co., 432 F. Supp. 2d 488, 501 (E.D. Pa. 2006), aff’d, 503 F.3d 339 (3d Cir. 2007) dispositive as it addressed the same policy.

Melrose's knowledge about the TCPA and its lack of intent to violate the TCPA are irrelevant to whether it intended to cause harm that befell Class members.

Id. at *5.

“Without Atkins' valid authority or informed consent, IMT and Thane have invaded and continue to invade Atkins' privacy by appropriating Atkins' name and likeness by using Atkins' name and image on the EFL package and Atkins' name and image in at least one infomercial which was aired on television. Atkins' image on the EFL package and in the infomercial is readily identifiable in that any person viewing these images with the naked eye can reasonably determine that the person depicted in these images is Atkins because Atkins' face is clearly visible and distinguishable, the image depicting Atkins on the EFL package is situated next to Atkins name on the package and the image depicting Atkins in the EFL infomercial is shown with a verbal statement of Atkins' name.”

Id. at *3.

A duty to defend these fact assertions was owed by Hartford.

All causes of action were covered because the defendant refused to defend citing, Buss v. Superior Court, 16 Cal. 4th 35, 48-50 (1997).

The fair market value of the goods, i.e., the EFL units, or $492,793.62, that Thane agreed to relinquish in consideration for the settlement of all claims against it in the underlying lawsuit is recoverable as damages arising from Defendants’ breach. Earth Elements, Inc. v. Nat'l Am. Ins. Co. of Calif., 41 Cal.App.4th 110, 116-17, 48 Cal.Rptr.2d 399 (1995); McMahan's of Santa Monica v. City of Santa Monica, 146 Cal.App.3d 700-701 (1983), disapproved on other grounds, Bunch v. Coachella Valley Water Dist., 15 Cal.4th 432, 63 Cal.Rptr.2d 89, 935 P.2d 796 (1997).

Id. at *6.

The court also found 10% prejudgment interest was recoverable on the fair market value of the goods relinquished as well as on defense fees from the date incurred.