A company president, concerned over excessive charges for long distance calls made from several phones in a manager's office, arranged for the installation of recording devices to determine which employee or employees were responsible. The employees were not told of the installation.

Lawsuits were filed in behalf of the employees, who alleged invasion of privacy. The firm settled the matter for $100,000 ($10,000 for each of the employees) when its general liability insurer denied liability. It then brought an action for determination of coverage, the insurer's duty to defend and damages for breach of duty. The insurer appealed from a district court finding that the "advertising injury" coverage under the policy was applicable and from an order for full restitution to the insured, including attorney fees and interest.

The appeal court concluded that "the conduct giving rise to the claims....is unrelated to advertising activities and such coverage is inapplicable." It reversed the district court's judgment against the insurance company. The matter then came before the Kansas Supreme Court on petition for review.

The employees did not contend that the district court was correct in finding "advertising injury" coverage applicable, but argued that the order of the court should be affirmed for a different reason, i.e., that personal injury coverage included in the policy was applicable.

The Kansas Supreme Court noted that "personal injury" meant "injury arising out of....a publication or utterance....in violation of an individual's right of privacy...." It was uncontested that the company president did not reveal the contents of the recorded conversations or discuss them with anyone. There was, therefore, no coverage under the personal injury policy provisions.

The court further noted a policy exclusion for "....personal injury or advertising injury arising out of the willful violation of a penal statute or ordinance committed by or with the knowledge or consent of the insured." It stated that the recording of the phone conversations was such a statutory violation.

For these reasons the policy did not provide coverage for the claims that were made. The judgment of the appeal court was affirmed in favor of the insurer and against the insured. The judgment of the district court for the insured was reversed.

(MGM, INC. ET AL., Appellees, Cross-Appellants v. LIBERTY MUTUAL INSURANCE COMPANY, Appellant, Cross-Appellee. Kansas Supreme Court. No. 67,067. June 16, 1993. CCH 1993-94 Fire and Casualty Cases, Paragraph 4452.)