Insurance Law

• Publication year: 2022
• Author: Stephen Raucher

INSURANCE LAW

AUTHORS^*

Stephen Raucher

Michael Sohigian

INTRODUCTION

In 2022, the pendulum of insurance jurisprudence definitely swung in favor of insurance companies. While the year's only California Supreme Court case, regarding personal injury coverage for Telephone Consumer Protection Act ("TCPA) suits, was technically a win for the policyholder, it narrowly rested on a manuscript endorsement, as well as the reasonable expectations of the parties. Meanwhile, the Court of Appeal upheld the denial of a defense under a habitability exclusion in a decision which has the potential to seriously undermine the defense of mixed actions alleging both covered and uncovered claims. Another Court of Appeal rejected coverage for the accidental levelling of land and trees on a neighbor's property, declining to expand the definition of occurrence in Commercial General Liability ("CGL") policies. On the first party side, claims for business interruption due to COVID largely continued to be resolved against policyholders, although a line of cases developed declining to do so at the pleading stage. Whether the winning streak in favor of insurance companies represents a new trend in California law, or merely an aberration, remains to be seen.

THIRD PARTY POLICIES

DO CGL POLICY'S PERSONAL INJURY OR ADVERTISING INJURY PROVISIONS PROVIDE COVERAGE FOR TCPA CLAIMS? MAYBE.

Coverage lawyers were closely watching Yahoo Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA¹ for guidance about coverage under a CGL policy for claimed violations of the Telephone Consumer Protection Act that restricts robocalls and junk faxes. Large companies are frequent targets of TCPA suits, and had hoped the Supreme Court would rule in favor of Yahool's claims for coverage-though its policy was a standard National Union CGL policy with a number of negotiated endorsements that could limit the applicability of the Court's holding. While the Court's ruling was technically in Yahool's favor, it was of limited benefit to Yahoo! and even less to policyholders (or carriers, for that matter) looking for authority to support their position.

Yahool tendered class action claims for unsolicited text messages to National Union, and after the carrier denied defense and indemnity, Yahool sued in federal court. The District Court granted National Union's motion to dismiss and Yahoo! appealed. The Ninth Circuit certified a question of state

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law to the California Supreme Court that the Court rephrased 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] of 1991 (47 U.S.C. § 227) by sending unsolicited text message advertisements that did not reveal any private information?²

Claims for TCPA coverage typically rest on CGL provisions covering "personal and advertising injury," which often includes injury arising from "oral or written publication, in any manner, of material that violates a person's right of privacy."³ The standard policy excludes injuries arising from TCPA violations, but Yahoo! had in its policy a manuscript Endorsement No. 1 that removed the TCPA exclusion. Endorsement No. 1 also excluded coverage for advertising injuries ("oral or written publication, in any manner, of material in your 'advertisement' that violates a person's right of privacy") but retained it for personal injury arising from "oral or written publication, in any manner, of material that violates a person's right of privacy."⁴

Yahoo! argued Endorsement No. 1 created a potential for coverage triggering National Union's duty to defend the TCPA class action claims. The District Court concluded the policy covered alleged violations of the privacy right of secrecy, involving the content of communication disclosing private personal information, but not violations of the right of seclusion, which occur when the means, manner, and method of communication disturb the recipient's seclusion. Because the "TCPA claims asserted against Yahoo! focused on the transmission of unsolicited text messages rather than the content of those messages, the federal district court dismissed Yahoo!'s insurance coverage action, entering judgment for National Union."⁵

The Supreme Court agreed that "if the policy at issue here does not cover liability for violations of the right of seclusion, then it does not cover Yahoo!'s potential TCPA liability in the underlying lawsuits."⁶ Did it? After lengthy analysis, using standard rules of contract interpretation, the insured's reasonable expectations, and the rule of the last antecedent, the Court concluded National Union's policy did cover the TCPA claims against Yahoo!, "assuming such coverage is consistent with the insured's reasonable expectations."⁷

