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.

Shell Oil Co. v. Winterthur Swiss Ins. Co., 15 Cal. Rptr. 2d 815, 838 (Ct. App. 1993).

The allegations did not concern UMG’s good as TVT maintained ownership rights to the CMC album. Thus, it was of no moment that the Irv Gotti CD “announces the upcoming release of the CMC Album in November 2002,” making the album itself an “advertisement” so as to fall within the Policy’s coverage for infringement of copyright in your advertisement.

The court also found no personal injury coverage for disparagement:

Here, the statement that Def Jam mischaracterized something to the artists about TVT’s efforts to protect its own rights does not concern TVT’s goods or products. Neither does it state any inadequacy about TVT’s services to the artists. The allegation is so vague it is hard to say exactly what it means, but at most it merely alleges that TVT will not stand on its own rights, which is not disparagement of TVT’s services.

Id. at *2.

The slander argument was waived as it was not raised in the trial court pursuant to Monetary II Ltd. P’ship v. Comm’r, 47 F.3d 342, 347 (9th Cir. 1995). Id. at *3.

Judge Graber concurred and dissented in part, finding Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 123 Cal.Rptr.2d 256, 269-72 (Ct. App. 2002) pertinent under disparagement coverage and requiring a defense thereunder:

False statements that may influence a third party not to use the plaintiff’s services, to the financial detriment of the plaintiff, trigger the duty to defend a claim of disparagement of services.

Id. at *3.

The dissent was willing to look at the contextual scenario where the allegations that TVT will not stand on its own rights could disparage TVT’s services to third parties because TVT depends on the willingness of others to put themselves in its hands to release albums.

"Accordingly, a provision is ambiguous 'only if it is susceptible to two or more reasonable constructions despite the plain meaning of its terms within the context of the policy as a whole.'"

Id. at *3.

The court derived this interpretation from its belief that

"The terms in an insurance policy must be read in context and in reference to the policy as a whole, with each clause helping to interpret the other. Cal. Civ.Code § 1641; Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Ins. Co., 5 Cal.4th 854, 867, 21 Cal.Rptr.2d 691, 855 P.2d 1263 (1993); Palmer v. Truck Ins. Exch., 21 Cal.4th 1109, 1115, 90 Cal.Rptr.2d 647, 988 P.2d 568 (1999)."

Id. at *3.

Quoting Bank of the West, 2 Cal. 4th at 1265, it stated:

"A court faced with an argument for coverage based on an assertedly ambiguous policy language 'must first attempt to determine whether coverage is consistent with the insured's reasonable expectations,' id., and '[i]n so doing ... must interpret the language in context, with regard to its intended function within the policy,' id."

Id. at *3.

Notably, this “reasonable expectations” approach in Bank of the West and the cases it cites was only called into force where there was a structural or contextual inconsistency. Thus, in Bank of the West, statutory provisions under 17500 had no damage remedy. Absent a damage remedy, the “as damages” provision was not triggered, and the definition of unfair competition dovetailing with the liability under that section was not a viable possibility. The court confuses this level of contextual reading with that arising from what, at base, is simply a preferred construction that the court deems most reasonable from that possibly chosen among others. At issue was the meaning of the term “negligent publication,” undefined in the AISLIC policy or in lay or legal dictionaries or in a California statute. The court noted:

"Sony argues that the term 'negligent publication' should have a broad meaning which it derives from stringing together the dictionary definitions of 'negligent' and 'publication.' According to Sony, 'negligent publication' in the AISLIC policy refers to 'a communication of information to the public, lacking or exhibiting a lack of due care or concern.' Sony argues that this definition, broad enough to include the false advertising and negligent misrepresentation claims in the Kim/Kaen lawsuits, is the plain meaning of the term."

Id. at *4.

The court disagreed. Accordingly, the court contended that the ordinary and popular sense of the word was not derived from an examination of dictionary definitions because it was not contextually available. The court further contends that “negligent publication” is enumerated among other torts and thus refers to a narrow tort relating to defective advice and incitement, not a broad tort distinct from those terms. Id. at *5.

However, the court’s supposition is demonstrably erroneous as disparagement, harm to the character or reputation of any person or entity, interference with rights of privacy or publicity, unauthorized use of name or likeness, unintentional failure to credit on a matter, and defective advice and incitement and negligent publication are clearly not simple torts which clearly defined prima facie elements. Rather, the offenses use generic and lay language. To adopt the court’s interpretation is to add words of limitation not set forth in the policy under the guise of construing context.

Nor does the context analysis the court relies on support such a narrow interpretation. American Motorists Ins. Co. v. Allied-Sysco Food Servs., Inc., 19 Cal. App. 4th 1342, 1347, 1350-51, 24 Cal. Rptr. 2d 106 (1993) limited humiliation’s meaning to the kind of humiliation envisioned based on the previous torts asserted in connection with it, which were indeed limited to tort theories – libel, slander, defamation of character, and invasion of the right of privacy. Id. at *5.

The court also makes the supposition that the negligent publication definition that Sony offers would give it too broad an amplitude and make other offenses redundant. Not so. The court’s supposition is demonstrably inaccurate. Sony’s definition would not dovetail with the liability for defamation, infringement of copyright, nor a number of the other offenses listed.

The court also sought to define the policy based on the fact that it was labeled a media liability policy and thus must be limited to the kind of claims normally faced by media publishers such as defamation and copyright infringement.

Again, the court is reading in words of limitation not set forth in the policy based on its supposition as to what the parties might have intended that the insurer did not bother to craft into the language. The purported case law the court cites is tort law, not construction of other media liability policies, inventing a tort of negligent publication which is not borne out by the authorities that it cites. And indeed, the court’s definition of negligent publication made it redundant of the definition of placing another in a false light, which is one of the offenses necessarily implicated by coverage for invasion of privacy.

