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February 2010

State Farm General Insurance Company v. JT's Frames, Inc. - Transmission of Unsolicited Facsimiles is not "Advertising Injury" or "Property Damage"

No Coverage for Suit Alleging "Fax Blasting" Because Practice Does Not Violate "Secrecy" Component of Right to Privacy and is not "Accidental" Occurrence

(January 27, 2010) __Cal.App.4th___; 10 C.D.O.S. 1162

The California Court of Appeal, Second Appellate District, affirmed a summary judgment after the trial court concluded that an insured's transmission of thousands of unsolicited faxes was not "advertising injury" or "property damage" under the terms of the insured's policy.  Because "fax blasting" did not impinge on the "secrecy" component of the right to privacy and was not an "accident," the policy did not cover claims against the insured by facsimile recipients.

From 2002 to 2007, State Farm issued insurance policies to the Friedman Group ("Friedman").  The policies covered "advertising injury caused by an occurrence committed in the coverage territory during the policy period."  "Advertising injury" was defined to include: "a. oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; b. oral or written publication of material that violates a person's right of privacy; c. misappropriation of advertising ideas or style of doing business; or d. infringement of copyright, title or slogan."

The policies also covered "property damage caused by an occurrence," with "occurrence" defined to mean "an accident, including continuous or repeated exposure to substantially the same general harmful conditions which result in bodily injury or property damage."

During the policy period, Friedman transmitted tens of thousands of unsolicited advertisements via fax, including to appellant JT's Frames ("JT's").  JT's filed a class action against Friedman, and Friedman tendered the claim to State Farm, which denied coverage.  JT's ultimately settled with Friedman.  The settlement provided that the judgment would be enforceable only against the proceeds of Friedman's insurance policies, and Friedman assigned its claims and rights under the State Farm policies to the class members.

State Farm brought an action against JT's as class representative and Friedman's assignee, seeking a declaration that State Farm owed no duty to defend the class action because, among other things, the policies did not cover the "fax blasting" claims alleged.  The trial court granted State Farm's summary judgment motion, concluding that fax blasting was not an "invasion of privacy" under the policies' advertising injury coverage, and that sending tens of thousands of faxes over the course of several years was not "accidental."  JT's appealed.

The Court of Appeal affirmed.  The Court rejected JT's argument that the policy provision defining advertising injury as "oral or written publication of material that violates a person's right of privacy" is broad enough to cover fax blasting.  The Court noted that the "right of privacy" has both a "secrecy" component, i.e., the right to prevent disclosure of personal information, and a "seclusion" component, i.e., the right to be free from unwanted intrusions.  In the class action, JT's claimed that the fax blasting violated class members' right to seclusion.  Applying various rules of policy construction, the appellate Court agreed that the definition of "advertising injury" protected the right to secrecy, and that to constitute advertising injury the "material" itself must contain personal information that violates this right.

The Court of Appeal also rejected JT's contention that fax blasting was covered under the policies' property damage provision.  JT's alleged that it suffered property damage in that Friedman's unauthorized fax blasting used JT's fax machines, toner and paper.  State Farm did not dispute that such use might constitute property damage, but argued that such property damage was not caused by "accidental" occurrence as required under the policy.  The Court of Appeal agreed, concluding that an accident requires "unintentional acts or conduct," whereas Friedman intended the fax transmissions to occur.

The Court concluded State Farm had no duty to defend or indemnify Friedman, and affirmed the trial court's entry of summary judgment.

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This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

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Jordan S. Altura