Insurance Coverage for Invasion of Privacy Claims

Published in the Hennipen County Bar Association Newsletter April 2004 volume 73 Number 2

As other writers have detailed in this issue, in Lake v. Wal-Mart Stores, Inc., 582 N.W.2d 231, 235 (Minn. 1998), the Minnesota Supreme Court joined the majority of jurisdictions and recognized the tort of invasion of privacy. The majority opinion embraced specific causes of action under the new tort intrusion of seclusion, name or likeness appropriation, and publication of private facts. The court continued its development of the permissible reach of the new tort in Bodah v. Lakeville Motor Express, Inc., 663 N.W.2d 550 (Minn. 2003).

Who will pay for successful assertions of these claims? Insured defendants likely will tender such claims to their insurance carriers if their policies include "personal injury" coverage. This coverage has long been part of many liability insurance policies, but it has received little attention. Perhaps the relative lack of attention has resulted from failure of policyholders to tender claims to their insurers presuming that coverage did not exist. Perhaps the relative paucity of invasion of privacy concerns were not as pronounced. In any event, interest in privacy litigation is burgeoning in Minnesota now that the Supreme Court has given the tort of invasion coverage issues presented by these claims.

The ordinary focus of liability insurance policies involves "bodily injury" and "property damage" claims when an "occurrence" is present. Invasions of privacy rarely involve these things. Rather, emotional injury may result from privacy invasions where no "accident" or occurrence is involved. Yet tucked away near the back pages of the commercial general liability (CGL) insurance policies typically purchased by business owners is a coverage grant that ordinarily appears under the heading "Coverage B - Personal and Advertising Injury Liability":

We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applied. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" which this insurance does not apply.

(ISO¹ Form CG 00 01 10 01). The 2001 policy form defines "personal and advertising injury" to mean, among other things, injury² arising out of:

* * * e. Oral or written publication, in any manner, of material that violates a person's right of privacy; * * *³

The coverage is subject to 14 separate exclusions in the 2001 form, including exclusions for a knowing violation of the rights of another, invasions of privacy first occurring before the inception of coverage, or invasions of privacy that occur via the insured's control over Internet chat rooms or bulletin boards. It is important to study each policy carefully because some policies are "manuscript" policies meaning that they are not ISO standardized forms, and the ISO forms themselves have been modifies over the years^.4 As well, it is vital in the coverage analysis to compare the policy form being interpreted by courts in the case law with the policy form at issue when a claim is tendered.

Many homeowners' policies also include personal injury coverage, and hence invasion of privacy coverage, either in the basic insuring agreement or in an accompanying endorsement. For example, the 2000 ISO homeowners' insurance "personal injury"

Endorsement provides coverage "[I]f a claim is made or suit is brought against an 'insured' for damages resulting from an offense, defines under 'personal injury,' to which this coverage applies." "Personal Injury" is defined to mean injury arising our of "oral or written publication of material that violates a person's right of privacy."⁵ Several exclusions of coverage are then sent out.

To what extent has this coverage been interpreted? Interestingly, Minnesota's invasion of privacy coverage law is largely undeveloped. The court of appeals touched on the subject in Hamlin v. Western National Mut. Ins. Co., 461 N.W.2d 395 (Minn. Ct. App. 1990). It was held in Hamlin that personal injury coverage was not triggered because the plaintiff did not seek damages for any of the causes of action defining personal injury (including invasion of privacy). Id. at 398. The court noted that if the damages do not arise out of the torts defined in the policy, coverage did not exist.

An overview of the applicable coverage law therefore requires evaluation of cases from other jurisdictions. Invasion of privacy coverage issues addressed by courts include (a) whether the underlying complaint allegations trigger a duty to defend, (b) whether coverage terms are ambiguous, (c) whether nonintentional invasions of privacy may occur for purposes of occurrence-based policies, (d) whether a publication of private information is required, (e) whether policy exclusions apply, and (f) whether organizations are persons within the meaning of the policy.

