Tag Archives: ZIP Codes

THE NINTH CIRCUIT HOLDS THERE IS NO COVERAGE FOR VIOLATION OF THE SONG-BEVERLY ACT


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This week, the United States Court of Appeals affirmed Big 5 Sporting Goods Corporation, a case in which the trial court had held that “personal and advertising injury” coverage did not exist for violation of California’s Song-Beverly Act, even where common law allegations of invasion of privacy were alleged in connection with the unlawful collection of ZIP Codes.  See Big 5 Sporting Goods Corporation v. Zurich American Ins. Co., No. 13-6249 (9th Cir. Dec. 7, 2015), affirming Big 5 Sporting Goods Corporation v. Zurich American Ins. Co., 957 F. Supp. 2d 1135 (C.D. Cal. 2013). 

In Big 5, the insured was sued in multiple underlying class action lawsuits alleging invasion of privacy and violation of the Song-Beverly Act from the practice of requesting ZIP Code information during credit card transactions.  See Big 5 Sporting Goods, 957 F. Supp. 2d at 1138.  Some of the class actions alleged both violation of the Song-Beverly Act as well as common law negligence and invasion of privacy claims.  Id.  The insured sought coverage under “personal and advertising injury,” defined in part as injury arising out of “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.”  Id. at 1140. 

The insurers argued that defense and indemnity coverage for the underlying actions was barred by the  statutory violation exclusion, one of which barred coverage for “personal and advertising injury” “arising directly or indirectly out of” any act or omission that violates or is alleged to violate:

c. Any statute, ordinance or regulation, other than the TCPA or CAN–SPAM Act of 2003, that prohibits or limits the sending, transmitting, communicating or distribution of material or information. 

Id. at 1149.  The trial court agreed, and now, the Ninth Circuit has affirmed.

Perhaps the most significant component of the Ninth Circuit’s decision was that the allegations of common law claims, which were not accounted for in the statutory violation exclusion, nevertheless did not preclude application of the exclusion because the factual allegations did not assert actionable causes of action. 

Specifically, the insured argued that because some of the lawsuits alleged common law claims for invasion of privacy, for purposes of the duty to defend, the statutory violation exclusion could not apply.  Big 5, slip op., at 4.  The Ninth Circuit disagreed.  Holding that because “California does not recognize any common law or constitutional privacy causes of action for requesting, sending, transmitting, communicating, distributing, or commercially using ZIP Codes,” the Court concluded that the only possible claim for recovery was for penalties, not damages, under the Song-Beverly Act.  Id. at 45, citing Fogelstrom v. Lamps Plus, Inc., 195 Cal. App. 4th 986, 992 (2d Dist. 2011).  In Fogelstrom, the California Court of Appeal held that requesting ZIP Codes during credit card transactions does not assert an actionable claim for invasion of privacy, concluding that the action of “obtaining plaintiff’s address without his knowledge or permission, and using it to mail him coupons and other advertisements … is not an egregious breach of social norms, but routine commercial behavior.”  Fogelstrom, 195 Cal. App. 4th at 992. 

The Ninth Circuit also rejected the insured’s argument that the invasion of privacy and negligence claims were merely frivolous, and thus could not be discounted for purposes of the duty to defend because an insurance carrier has the duty to defend both meritorious and frivolous claims.  The Ninth Circuit distinguished frivolous claims form those that are not actionable, explaining that the privacy claims did not merely lack merit, they were not recognized under the law:

Under settled California law, they are not even recognized as cognizable causes of action, a status one step below “unmeritorious.”  Allowing Big 5’s fact pattern to rise to the level of a claim would require an insurance company to insure and defend against non-existent risks.

Id. at 6. 

Borrowing from Shakespeare, the Court similarly dispensed with the underlying negligence claims as mere “artful” pleading that could not circumvent an unambiguous policy exclusion:

Big 5’s negligence theory fares no better.  Just as a rose by another name is still a rose, so a ZIP Code case under any other label remains a ZIP Code case.  See Swain v. Cal. Cas. Ins. Co., 99 Cal. App. 4th 1, 8-9 (2002) (“A general boilerplate pleading of ‘negligence’ adds nothing to a complaint otherwise devoid of facts giving rise to a potential for covered liability.”).  As the district court recognized, the California Court of Appeal has discouraged the “artful drafting” of alleging superfluous negligence claims, saying to allow such a practice would inappropriately “erase exclusions in any policy.”  Fire Ins. Exch. v. Jimenez, 184 Cal. App. 3d 437, 443 n.2 (1986).

Id.

What does this case mean?  Like the Third Circuit in Urban Outfitters (also discussed in The Coverage Inkwell), a second United States Court of Appeals now has held that “personal and advertising injury” does not exist for underlying allegations of unlawful ZIP Code collection.  A unique aspect to this decision, however, is that where an underlying action alleges a cause of action that is not recognized under the law, that cause of action cannot be used to implicate a duty to defend. 

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THIRD CIRCUIT HOLDS “PRIVACY” MEANS SECRECY, “PUBLICATION” MEANS DISSEMINATION TO PUBLIC, AND “IN ANY MANNER” DOES NOT CHANGE MEANING OF “PUBLICATION”


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In OneBeacon Amer. Ins. Co. v. Urban Outfitters, 2015 WL 5333845 (3d. Cir. Sept. 15, 2015), the United States Court of Appeals for the Third Circuit held that three underlying class action lawsuits filed against Urban Outfitters and Anthropologie, Inc. did not allege “personal and advertising injury.”  The Third Circuit held that for Coverage B “oral or written publication, in any manner, of material that violates  person’s right of privacy,” (1)“privacy” refers only to the right of secrecy, not the right of seclusion; (2) “publication” requires dissemination of information to the public at large, and (3) “in any manner” does not modify or change the meaning of “publication” to a lesser standard.

