In Yahoo Inc. v. National Union Fire Ins. Co. of Pittsburgh, — Cal. Rptr. 3d —;2022 Cal. LEXIS 6887; 2022 WL 16985647 (Nov. 17, 2022), the California Supreme Court applied established rules of policy interpretation and found that the definition of “personal injury” in Yahoo’s policy was ambiguous. The Court also determined that the rule of contra proferentem applied to a manuscript endorsement negotiated by two sophisticated parties, because the disputed language was standard insurance language. While the holding appears to be case specific, future questions may arise regarding the application of the rule of contra proferentem. 

Yahoo was sued in a series of class action lawsuits alleging that its unsolicited text messaging violated the Telephone Consumer Protection Act of 1991 (TCPA). Yahoo tendered the claims to its commercial liability insurer arguing that it was entitled to coverage under Endorsement 1 to the policy – a manuscript endorsement negotiated by the parties. That endorsement provided coverage for “personal injury” defined to include “oral or written publication, in any manner, of material that violates a person’s right of privacy.” The insurer concluded that there was no coverage under the endorsement and declined to defend or indemnify Yahoo. Yahoo sued the insurer who filed a motion to dismiss, which the district court granted. The district court applied the last antecedent rule and concluded that the phrase that violates a person’s right of privacy modified the term material. Therefore, the district court concluded, the policy provided coverage for privacy violations related to the content of the material (right of secrecy), but not to the transmission of a message (right of seclusion).[1]

Yahoo appealed to the Ninth Circuit, which certified a question of state law to the California Supreme Court. The Supreme Court framed the question as follows:

Does a commercial general liability insurance policy that provides coverage for ‘personal injury,’ defined as ‘injury … arising out of … [o]ral or written publication, in any manner, of material that violates a person’s right of privacy,’ and that has been modified by endorsement with regard to advertising injuries, trigger the insurer’s duty to defend the insured against a claim that the insured violated the [TCPA] by sending unsolicited text message advertisements that did not reveal any private information?

The Court commenced its analysis by finding that it was unclear whether the phrase that violates a person’s right of privacy modified the noun that immediately preceded it – material – or the entire preceding clause – oral or written publication, in any manner, of material. The Court acknowledged that (i) interpreting the phrase to modify the entire preceding clause rendered the word “material” superfluous, and (ii) there were several other examples throughout the policy, namely the definition of slander and an advertising exclusion, that supported the interpretation that the phrase modified only the word “material.”

Nevertheless, the Court found that the endorsement was susceptible to another reasonable interpretation. The Court explained that: (1) the personal injury definition could be read more narrowly than the slander definition and advertising exclusion because the language of the clauses was not identical; and (2) Yahoo claimed that the language should be read broadly because it was found in an endorsement and “it may be that the parties affirmatively intended to modify the policy to cover right-of-seclusion-injuries litigated under the TCPA.”

Because the Court found the endorsement to be ambiguous, it reasoned that any attempt to resolve the ambiguity had to be based on Yahoo’s reasonable expectations. And if any ambiguity remained, it would construe the endorsement against the insurer. Notwithstanding that sophisticated parties had negotiated and bargained for the manuscript endorsement, the Court found that “the disputed coverage language under review is standard form language adopted verbatim from insurer-drafted policies.”

In applying the rule of contra proferentem, the Court relied on footnote 9 of AIU Ins. Co. v. Superior Court 51, Cal. 3d 807, 823, fn 9 (1990). But that footnote appears to apply only for the proposition that even where a policy is negotiated, if it uses standard insurance parlance, it will be given the accepted interpretation of that language. In fact, the AIU Court stated that the rule of contra proferentem does not apply where the “policyholder does not suffer from lack of legal sophistication or a relative lack of bargaining power and where it is clear that an insurance policy was actually negotiated and jointly drafted.” Indeed, the only reason the AIU Court didn’t apply the rule was because there was no evidence to show that the policy language was actually negotiated. 

Finally, the Court refused to apply the rule of the last antecedent, reasoning that the rule usually applies only when there is a list of several items and the modifier comes immediately after the last item. Moreover, according to the Court, regardless of how the rule was applied in this case – by modifying the entire preceding phrase or merely the word material – it would not resolve the ambiguity. 

FOOTNOTES

[1] There are two types of privacy rights: the right of secrecy and the right of seclusion. The right of secrecy protects an individual’s private information. The right of seclusion protects an individual’s right not to be disturbed by unsolicited calls, e.g. a computer calling you to tell you that your car warranty is going to expire.