ALLEGATIONS OF THE UNDERLYING COMPLAINT

A general principle of insurance law is that a duty to defend an action exists if any part of the claim is arguably within the scope of the insurance policies coverage.⁶ Several cases have reviewed this principle in the context of privacy coverage. In Cort v. St. Paul Fire & Marine Ins. Cos., 311 F.3d 979 (9 Cir. 2002), artists alleged that the policyholders damaged a painting violating federal law against damage to artistic work. The policyholders tendered the claim to their personal injury coverage insurer alleging in part that the artists' complaint alleged facts triggering the invasion of privacy coverage. In holding that no duty to defend existed, the court noted that the policyholders "have not explained how covering a publicly displayed mural constituted invasion of a privacy interest held by the artists and have pointed to no portion of the artists complaint stating a claim in invasion of privacy." 311 F.3d at 987.

Other cases have also involved attempts by the policyholder to claim privacy coverage when the underlying complaint does not explicitly make the claim. In Transamerica Ins.

Co. v. KMS Patriots, L.P., 752 N.E.2d 777 (Mass. App. Ct. 2001), the underlying plaintiff brought a sexual harassment claim against her employer, which in turn tendered the defense to its insurer under the personal injury coverage. The former employee's complaint did not allege invasion of privacy; Under Massachusetts statutory law, a plaintiff making an invasion of privacy claim must prove that an unreasonable, substantial, and serious interference with his or her privacy occurred. Mass. Gen. Laws Ann. Ch. 214, 1B (West 2004). Nothing in the employee's complaint made such allegation; the sexual comments alleged could not be construed as raising a privacy claim. 752 N.E.2d at 783. A duty to defend, therefore, was not found. Similarly, the Oregon Supreme Court denied coverage in Marleau v. Truck Ins. Exch., 37 P.3d 148 (Or. 2001), a creditor/debtor case in which the underlying plaintiffs did not claim an invasion of privacy. The defendants tendered the intentional infliction of emotional distress claim to their insurer claiming, however, that the intentional infliction claim amounted to both "false light" and "public disclosure of private facts" invasions of privacy. Id. at 153.  The Court found no duty to defend because the complaint with Oregon invasion of privacy law.⁷

On the other hand, some courts have expressed a greater willingness to find a duty to defend when the underlying complaint's allegation may not comply fully with the substantive elements of the state's invasion of privacy law. In St. Paul Fire & Marine Ins. Co. v. Green Tree Fin. Corp., 249 F.3d 389 (5 Cir. 2001), mobile home purchasers sued their lender for invasion of privacy after the lender made several abusive telephone calls to them and their family members a home and at work. The primary policy's personal injury definition included "written or spoken material made public which violates an individual's right of privacy." 249 F.3d at 393. The umbrella policy, however, had no "made public" limitation on coverage. Without commenting on the distinction, the appeals court, interpreting Texas law, concluded that the underlying allegations "potentially" stated a covered claim and thus the duty to defend was triggered. Id. at 390. The Maine Supreme Court follows suit, requiring a defense under personal injury coverage when the only allegation of supposed publication was that the underlying plaintiff's reputation was damaged.⁸

COVERAGE AMBIGUITY

Most readers are aware of the application of the doctrine of contra proferentem in the interpretation of insurance policies - that ambiguities are construed against the insurer. This doctrine may apply in the context of invasion of privacy coverage. In Bailer v. Erie Ins. Exch., 344 Md. 515, 687 A.2d 1375 (1997), the employer of an au pair's invasion of privacy suit to his carrier under the personal injury coverage of an umbrella liability policy, The court found that the policy was ambiguous insofar as it covered invasion of privacy, ordinarily an intentional tort, while at the same time it excluded personal injury "expected or intended" by the policyholder. Id. at 34, 1385. Construing the ambiguity against the insurer, the court found that the coverage applied to the claims made by the au pair.⁹