The Supreme Court considered whether coverage for injuries to the right of privacy was limited to those caused by the "material" the insured published or whether the coverage extended to injuries resulting from the act of publication. The Court found the policy was ambiguous on that point, so the answer depended on "Yahoo!'s objectively reasonable expectations, which must be determined in further litigation."⁸

While this may create a potential for coverage and a duty for National Union to defend Yahoo! against the TCPA claims, it is of limited value to other insurers or insureds with policies containing similar endorsements, because each of those insureds will have to establish its own expectations. Of course, because the Ninth Circuit couldn't "determine Yahoo!'s reasonable expectations and the parties [had] not briefed the issue, [it] remand[ed] for the district court to resolve it, as well as any other issues that arise, in the first instance."⁹

Grammar fans might enjoy the Court's discussion of the rule of the last antecedent (the "Rule"), according to which, "[r]elative and qualifying words and phrase, grammatically and legally, where no contrary intention appears, refer solely to the last antecedent."¹⁰ While California courts have employed the Rule to hold that insurance policies with language similar to the one National Union sold to Yahoo! "cover only right-of-secrecy liability, and not right-of-seclusion liability,"¹¹ "the rule of the last

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antecedent, as articulated in our case law, does not resolve the ambiguity in the policy language at issue here."¹²

So it's back to the trial court for Yahool, to gather and present evidence of its reasonable expectations of coverage. The Supreme Court's opinion may provide some guidance to other insureds with the market power and resources to negotiate a manuscript CGL policy without the TCPA exclusion, and to pay the premium for TCPA class action coverage. Helpful hint - make sure to document your expectations.

HABITABILITY EXCLUSION UPHELD EVEN IN THE FACE OF OTHERWISE COVERED CLAIMS

24th & Hoffman Investors, LLC v. Northfield Ins. Co.,¹³ decided by the First District Court of Appeal, may turn out to be one of the most consequential insurance decisions of 2022. Read narrowly, 24th & Hoffman cut off the right to a defense in a habitability case based solely on the specific language of the exclusion at issue in the underlying policy. However, in a broader sense, the case opens the door to insurance companies contracting around their obligation to otherwise defend "mixed" actions, those actions alleging both covered and uncovered claims.

The underlying dispute centered on a CGL policy issued by Northfield Insurance Company to 24th & Hoffman Investors, LLC, which owned an apartment complex. Two tenants alleged multiple habitability claims against the landlord, complaining of substandard conditions caused by renovations at the property, including construction debris and dust, as well as pest and vermin infestations. The tenants also alleged two claims that did not arise from the duty to provide habitable premises, namely, conversion and trespass to chattels, which were based on alleged damage to the plaintiffs' personal property stored in a locker at the complex caused by the landlord.

Northfield refused to defend the case based on its habitability exclusion, which excluded not only claims "arising out of the . . . actual or alleged violation of any federal, state or local law, code regulation, ordinance or rule relating to the habitability of any premises," but any causes of action "alleged in any claim or 'suit' that also alleges any violation, breach or wrongful eviction, entry or invasion as set forth . . . above."¹⁴ Given the inclusion of non-habitability claims in the underlying complaint, the effect of the second "catch-all" clause was at the heart of the dispute.

After defending and settling the underlying case on its own, the landlord sued Northfield for wrongfully denying coverage. The trial court found that Northfield breached its duty to defend in light of the non-habitability claims. This was in accordance with the rule established by the California Supreme Court in Buss v. Superior Court,¹⁵ that in a "mixed" action where some claims are potentially covered and others are not, the insurer must defend the entire action, subject to a right to partial reimbursement of defense costs following the conclusion of the case.

The Court of Appeal reversed, finding that Northfield had contracted out of the Buss rule by including clear language in its exclusion applying to any claims alleged in a suit that "also" included habitability claims. Since there were no other published California cases dealing with such language in a habitability exclusion, the court relied on S.B.C.C., Inc. v. St. Paul Fire & Marine Ins Co., which included similar catch-all language in an intellectual property...