The California Court of Appeal has held that a liability insurer had no duty to defend an insured in an action alleging that the insured sent unsolicited advertisements to fax machines in violation of federal statutory law and common law privacy rights. ( ACS Systems, Inc. v. St. Paul Fire and Marine Insurance Co. (2007) WL 214258)
Facts
Various plaintiffs filed a class action lawsuit against ACS Systems, Inc., alleging that ACS had sent thousands of unsolicited advertisements to fax machines. The plaintiffs sought damages from ACS for, among other things, violation of the federal Telephone Consumer Protection Act and invasion of privacy
ACS tendered defense of the lawsuit to its liability insurer, St. Paul Fire and Marine Company, under a policy covering liability for (1) “advertising injury” and (2) “property damage” caused by “accident.” St. Paul rejected ACS’ tender.
ACS subsequently sued St. Paul, alleging that St. Paul had breached the insurance policy by failing to defend ACS in the underlying class action lawsuit. However, the trial court ruled that the underlying claims against ACS were not potentially covered under the St. Paul policy, and that St. Paul thus had no duty to defend ACS in the underlying lawsuit. ACS appealed.
Holding
The Court of Appeal affirmed, finding that the underlying plaintiffs’ “junk fax” lawsuit against ACS was not potentially covered under either the “advertising injury” or “property damage” provisions of the St. Paul policy.
With respect to “advertising injury,” the court acknowledged that the plaintiffs in the underlying suit had sought damages from ACS for “invasion of privacy,” and that the St. Paul policy defined “advertising injury” to include “making known to any person or organization written or spoken material that violates an individual’s right of privacy. ” However, the court concluded that the suit against ACS was based on invasion of the privacy right of seclusion (i.e., the right to be free at a particular location or time from disturbance by others), and that St. Paul’s policy—read in context—only covered ACS for invasion of the privacy right of secrecy (i.e., the right to be free from disclosure of personal information to others). Because the underlying plaintiffs’ lawsuit suit against ACS was based on alleged violation of seclusion privacy, and the St. Paul policy only covered ACS for violation of secrecy privacy, the “advertising injury” coverage did not apply.
Turning next to the “property damage” provisions, the court noted that even if ACS’ alleged act of sending unsolicited faxes caused the recipients to suffer “property damage,” the St. Paul policy only covered property damage caused by “accident.” Further, the St. Paul policy specifically excluded coverage for property damage which is “expected or intended” by an insured. According to the court, ACS’ alleged act of sending unsolicited faxes was not an “accident,” and any property damage suffered by the recipients was “expected or intended” by ACS. Therefore, St. Paul had no duty to defend ACS under the “property damage” provisions.
Comment
This case represents the first time a California court has considered whether an insurer has a duty to defend an insured who is sued for sending unsolicited “junk faxes.” The court examined numerous cases from other jurisdictions—some finding a duty to defend and some finding no duty to defend—before concluding that the particular wording of St. Paul’s policy did not impose a duty to defend.