OCCURRENCE-BASED POLICIES

Personal injury coverage mostly is written on policy forms that do not require an "occurrence" or accident, as is the case in bodily injury or property damage liability claims. Rather, because the personal injury claims generally involve international torts (e/g/, defamation, false imprisonment, malicious prosecution, or invasion of privacy), an occurrence-based policy form is atypical. Nevertheless, such forms have been sold and case law has interpreted their meaning. The umbrella policy in Cornhill Ins. PLC v. Valsamis, Inc., 106 F.3d 80 (5 Cir.1997), included personal injury coverage arising out of an "occurrence." Occurrence was defined as "an accident."  106 F.3d at 87. The underlying complaint made claim for, inter alia, "negligent invasion of privacy." Id. at 83. The appeals court found that under Texas law an invasion of privacy claim requires proof of intent. Id. at 87. Therefore coverage was not available for invasions of privacy arising out of accidents. Am. Nat. Gen. Ins. Co. v. L.T. Jackson, 203 F.Supp. 2d 674 (S.D. Miss. 2001), also involved an occurrence-based personal injury coverage form. Although the sexual harassment claim involved was found to be based upon intentional conduct thus precluding a duty to defend, the court found that negligence-based invasions of privacy, as recognized by state law, may be covered claims. Id. at 684.

REQUIREMENT OF PUBLICATION

The invasion of privacy element of most personal injury coverages requires publication of private information. Whether a publication has occurred is the subject of some case law interpretation. In Springdale Donuts v. Aetna Cas. & Surety Co., 247 Conn. 801, 724 A.2d 1117 (1999), the policyholder/employer tendered sexual harassment claims to its insurer under coverage. The policy form required "publication of material that violates a person's right of privacy." Id. at 810, 1122. The underlying complaint alleged that the employer's comments were directed individually to the plaintiffs/former employees. Finding that publication "generally refers to the communication of words to a third person," no duty to defend was triggered. Nonverbal physical sexual misconduct also cannot involve a publication for purposes of the policy definition of invasion of privacy.¹⁰

APPLICABILITY OF POLICY EXCLUSIONS

As noted above, the current ISO personal injury policy form includes 14 separate exclusions from coverage. The "intentional act" or "knowing falsity" exclusions are probably the most active in terms of case law consideration. Fire Ins. Exch. V. Bentley, 953 P.2d 1297 (Colo. App. 1998), involved a homeowners' policy and a claim that the policyholder intentionally tape-recorded a sexual encounter that he played for others. The insurer denied a defense of the negligent invasion of privacy claim on the grounds that the occurrence-based policy excluded coverage for injuries cased intentionally. Id. at 1299. The policyholder argued that although the taping was intentional, no injury was intended and therefore the exclusion did not apply. The court responded that insofar as the type of invasion of privacy involved (i.e., unreasonable intrusion upon the seclusion of another) generally requires proof of intentional acts, and that the intentional act exclusion barred coverage regardless of the policyholder's alleged lack of intent to cause injury.

A similar exclusion in an non-occurrence-based policy was interpreted in Prime TV, LLC v. Travelers Ins. Co., 223 F. Supp. 2d 744 (M.D.N.C. 2002). The policy excluded coverage for any privacy invasion done "with knowledge of its falsity." 223 F. Supp. 2d at 752. The policyholder tendered consumer protection law claims against it arising out of the distribution of satellite television service advertising materials. The court subsequently held that because the policyholder did not have knowledge of the advertising materials' falsity the exclusion did not apply and the duty to defend was triggered. A personal injury policy form providing invasion of privacy coverage subject to a business pursuits exclusion also was held to provide a defense in State Farm Fire & Cas. Co. v. Burkhardt, 96 F. Supp. 2d 1343 (M.D. Ala. 2000). The insurer claimed that the policyholder's sexual harassment was subject to the exclusion because the harassment occurred at work. The court, however, disagreed finding that the injury was not caused by business pursuit simply because it occurred on the job.

