A Supreme Interpretation of Coverage B
It's not every day that you get a peek at how a U.S. Supreme Court justice would have ruled in an insurance coverage dispute. And it's certainly not an everyday occurrence for an ex-SCOTUS justice to declare that your client "got it right" when he wrote a letter to the insured denying coverage. So you'll forgive us if we have a little fun with Cynosure, Inc. v. St. Paul Fire & Marine Ins. Co., No. 10-1119 (1st Cir. May 12, 2011), a case in which we were local counsel where the First Circuit refused to find coverage for junk fax claims.
As Coverage B mavens will recall, the issue with junk fax claims is whether the invasion of privacy language in CGL policies refers to the private content of the material that the insured publishes or communicates, as insurers contend, or can also extend to the manner of communication, without regard to whether the content of the communication is secret or private. A number of courts, notably the Supreme Courts of Illinois and Massachusetts, have declined to consider the nuances of different privacy interests and have ruled that because either interpretation is plausible, the language in question must be ambiguous. See, e.g. Terra Nova Ins. Co. v. Evan Fray-Witzer, 869 N.E.2d 565 (Mass. 2007). At the same time, these cases have tended to distinguish cases that have adopted the insurer's position, such as Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631 (4th Cir. 2005), as involving non-standard language that lacks the ambiguity of the ISO CGL form.
As a result, there has evolved in recent years a dichotomy in which courts have tended to find coverage for junk fax claims under standard CGL forms but have refused to find coverage under policies issued by the St. Paul that contain slightly different wordings limiting coverage to the offense of “making known to any person or organization covered material that violates a person’s right of privacy”
This dichotomy was disrupted in 2010 when a federal district court in Massachusetts (Saris, J.) ruled that St. Paul had a duty to defend a TCPA case. Despite footnotes in Terra Nova that seemed to distinguish cases such as Resources Bankshares, Judge Saris read the footnote and Terra Nova as compelling coverage for TCPA claims, even under policies with "making known" language. St. Paul appealed.
As Justice Souter posed it, the question for the First Circuit was "whether liability for violating privacy by advertising activity mean privacy understood as repose undisturbed by commercial intrusion (and thus liability for violating the TCPA), or privacy as freedom from disclosure to a third-party recipient of information that the subject of the disclosure claims an interest in not having divulged."
In this case, the court took note of the context in which this language occurred, observing that all of the other "publication" offenses focused on the content of the published material, not the manner of publication. In any event "[w]hat logic and definition require, syntax confirms."
On our reading, the content of the material communicated (revealing something about a third party) is necessary for a covered violation of a right of privacy. Under Cynosure’s argument, on the contrary, making known alone (to the recipient) would violate privacy without regard to content. That is, the modifying phrase “that violates a person’s right of privacy” would refer to “making known,” not to “material.” But to do that, the modifier would have to jump back over the words “to any person or organization covered material,” and that would be not only a broad jump, but an unlikely one at all, since the phrase “that violates . . .” has an obvious antecedent in its contiguous neighbor, “covered material.” While not every commercial contract term may intend to respect this convention of looking to the most direct antecedent as the subject of a modifier, the more complex a sentence is, the more likely it is that the most direct antecedent is the one that commercial contracting parties understood.
As a result, the First Circuit reversed the District Court and entered judgment for St. Paul.
St. Paul was likely fortunate in having Souter on the panel that heard its appeal. There is always a certain tension between state and federal courts of appeal with respect to issues of insurance law (witness the conflicting views of the 7th Circuit and the Illinois Supreme Court on this issue alone). Whereas another federal jurist might have felt more compelled to defer to as recent a precedent as Terra Nova, a former U.S. Supreme Court justice (who had himself once sat on a state Supreme Court) likely felt fewer compunctions).
The junk fax wars seem to be cooling down, as the ISO exclusion has for the most part cut off coverage under policies issued after 2004. Efforts to compel the application of Coverage B to privacy claims proceed unabated, however, as witnessed by the recent claims arising out of the California Supreme Court's Pineda ruling last February holding that merchants can be sued for disclosing customers' zip codes without their authorization.
Even so, it's nice to read an opinion where a court takes the time to really read an insurance policy and interpret it in accordance with plain rules of English grammar and usage. But maybe I'm just biased, since this was our case...
