Which ad campaign do you think cost Papa John’s more – Payton Manning and the giveaway of one million pizzas, or its text messaging? Payton Manning probably came cheaper. In National Fire Ins. Co. of Pitt., Pa. v. Papa John’s Int’l, Inc., 2014 WL 2993825 (W.D. Ky. July 3, 2014), the Kentucky federal court held that the Distribution of Material in Violation of a Statute (“DMVS”) exclusion barred coverage for a class action asserting damages for the text messaging.
What makes this decision notable is the court’s deliberation over the meanings of “publication” and “right of privacy” in general liability policies were issues of first impression under Kentucky law. The decision can have a wide effect beyond the TCPA context, including with cyber liability and data breaches. Also of interest, the court rejected arguments that the DMVS exclusion rendered Coverage B illusory.
Papa John’s was sued by a putative class action alleging that it and others (collectively, “Papa John’s”) had unlawfully sent unsolicited text messages to the class plaintiffs’ cellular telephones in the Seattle, Washington, area between October 2009 and April 2010. According to the lawsuit, Papa John’s encouraged its franchisees to use an advertising company to send text messages advertising Papa John’s products. Id. at *1. The lawsuit asserted violations of the TCPA, the Washington State Consumer Protection Act, and common law negligence. Id. at *2.
Papa John’s sought coverage under general liability policies that defined “personal and advertising injury” in part as injury arising out of “oral or written publication, in any manner, of material that violates a person’s right of privacy.” Id. at *1. The policy had a DMVS exclusion stating that:
This insurance does not apply to any loss, injury, damage, claim, suit, cost or expense arising out of or resulting from, caused directly or indirectly, in whole or in part by, any act that violates any statute, ordinance or regulation of any federal, state or local government, including any amendment of or addition to such laws, that includes, addresses or applies to the sending, transmitting or communicating of any material or information, by any means whatsoever.
Id. at *2.
The insurer contended that the underlying action did not allege “personal and advertising injury” and that the DMVS exclusion barred coverage. The Kentucky federal court disagreed that the lawsuit did not allege “personal and advertising injury,” but held that the exclusion applied.
Examining the meaning of “privacy,” the court examined two competing decisions in the United States Courts of Appeals for the Seventh and Eighth Circuit. In Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 550 (7th Cir. 2009), the Seventh Circuit concluded that, under Iowa law, the meaning of “privacy” in a CGL policy was restricted to rights of secrecy and did not include rights of seclusion:
We … read the policy’s use of the word “publication” in the advertising-injury definition to narrow the scope of the “privacy rights” referred to in the same clause. The provision provides coverage for “oral or written publication of material that violates a person’s right of privacy.” The most natural reading of this language is that it covers claims arising when the insured publicizes some secret or personal information—not claims arising when the insured disrupts another’s seclusion.
Id. at *4 (citation omitted).
In Owners Ins. Co. v. European Auto Works, Inc., 695 F.3d 814, 819 (8th Cir. 2012), on the other hand, the Eighth Circuit, when interpreting Minnesota law, held that the “plain and ordinary” meaning of the term “privacy” in a CGL policy included both rights of secrecy and rights of seclusion:
We conclude that the ordinary meaning of the term “right of privacy” easily includes violations of the type of privacy interest protected by the TCPA. Our court has previously stated that violations of the TCPA are “invasions of privacy” under the ordinary, lay meaning of the phrase.
Id. at *5. Considering the case law, the Kentucky federal court concluded that a Kentucky court would likely follow the rationale of Owners Ins. ”and the majority of other circuits” by holding that “the plain and ordinary meaning of the personal and advertising injury provision is sufficiently broad to include violations of a person’s right to seclusion.” Id. at *6.