ORGANIZATIONS AS PERSONS

Most personal injury coverages refer to violations of a "person's" or an "individual's" right of privacy. Circumstances may arise in which an organization presents an invasion of privacy claim against a policyholder that is tendered to the insurer.  In one case, a corporation presented a trade secret misappropriation claim to a policyholder. In subsequent coverage litigation, the court held that personal injury coverage did not apply because the coverage only applied to persons - a term that was "plain on its face." Heritage Mutual Ins. Co. v. Advanced Polymer Tech., 97 F. Supp. 2d at 934.¹¹

In conclusion, few are immune from increased anxiety about the security of our privacy.

Technological advances in the collection and retention of information, and the search capacity of software, have combined to create an environment of less privacy that probably most of us realize. Privacy "policies" now arrive with mail inserts in bills and statements, new health care privacy regulations are published and given notoriety, and horror stories like Lake v. Wal-Mart make the news. Privacy protection is a nonpartisan concern of every element of America's demographics. Under what circumstances will a defendant wish to take an invasion of privacy claim to a jury trial? Will the often ignored and buried-in-the-fine-print personal injury coverage remain so? Not likely. The insurance protection provided in most homeowners' and business owners' liability insurance policies increasingly will be called upon for defense and indemnity of invasion of privacy claims.

¹ The Insurance Service Office (ISO) has provided services to the property and casualty insurance industry, including standardization of forms and related services, since 1971. See www.iso.com.

² The definition of personal injury in the 2001 ISO form adds that covered injury may also include "consequential bodily injury" arising out of the invasion of privacy.

³ Id.

⁴ The 1998 ISO CGL form is identical to the 2001 form, with the exception of the 2001 form Internet-related exclusions. The 1996 CGL form (CG 00 01 01 96) is very similar to the 2001 form as well, although personal injury and advertising injury coverages were separately set out, and there were fewer exclusions.

⁵ See ISP policy form HO 24 82 10 00.

⁶ Home Ins. Co. v. Nat. Union Fire Ins., 658 N.W.2d 522 (Minn. 2003)

⁷ Accord, L&D of Oregon, Inc. v AM. States Ins. Co., 14 P.3d 617, 620 (Or. App. 2000) (holding in a one-on-one racial discrimination case that in the absence of allegations of "disclosure [of comments] to the public or to a large number of people' a duty to defend was absent); Nova Cas. Co. v. Able Constr., Inc., 983 P.2d 575, 581 (Utah 1999) (denying a defense to claim making no invasion of privacy allegation when to do so would stretch "the definition of invasion of privacy beyond recognition"); Butts v. Royal Vendors, Inc., 504 S.E.2d 911 (W. Va. 1998) (denying defense to policyholder in a wrongful discharge case where the former employee's complaint did not allege that the employer published the privacy-invading information, when it was alleged that the employee's physician did so (based upon information supplied by the employer)).

⁸ See Maine State Academy of Hair Design v. Commercial Union Ins. Co., 699 A.2d 1153, 1159 (Me. 1997) (noting that plaintiff's intentional infliction claim had "the potential" for invasion of privacy recovery).

⁹ Accord, Lineberry v. State Farm Fire & Cas. Co., 885 F.Supp. 1095, 1099 (M.D. Tenn. 1995) (holding that a policy providing coverage for the intentional tort of privacy invasion including an expected or intended injury exclusion was illusory and ambiguous).

¹⁰ See Transamerica Ins. Co. v. KMS Patriots, L.P., 752 N.E.2d 777 (Mass. App. Ct. 2001).

¹¹ Accord, Superformance Int'l, Inc. v. Hartford Cas. Ins. Co., 203 F. Supp. 2d 587, 601 n. 12 (E.D. Va. 2002) (noting that "an automobile does not possess a right to privacy" in a trademark infringement suit where invasion of privacy coverage was sought.

Thomas D. Jensen
Phone: (612) 333-3637
Fax #: 612-333-1030
E-mail: thomas.jensen@lindjensen.com