Business Law

January 2023 Appellate Law Update

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The following published decisions may be of interest to attorneys practicing insurance law:


Telephone Communications Privacy Act claims may be within the coverage for personal injury claims arising from the “publication, in any manner, of material that violates a person’s right of privacy” if consistent with the insured’s reasonable expectations. Yahoo v. National Union Fire Insurance Company of Pittsburgh, PA (2022) 14 Cal.5th 58.

Yahoo! was sued in several class actions alleging that it sent unsolicited text messages to consumers violating the federal Telephone Communications Privacy Act (TCPA).  Yahoo! tendered defense of the lawsuits to National Union under its general liability policy, asserting that it had coverage for TCPA claims under the coverage for “personal injury” claims arising out of the “publication, in any manner, of material that violates a person’s right of privacy.”  National Union declined coverage.  Yahoo! later sued National Union in federal district court for breach of contract.  The district court concluded that the coverage language did not apply to TCPA claims because under the last antecedent rule, the “material” is what must violate a person’s right to privacy.  Hence, the coverage applied only to material that revealed secret information, and not sending out unsolicited text messages in violation of the right to be left alone.  Yahoo! appealed, and the Ninth Circuit certified the coverage question to the California Supreme Court.

The California Supreme Court held that the district court erred in applying the last antecedent rule, since the phrase “that violates a person’s right of privacy” could relate to either the word “material” or the phrase “publication of material.”  Applying basic grammar rules, the court held that both parties’ interpretations of the coverage clause were plausible, and the coverage clause was therefore ambiguous.  However, the Court did not apply the rule that ambiguities are construed against the insurer in favor of coverage, which the Court emphasized is a rule of last resort.  The Court emphasized that before that rule applies, courts must consider whether the ambiguity can be resolved by the other rules of contract interpretation and the insured’s objectively reasonable expectations.  The Court ruled that there needed to be “further litigation” over various issues, including Yahoo!’s objectively reasonable expectations and the factual circumstances surrounding the alleged TCPA violations before the ambiguity could be conclusively resolved in this case. [Disclosure: Horvitz & Levy was counsel for National Union.]


Trial court erred in denying leave to amend in connection with dismissal of COVID-19 business interruption coverage suit where policy covered losses due to communicable disease events. Shusa, Inc. v. Century-National Insurance Company (2022) __ Cal.App.5th __.

A restaurant shut down due to the COVID-19 pandemic after becoming aware of the virus in and around the restaurant’s premises.  It then sought insurance coverage for its lost business income under a property policy covering losses due “to the necessary suspension of your operation during the period of restoration arising from direct physical loss or damage to property.”  The insurer denied coverage.  The insured sued, and the insurer demurred to the complaint on the ground that business losses due to COVID-19-related shut downs did not arise from physical loss of or damage to property.  The trial court sustained the demurrer and dismissed the case.

The California Court of Appeal, (Second Dist., Div. Seven) reversed.  The complaint’s allegations that the virus was present on the restaurant’s premises, and that cleaning the surfaces in the restaurant would not be sufficient to avoid the danger posed by the virus—costly changes to the premises would be required—were sufficient to allege physical loss of or damage to property.  Unlike in federal court, California state courts may not consider the plausibility of the plaintiffs’ allegations in ruling on a motion to dismiss.  The appellate court further held that allegations of the carrier’s summary denial of the restaurant’s claim within just a few weeks of tender, without an investigation into whether the virus had damaged the restaurant’s premises, adequately pleaded claims for bad faith and unfair business practices.

See also John’s Grill, Inc. v. The Hartford Financial Services Group, Inc. (2022) __ Cal.App.5th __ [Trial court erred in sustaining demurrer in COVID-19 business interruption coverage case where the policy contained an affirmative grant of coverage for “loss or damage” caused by a virus and defined “loss or damage” broadly enough to encompass “pervasive infiltration of virus particulates onto the surfaces of covered property”].

See also Another Planet Entertainment v. Vigilant Insurance (9th Cir. Case No. 21-16093) [Order certifying the following question to the California Supreme Court: “Can the actual or potential presence of the COVID-19 virus on an insured’s premises constitute ‘direct physical loss or damage to property’ for purposes of coverage under a commercial property insurance policy?”].

Insured’s indemnitee was not a third party beneficiary under the insured’s policy and therefore could not maintain a direct action against the insurer. LaBarbera v. Security National Insurance Company(2022) __ Cal.App.5th __.

Plaintiff hired a general contractor to remodel a house.  The construction contract provided that the general contractor would defend and indemnify plaintiff against claims arising out of the contract.  The general contractor obtained a general liability policy from Security National that covered the general contractor’s liabilities, including its indemnity obligations under its contract with plaintiff.  An employee of a subcontractor was injured during the construction and sued both the general contractor and plaintiff.  Security National defended the general contractor in the litigation.  Plaintiff tendered the defense to Security National, who declined coverage.  After settling the underlying personal injury suit, plaintiff sued Security National.  Security National moved for summary judgment, arguing that plaintiff was not a named or additional insured and so was not a third party beneficiary with standing to enforce the insurance agreement.  The trial court granted the motion.

The Court of Appeal (Third Dist.) affirmed the summary judgment in Security National’s favor.  The insurance policy was intended to benefit only Security National and the general contractor; any benefits running to plaintiff under the policy were merely incidental to the policy’s benefits to the general contractor.  Because plaintiff was not an intended third party beneficiary of the policy, he could not maintain a direct action against the insurer for policy benefits.  (The court did not opine on whether plaintiff would have a breach of contract action against the general contractor. 

This e-Bulletin was prepared by Emily V. Cuatto, Certified Appellate Specialist and Partner of Horvitz & Levy LLP. Ms. Cuatto is a member of the Insurance Law Standing Committee of the Business Law Section of the California Lawyers Association.

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