The court’s decision was bolstered further by the OED, which defined privacy as: “1) ‘the state or condition of being alone, undisturbed, or free from public attention, as a matter of choice or right; seclusion; freedom from interference or intrusion;’ and 2) ‘absence or avoidance of publicity or display; secrecy, concealment, discretion; protection from public knowledge or availability’.” Id. Because the OED’s definition for “privacy” encompassed both rights of secrecy and seclusion, the court rejected the narrower interpretation of the term:
Thus, the Court cannot accept Plaintiffs’ argument that the term “right of privacy” must be restrictively interpreted as including only a right to secrecy. Instead, the Court will construe the term in accordance with its plain and ordinary meaning as also including a right to seclusion.
Id. (emphasis added).
Notably, however, the court then declined to apply the OED definition when construing the meaning of the term “publication.” The OED defined publication to mean “[t]he action of making something publicly known.” Id. However, concluding that the definition did not restrict the meaning of the term to making a secret publicly known, the court broadly interpreted publication to include dissemination any information, whether a secret or not, to any person not previously in possession of the information:
Importantly, nothing in this definition restricts its meaning to the act of making a secret publicly known. To the contrary, the Court concludes that the term’s plain and ordinary meaning extends to any dissemination of information, whether or not secret, to either the public at large or any person not previously in possession of the disseminated information.
Id. (bold added, other emphasis in original).
How the court made the leap from disclosing information to so many individuals to make “something publicly known” to a dissemination to any person is unclear. But the court did it. As a result, the court concluded that, “it is beyond cavil that” the underlying class action alleged “injury … arising out of … oral or written publication, in any manner, of material that violates a person’s right of privacy.”
This is where the good news for Papa John’s ended. The court determined that the DMVS exclusion applied, including the common law claim. In so holding, the court rejected arguments that the exclusion made Coverage B illusory and, thus, should not be enforced. Id. at *8. Simply put, because Coverage B entailed coverage for non-statutory violations, it did not completely negate coverage to make it illusory:
… the policies’ definition of “personal and advertising injury” as “injury … arising out of … oral or written publication in any manner, of material that violates a person’s right of privacy” is in no way restricted to injuries arising from violations of statutes. Accordingly, the exclusion does not render the coverage illusory because … the exclusion does not entirely negate the policies’ coverage for “personal and advertising injury.”
Id. (bold added, other emphasis in original).
The court also rejected arguments that the DMVS exclusion violated Papa John’s reasonable expectations because the exclusion was not ambiguous. Id. at *9. In so holding, the court rejected the contention that because the exclusion did not identify the possible statutes that applied to implicate the exclusion, it was ambiguous:
After careful review, the Court concludes that the reasonable expectations doctrine is inapposite because the exclusion is unambiguous. Although Defendants argue that the exclusion is ambiguous because it “fails to define the operative terms, including the individuals and situations to which it applies, provides no standards for determining whether Papa John’s acts were intentional …, and fails to specify, identify, or define the statutes to which it would apply,” these arguments focus on the breadth of the exclusion, rather than its ambiguity.
Id. (bold added, other emphasis in original). “Accordingly, because ‘[o]nly actual ambiguities in the policy language will trigger the doctrine of reasonable expectations,’ the reasonable expectations doctrine is of no avail to Defendants.” (Id. (citation omitted).)
What This Case Means. This case provides a first glimpse on how Kentucky courts may construe the terms “publication” and “privacy” in the context of a CGL policy and, perhaps, other insurance policies. That alone makes it worth knowing. Notably, while it used a dictionary to construe the “plain and ordinary” meaning of “privacy,” the court fudged the issue for “publication.”
The case also is notable for the DMVS exclusion. For one, the court applied it to the common law claim, as well. This is the more recent trend after some courts initially declined to apply the exclusion for the duty to defend where the underlying lawsuit asserted common law claims in addition to statutory violations. In addition, the court rejected arguments that the exclusion’s breadth made it ambiguous and created illusory coverage. The fact of the matter is that the DMVS exclusion is very broad, and it is meant to be. Here, the court did not ignore the exclusion’s broad terminology or attempt to rewrite a new policy. Instead, the court enforced the plain language of the exclusion before it.