Fax blasting is not covered under a commercial general liability policy’s “advertising injury” or “property damage” coverages, because fax blasting does not involve the publication of “material that violates a person’s right of privacy,” nor is it the result of an “accident.” ( State Farm Gen. Ins. Co. v. JT’s Frames, Inc. (2010) 181 Cal.App.4th 429)
Facts
Acting on behalf of itself and a class of similarly situated entities, JT’s Frames, Inc. (“JT’s) filed a class action lawsuit in Illinois against the Friedman Group, a company which had transmitted over 74,000 unsolicited faxes to class members. JT’s alleged that the Friedman Group violated the Telephone Consumer Protection Act, which makes it illegal to use fax machines to send unsolicited advertisements, and which allows for statutory damages of $500 per violation.
The Friedman Group sought a defense under several commercial general liability policies it had obtained through State Farm General Insurance Company (“State Farm”), but State Farm denied coverage. JT’s subsequently entered into a settlement agreement with the Friedman Group in the amount of $19,520,000, subject to a covenant not to execute and an assignment of its rights under the State Farm policies.
State Farm then filed a declaratory relief action against JT’s in California state court, seeking a declaration that the claims were not covered under its policies. The trial court ruled in favor of State Farm, and JT’s appealed.
Holding
The Court of Appeal affirmed, finding that JT’s claims were not covered under the State Farm policies’ “advertising injury” coverage or “property damage” coverage.
The Court first held that fax blasting does not fall within State Farm’s definition of “advertising injury,” which the policies define as the “oral or written publication of material that violates a person’s right of privacy.” The Court observed that “right of privacy” can refer to either the right to seclusion (the right to be free from unwanted intrusions), or the right to secrecy (the right to keep one’s personal information confidential), but that blast faxing, by its very nature, only violates the right to seclusion, not the right to secrecy.
The Court then noted that under the “last antecedent rule,” which provides that qualifying language is applied only to immediately preceding words and not more remote words, the phrase “that violates a person’s right to privacy” must modify the word “material.” Thus, reasoned the Court, the policy should be read to require that the “material” at issue “violate a person’s right to privacy,” which would only be the case if the material contained confidential information and violated the victim’s right to secrecy. Since the policy language only embodied violations of the privacy right of secrecy and not the privacy right of seclusion, fax blasting did not fall within the policy language.
The Court further noted that the context of the phrase “oral or written publication of material that violates a person’s right of privacy” in the policies as a whole also supports the conclusion that “advertising injury” coverage applies only to content-based claims. Specifically, the other three types of torts listed in State Farm’s definition of “advertising injury” – slander/libel, misappropriation of advertising ideas, and infringement of copyright, title or slogan – all relate to injury caused by the information contained in the advertisement, not merely sending and receiving information. Thus, the phase “oral or written publication of material that violates a person’s right of privacy,” viewed in context, must refer to material whose content violates a person’s right of privacy. Since fax blasting is not a content-based offense, the Court concluded it does not fall within the definition of “advertising injury.”
Finally, with respect to coverage for “property damage caused by an occurrence,” the Court held that although a fax blaster’s unauthorized use of the victim’s fax machine, paper, and toner could constitute “property damage,” the fax blasting itself was not accidental, and thus is not an “occurrence.” The Court noted that an “accident” requires unintentional acts or conduct, and even if the Friedman Group did not intend to violate the Telephone Consumer Protection Act, it did certainly intend to send the faxes. Thus, fax blasting did not qualify for “property damage” coverage under the State Farm policies.
Comment
As the State Farm Court itself noted, courts throughout the United States are split on whether fax blasting is a covered “advertising injury.” California and the Seventh Circuit have found that it is not, but Ohio, Massachusetts, Texas, and Florida have found that it is. This split may result in forum shopping. Granted, the choice of law for interpretation of an insurance policy typically turns on where the policy was issued, but it appears that Courts may be lenient in deciding which law governs. By way of example, in this case, JT’s, the Friedman Group, and State Farm are all based in Illinois, yet the Court still applied California law in interpreting the policy.