It is no surprise that “negligent publication,” as the court deduces it as an actionable tort, has not been construed to encompass liability like that identified by Sony. Nor need this matter. There is no rule that requires the court to define what torts the carrier may have envisioned covering under broad generic language. Indeed, previous case law from courts of appeal, including the Lebas decision from Judge Croskey, often describes offenses, such as “misappropriation of advertising ideas or style of doing business,” that cannot be gauged to limit their scope to any particular tort but may encompass a range of wrongful behavior.

Case law elsewhere is fully in accord with this notion. Indeed, the conjecture that insurers must have intended to limit their coverage to torts where they clearly did not select limited tort language has the court simply rewriting the policy for the insurer’s benefit. The court thus concluded:

"[W]e hold that the term 'negligent publication' in the AISLIC policy refers to a very narrow tort in which the publication of material encourages or instructs readers to engage in harmful conduct. We reject Sony's expansive definition as inconsistent with the context of the policy as a whole and unsupported by the case law. Sony, a sophisticated purchaser, clearly could have purchased coverage for product defects or false advertising – indeed, Sony previously held an insurance policy with AISLIC that covered 'any error or omission, misstatement, misleading statement or misinterpretation' – yet the policy at issue in this lawsuit did not include such coverage."

Id. at *8.

In a backhanded way, the court clarifies that where an insured could have purchased broader coverage and had in the past, its decision to not do so must be read to limit the scope of the policy before it. This turns on its head the typical rules that place the burden on the insurer to write appropriate policy language, especially where a narrower form of policy was available but not selected by a particular insurer. See Fireman’s Fund Ins. Cos. v. Atlantic Richfield Co., 94 Cal. App. 4th 842, 115 Cal. Rptr. 2d 26 (2001).

The court also rejected suggestions that the applicable exclusions clarified the scope of the coverage from which the exclusion took away possible coverage. A products liability cover was found inapplicable because, as the court stated:

"The Kim/Kaen complaints did not allege that the defects in the PlayStation 2 caused them to experience a loss of use of game discs or DVDs. . . .

. . . [T]hough it is undisputed that certain discs did not properly play on the PlayStation 2, the complaints never suggested that the discs themselves did not function properly on other devices. Id. In this respect, the suit is easily distinguishable from the loss of use cases Sony cites, in which the insured's defective property rendered the property of a third party unusable. See Anthem Elecs., Inc. v. Pac. Employers Ins. Co., 302 F.3d 1049, 1057 (9th Cir.2002) (defective circuit boards inserted into scanners of third party plaintiff rendered scanners unusable) . . . ."

Id. at *10.

In a thoughtful dissent, Judge Bybee disagreed with the construction of the AISLIC policy. Critically, the dissent’s analysis is not addressed in the majority opinion. The dissent noted that the phrase “negligent publication” is not a term but a phrase made up of two individual words that have meaning both individually and in combination. The court reasoned:

"Turning to the dictionary, the word 'negligent' means “lacking or exhibiting a lack of due care or concern.' WEBSTER'S II NEW COLLEGE DICTIONARY 732 (1999). The word 'publication' means 'communication of information to the public.' Id. at 895, 51 Cal.Rptr.2d 566. Given the ordinary meaning of those words, a layperson might properly understand that the phrase 'negligent publication' means something like “communication of information to the public lacking or exhibiting a lack of due care or concern.' "

Id. at *13.

Such a meaning obviously dovetails with coverage for false advertising in a number of cases. The court found that an exclusion can clarify an ambiguity in an insuring clause in favor of coverage. American Alternative Ins. Corp. v. Superior Court, 135 Cal. App. 4th 1239, 37 Cal. Rptr. 3d 918, 924 n.2 (2006) (“Unquestionably, it may be considered part of the general circumstances impacting an insured's objectively reasonable expectations as to the scope and extent of coverage under a policy.”). Id. at *14.

The court thereafter reasoned:

"Exclusion P provides contextual evidence for the phrase 'negligent publication' within the affirmative coverage section of the AISLIC policy. If there was no affirmative coverage for false advertising or misrepresentation in advertising then the policy would have no need for an exclusion specifying that those claims were not covered. Why recite that certain acts are expressly excluded from the policy if they were never covered in the first place?"

Id. at *14.

At best, in the dissent’s view, the majority’s interpretation leaves Exclusion P meaningless and the other contra-indications referenced by the majority send mixed signals. Although the dissent does not take issue with the tort-focused analysis of the majority, had it done so the context arguments would not survive scrutiny. The dissent also was “puzzled” as to why cases that “do not yield one clear definition of ‘negligent publication’ should be seen as a limited set.” Id. at *15.

The dissent also noted:

"I am unaware that Sony missed any secret deadline after which a term may no longer be used in new judicial contexts, and the possible usages for the term is closed to the conjunction of the ways in which it had thus far been used."

Id. at *15.

In a telling part of the opinion, Judge Bybee states:

"I fear that in the course of implementing the common law system, we have become so adept at looking to judicial cases to obtain the solutions to the challenges we encounter, that we have come to believe that even when determining the ordinary and popular meaning of words, the solution is to be found in case law. The California Supreme Court has admonished that absent evidence that the parties intended the provision to have a specialized meaning that a term must be construed as would a layperson, and not as it might be analyzed by an attorney or an insurance expert, or, I might add, a judge. See E.M.M.I. Inc., v. Zurich Am. Ins. Co., 32 Cal.4th 465, 9 Cal.Rptr.3d 701, 84 P.3d 385, 390 (Cal.2004). I am quite certain that a layperson looks to a dictionary to determine the meaning of a phrase, not to case law."

Id. at *14.