A federal judge in California has ruled that Yahoo's insurer failed to defend and indemnify the company by refusing to foot $4 million in outside counsel fees from litigation over the tech company's practice of scanning user emails for advertising purposes.

In an order on motions for summary judgment, U.S. District Judge Edward Davila of the Northern District of California wrote Yahoo was “largely correct” in assuming legal fees incurred in a consolidated 2016 class action were covered under a “personal injury” policy purchased from National Union. The insurer had argued Yahoo's costs didn't fit within the policy's definition of a personal injury as damages accrued via the “oral or written publication … of material that violates a person's right to privacy,” a view that Davila said is “incorrect.”

Read the order here: 

Settled in 2016, the consolidated case is one of three over which the liabilities under Yahoo's National Union policies were in debate. The other two, class actions undertaken in Marin County Superior Court and San Jose District Court in 2012, accused Yahoo of having “wiretapped … or eavesdropped upon and recorded” emails between class members, all Yahoo account holders, and other users of the company's email services. These actions, plaintiffs alleged, were invasions of the California Invasion of Privacy Act.

“The key finding was that [Yahoo was] not only scanning these emails, but they were sharing that private information with others for profit so that their privacy was not only violated, but it was considered personal injury because it was published to a third party,” said Joshua Bevitz, a Newmeyer & Dillion partner not affiliated with the case.

Yet Davila granted National Union's motions that it didn't breach the duty to indemnify in costs associated with the earlier two class actions, given the suits ended in voluntary dismissals and without any evidence of resulting payments from Yahoo.

Davila wrote that because Yahoo was never “legally obligated” to pay damages under the two earlier lawsuits, National Union couldn't have breached its duty to indemnify under the personal injury policy. So why bother pursuing the matter in later litigation? Especially because, as Bevitz puts it, “someone spent a lot of money on attorney fees to get [litigation] to this point.”

“There's got to be some value to Yahoo getting the [litigation this far. … This order is going to come down the pipe for future policy.”

Both parties are due back in court on Nov. 29 for a case management conference, with updated statements due by Nov. 19.

Representing Yahoo is Kilpatrick Townsend's William Taewook Um. Representing National Union are San Francisco and Chicago attorneys from Nicolaides Fink Thorpe Michaelides Sullivan. Both plaintiffs and defense attorneys didn't respond to requests for comment.