In the spirit of full disclosure, I represented OneBeacon America in the litigation with my colleagues at White and Williams LLP.  The facts of the matter are straightforward.

Urban Outfitters and Anthropologie (collectively, “Urban Outfitters”) were sued in three separate class actions filed in California, Massachusetts, and the District of Columbia.  (The California class action was actually a consolidation of multiple class actions.)  In each action, plaintiffs alleged that that Urban Outfitters wrongfully collected and used consumers’ ZIP codes and other data for marketing and purchase-tracking in violation of state statutes and privacy rights.  Urban Outfitters sought defense coverage for each lawsuit under “personal and advertising injury,” defined in part as “oral or written publication, in any manner, of material that violations a person’s right of privacy.”

In the first lawsuit, Hancock, the underlying complaint alleged that Urban Outfitters unlawfully collected consumers’ ZIP code information during credit card transactions in violation of District of Columbia statute.  Id. at *1.  By obtaining the consumers’ ZIP codes, Urban Outfitters was then able to obtain the consumers’ home and business addresses to use for marketing.  Id.  Urban Outfitters contended the exchange of data between the retailer and the consumers constituted a “publication” for purposes of “personal and advertising injury” coverage.  The Third Circuit disagreed and accepted the insurers’ arguments that “‘publication’ requires dissemination to the public.”  Id. at *2.  The court rejected the contention that the failure to define the term “publication” in the policy made the term ambiguous:

Although neither the policies nor the Pennsylvania Supreme Court have defined “publication,” that does not render the term ambiguous.  Rather, “[w]ords of common usage in an insurance policy are to be construed in their natural, plain, and ordinary sense, and we may inform our understanding of these terms by considering their dictionary definitions.”  Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (PA. 1999).  The District Court cited three separate dictionary definitions of “publication,” all of which support the conclusion that “publication” requires dissemination to the public. [Emphasis added.]

Id.

Significantly, the Court also rejected the contention that the phrase “in any manner” changed the meaning of “publication”:

The fact that the policies specify that “publication” may be made “in any manner” does not alter the analysis; as the Eleventh Circuit correctly noted, the phrase “in any manner” “merely expands the categories of publication (such as e-mail, handwritten letters, and, perhaps, ‘blast-faxes’) covered by the [p]olicy,” but “cannot change the plain meaning of the underlying term ‘publication.’”  Creative Hosp. Ventures, Inc. v. U.S. Liab. Ins. Co., 444 F. App’x 370, 375 (11th Cir. 2011).  [Emphasis added.]

Id.

In the second lawsuit, Miller, the underlying complaint alleged that Urban Outfitters unlawfully collected consumers’ ZIP code information to use for marketing purposes, including to send unsolicited promotional materials and “junk mail.”  Id. at *3.  Noting that the Pennsylvania Superior Court has recognized that the privacy right contemplated in “personal and advertising injury” is the right to secrecy, not the right to seclusion, the Third Circuit concluded that Miller did not allege a violation of a person’s “right of privacy.”  Importantly, in reaching its conclusion, the Third Circuit ejected the contention that the consumers had a right of privacy in their ZIP codes, or that the lawsuit alleged violation of consumers’ rights to keep their addresses secret from the retailers:

[T]he factual allegations of the Miller complaint evince a concern with seclusion, and not secrecy. The complaint asserts that plaintiffs “have suffered an injury as a result of Defendant’s unlawful conduct by receiving unsolicited marketing and promotional materials, or ‘junk mail,’ from Defendant.” [Record citation omitted.] Although the complaint asserts that Urban Outfitters did collect plaintiffs’ ZIP code information, that information was collected allegedly “to identify the customer’s address and/or telephone number … to send unsolicited marketing and promotional materials.” . . .  Put simply, the complaint does not assert harms based on the plaintiffs’ interests in keeping their ZIP codes secret. Accordingly, it does not allege publication of material that violates a person’s “right to privacy” under the policies . . . .

Id.  at *4.

For the final lawsuit, Dremak, the Court held that the Recording and Distribution of Material of Information In Violation of Law exclusion barred coverage, because the lawsuit was brought under California’s Song-Beverly Credit Card Act.  Id. at *3. The lawsuit originally had alleged common law claims, but those causes of action were dismissed without prejudice while the coverage litigation was pending in the Pennsylvania federal district court.  Urban Outfitters argued that the dismissal of those claims was not dispositive because the factual allegations supporting the common law claims remained in the complaint, and Pennsylvania law required that the factual allegations, not the causes of action, determined an insurer’s duty to defend.  Id.  The Court rejected the argument because the same alleged facts that gave rise to common law claims also alleged the statutory violations.

[T]he Court looked to the factual allegations of the complaint in determining that the complaint alleged “action[s] or omission[s]” that were alleged to violate the Song–Beverly Credit Card Act.  The fact that those same “action[s] or omission[s]” were also alleged to give rise to common law claims (claims that were dismissed) is irrelevant to the analysis.  [Emphasis added.]

Id.

What does this case mean?  This decision is a significant one.  It is one of only a few appellate-level decisions holding that (1) “publication” requires dissemination to the public at large, and (2) that “right of privacy” means the right of secrecy, not the right of seclusion.  The decision is the only the second to address and debunk the myth that the phrase “in any manner” changes the meaning of “publication” in Coverage B.

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