7th Circuit Holds That Illegally Recorded Phone Calls Do Not Trigger Personal and Advertising Injury Coverage, Absent “Publication” To A Third Party

The Seventh Circuit, applying Indiana law, held that First Mercury Insurance Co. (“First Mercury”) had no duty to defend home security system dealer, Defender Security Co. (“Defender”), in an underlying class action alleging that it illegally recorded customer calls, because the underlying suit did not allege any “oral or written publication of material that violates a person’s ‘right of privacy’” as required for coverage under the personal and advertising injury section of Defender’s commercial general liability policy.

The underlying complaint alleged that without permission Defender recorded calls from potential customers for “various business purpose,” in violation of California laws prohibiting the use of confidential phone communications without the consent of all parties.  Defender tendered the claim to First Mercury, but First Mercury denied coverage and refused to defend Defender.  In response, Defender filed suit for breach of contract and bad faith.  The district court granted the insurer’s motion to dismiss and Defender appealed.

First Mercury issued Defender a commercial general liability insurance policy which provided coverage for personal injury or advertising injury.  The policy defined both “advertising injuries” and “personal injuries” as those “arising out of … [o]ral or written publication of material that violates a person’s right of privacy.”  The court first examined the duty to defend and noted that the insured bears the initial burden of establishing that a claim is covered by a particular policy and therefore Defender must show that publication was alleged, or at least argued, by the complaint.  Defender argued that the policy applied to the underlying complaint because publication occurred when the material was transmitted to its recording device and that there was no need for the recordings or the contents to be communicated to a third party.  First Mercury disagreed, arguing that the meaning of publication is not nearly that expansive.  The court looked to dictionary definitions of publication in making its decision and noted that all of the definitions shared a commonality in that they all described the release of information by the party holding it.  In the underlying case, none of the information obtained by Defender was communicated to any individual or entity and Defender offered no information to suggest that any individual ever accessed the recording.  The court also examined Indiana defamation law and found in that context “publication” requires communication to a third party.  The court found that the term “publication” was not ambiguous and held that the recording of personal information did not rise to the level of publication and therefore First Mercury had no defense obligation to Defender for the underlying claim.  Defender Security Co. v. First Mercury Ins. Co., No. 14-1805 (7th Cir. Sept. 29, 2015).

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