Acs Systems v. St. Paul Fire and Marine

• Decision Date: 29 January 2007
• Docket Number: No. B181837.,B181837.
• Citation: 147 Cal.App.4th 137,53 Cal.Rptr.3d 786
• Court: California Court of Appeals Court of Appeals
• Parties: ACS SYSTEMS, INC., et al., Plaintiffs and Appellants, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY et al., Defendants and Respondents.

53 Cal.Rptr.3d 786

147 Cal.App.4th 137

ACS SYSTEMS, INC., et al., Plaintiffs and Appellants, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY et al., Defendants and Respondents.

No. B181837.

Court of Appeal, Second District, Division 3.

January 29, 2007.

Certified for Partial Publication.^*

Wright, Robinson, Osthimer & Tatum, Charles H. Horn, and Brian S. Inamine, Los Angeles, for Plaintiffs and Appellants.

Michelman & Robinson and Carol Boyd, Encino, for Defendants and Respondents.

KITCHING, J.

I. INTRODUCTION

This case presents the question whether a liability insurer providing coverage for "advertising injury" and "property damage" is required to defend its insured in an action charging the insured with sending unsolicited advertisements to fax machines in violation of the federal Telephone Consumer Protection Act of 1991 (TCPA) (47 U.S.C. § 227(b)(1)(C)), and with invasion of privacy caused by those faxed advertisements.

Because we hold that the advertising injury and property damage provisions of the insurance policy did not provide coverage for liability for violations of the TCPA or for invasion of privacy caused by the sending of unsolicited faxed advertisements, we conclude that no potential for coverage existed and no duty to defend arose. The trial court correctly sustained a demurrer without leave to amend and entered a judgment of dismissal, and we affirm.

II. PROCEDURAL AND FACTUAL HISTORY

This appeal involves commercial package policies issued by St. Paul Fire and Marine Insurance Company and by St. Paul Mercury Insurance Company. These companies will be referred to as "St. Paul." The policies insured Fidelity National Title Insurance Company, ACS Systems, Inc. (ACS), and others. Fidelity National Title Insurance Company is the parent corporation of Micro General Corporation, the successor in interest through merger of ACS.

The Underlying Action, Kaufman v. ACS Systems, Inc.: On January 3, 2000, ACS was named as a defendant in the Los Angeles County Superior Court action, Kaufman v. ACS Systems, Inc., et al. (No. BC 222588). The Kaufman class action lawsuit alleged violations of the TCPA which prohibits sending unsolicited advertisements to fax machines (47 U.S.C. § 227(b)(1)(C)), violations of California's unfair competition laws (Bus. & Prof.Code, § 17200 et seq.), negligence, and invasion of privacy.

St Paul's Denial of Coverage for Defense and Indemnity: On January 25, 2000, ACS notified St. Paul of the Kaufman complaint. On April 4, 2000, stating that the policy did not cover the type of invasion of privacy alleged in the Kaufman complaint, St. Paul informed ACS that it denied coverage for defense and indemnity.

The ACS Complaint Against St. Paul: On November 3, 2003, ACS filed a complaint for breach of contract, equitable subrogation, implied indemnity, and declaratory relief against St. Paul. After the trial court sustained St. Paul's demurrers with leave to amend, ACS filed a first amended complaint on August 4, 2004, which is the operative complaint.

Allegations of the ACS Complaint: Pursuant to the applicable standard of review,¹ the operative complaint sets forth the following facts. St. Paul issued commercial package policy No. RP06649251 insuring ACS, among others. The policy included commercial general liability and umbrella hability insurance, and was in effect from February 1, 1998 to February 1, 1999, and from February .1, 1999 to April 1, 2000.

The commercial general liability policy included St. Paul's duty to defend any insured in suits alleging injury or damage resulting from property damage caused by an event, or caused by an advertising injury offense committed during the policy term.

Provisions of the policy obligating St. Paul to pay for damages for covered advertising injury or property damages: The relevant portions of the St. Paul CGL policy² describe what the policy covers:

"Bodily injury and property damage liability. We'll pay amounts any protected person is legally required to pay as damages for covered bodily injury, property damage, or premises damage that:

"• happens while this agreement is in effect; and

"• is caused by an event."

"Advertising injury liability. We'll pay amounts any protected person is legally required to pay as damages for covered advertising injury that:

"• results from the advertising of your products, work or completed work; and

"• is caused by an advertising injury offense committed while this agreement is in effect."

"Advertising injury means injury, other than bodily injury or personal injury, caused by an advertising injury offense.

"Advertising injury offense means any of the following offenses:

"• Libel or slander.

"• Making known to any person or organization written or spoken material that belittles the products, work or completed work of others.

"• Making known to any person or organization written or spoken material that violates an individual's right of privacy.

"• Unauthorized taking or use of any advertising idea, material, slogan, style or title of others.

"Advertising means attracting the attention of others by any means for the purpose of seeking customers or increasing sales or business."

"Property damage means:

"• physical damage to tangible property of others, including all resulting loss of use of that property; or

"• loss of use of tangible property of others that isn't physically damaged."

"Event means an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

In the underlying lawsuit, the Kaufman plaintiffs alleged that ACS, a software company, used the services of DataMart Information Services Corporation (DataMart) to send 13,919 unsolicited faxes to 8,216 recipients in 1998 and 1999.

The Kaufman complaint alleges three breach of contract causes of action: The first cause of action for breach of contract alleged that the Kaufman complaint sued ACS for "property damages," seeking damages for actual losses incurred by recipients of unwanted faxes, which included use of recipients' paper and loss of use of fax machines while they printed faxed advertisements. Because the Kaufman complaint alleged that ACS was liable for "property damages" under the policy, the ACS complaint alleged that St. Paul breached its contracts with ACS by refusing to defend ACS in the Kaufman litigation.

The first cause of action alleged that ACS contracted with DataMart, an advertising agency, to promote the services of ACS, and that ACS itself did not send the faxes that are the subject of the Kaufman suit. The complaint alleged that ACS did not authorize DataMart to send faxes in violation of any law, and at most negligently failed to assure that DataMart sent faxes only to persons giving express or implied permission to receive them. The complaint alleged that ACS reasonably believed that recipients of faxes sent by DataMart gave express or implied permission to receive them, and that whether the faxes caused damages depended on the perspective of those receiving them. The complaint also alleged that where the insured's conduct resulted in accidental damages from the fax recipient's perspective, it constituted an "event" for purposes of the "accident" requirements of liability policies.

A second breach of contract cause of action alleged that the Kaufman complaint sued ACS for damages for "advertising injury." Invasion of privacy causes of action in the Kaufman complaint alleged that unsolicited faxes from ACS invaded the Kaufman plaintiffs' solitude and violated their common law and California constitutional rights of privacy. The ACS complaint also alleged that ACS had an objectively reasonable expectation that coverage for "advertising injury" in the St. Paul policies extended to all torts recognized as an "invasion of privacy" in California law. The ACS complaint alleged that St. Paul breached its contracts with ACS by claiming that "advertising injury offenses" in the policies provided no coverage and by refusing to defend ACS in the Kaufman litigation.

The ACS complaint alleged a third cause of action for breach of contract for "advertising injury" based on umbrella liability coverage, which included coverage for invasion of privacy torts alleged in the Kaufman complaint. This cause of action alleged that St. Paul's refusal to defend ACS in the Kaufman litigation breached St. Paul's umbrella liability policies.

The Kaufman complaint also brought causes of action for equitable subrogation and for indemnification, which alleged that St. Paul should pay ACS's attorney fees incurred in defending the Kaufman litigation, which attorney fees had been paid by Micro General Corporation and Fidelity National Information Solutions, Inc. A declaratory relief cause of action sought a declaration of the obligations of ACS, Micro General Corporation, and Fidelity National Information Solutions, Inc., which contended that ACS was entitled to a defense and indemnity in the Kaufman litigation, and of St. Paul, which denied those obligations.

St. Paul's Demurrer: St. Paul demurred to the first amended complaint, arguing that (1) intended conduct is not an accident, whether or not the resulting damage was intended; (2) sending unsolicited faxes could not be "making known ... material that violates an individual's right of privacy" because the content of faxed advertisements did not include private material about recipients of the faxes; and (3) no insured could have an objectively reasonable expectation that it could shift the consequences of such illegal activity to its insurer.

ACS's opposition argued that ACS had an objectively reasonable expectation of coverage for all types of invasion of privacy reasonably within the policies' advertising injury provisions, which did not restrict coverage to fewer than all four "invasion of privacy" torts; and ACS had a reasonable expectation of coverage for property damage, because the policies' insuring agreements for...