Co-authored by: C. Zachary Rosenberg
The Telephone Consumer Protection Act (TCPA) restricts telephone solicitations and limits the use of automatic dialing systems, prerecorded voice messages, SMS text messages, and faxes. TCPA plaintiffs typically claim that they received unwanted calls, texts or faxes in furtherance of telemarketing campaigns, and that their damages include the loss of ink toner, paper, and occupation of their fax machines and/or phone lines.
The TCPA is a favorite of class action lawyers because it provides a private right of action and statutory damages of $500 for each violation and up to $1,500 for each willful violation. Because most cases involve a large number of calls, texts or faxes, the potential damages in TCPA cases can be significant.
New TCPA regulations, implemented on October 16, 2013, require telemarketers to obtain express written consent before making calls or sending texts to consumers’ mobile phones using an autodialer, a pre-recorded or artificial voice or making calls to any consumer’s phone using a pre-recorded or artificial voice. These regulations also eliminated the “established business relationship” exemption to the TCPA for telemarketing calls to residential lines made with pre-a recorded or artificial voice. Even before this stricter new rule became law, approximately 40 TCPA class actions were filed in the first half of 2013. That number is predicted to increase in light of the new rule.
This raises the question of whether or not TCPA defendants can turn to their liability insurers to defend and indemnify them for TCPA-related damages. The answer to that question is, maybe.
Liability for Property Damage
Despite allegations by TCPA plaintiffs that they have suffered property damage as a result of receiving the defendant’s unwanted solicitations, court almost universally have held that coverage is precluded since the insured expected or intended to send the unwanted solicitation. Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 637-39 (4th Cir. 2005) (sending faxes was not an “accident” under Virginia law); Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 551 (7th Cir. 2009) (applying Iowa law; expected or intended exclusion applies); St. Paul Fire & Marine Ins. Co. v. Bro. Int’l Corp., 319 F. App’x 121, 126-27 (3d Cir. 2009) (same, under New Jersey law); Melrose Hotel Co. v. St. Paul Fire & Marine Ins. Co., 432 F. Supp. 2d 488, 509-12 (E.D. Pa. 2006), aff’d by 503 F.3d 399 (3d Cir. 2007) (under Pennsylvania law, property damage was not the result of an “event”); MDC Acquisition Co. v. North River Ins. Co., 2012 U.S. Dist. LEXIS 144876 (N.D. Ohio, May 15, 2012) (no occurrence under Ohio law). One exception was a Tenth Circuit case, decided under Kansas law, which required the court to examine, from the standpoint of the insured, whether the injury was the natural and probable consequence of the insured’s act. The court noted that under Kansas law, even if an act is intentional, it may result in an unintended injury. Because the insured alleged that it had no intent to injure since it thought it had permission to send the fax, the court ruled that the insurer was required to provide a defense. Park University Enterprises, Inc. v. American Casualty Co. of Reading, PA, 442 F.3d 1239 (10th Cir. 2006).
Liability for Advertising Injury
Coverage for TCPA claims may fall within the terms of a policy’s advertising injury coverage. A key issue is whether the advertising injury language is interpreted to cover only disclosure of private content to a third party, or if it is interpreted more broadly, to include violation of the recipient’s right to seclusion. Advertising injury coverage for TCPA violations has been found to implicate the latter.
A common definition of advertising injury includes “oral or written publication that violates a person’s right to privacy.” In interpreting this language, courts have come to different conclusions. In one line of cases, largely out of the Seventh Circuit, courts preclude coverage for TCPA claims, holding that the right to privacy in this context only extends to the disclosure of private facts. Am. States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004) (applying Illinois law; but see Valley Forge Ins. Co., infra); Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543 (7th Cir. 2009) (applying Iowa law but following Am. States, supra); Ace Rent-A-Car, Inc. v. Empire Fire & Marine Ins. Co., 580 F. Supp. 2d 678, 688 (N.D. Ill. 2008) (applying Indiana law but following Am. States); Erie Ins. Exch. v. Kevin T. Watts, Inc., 1:05-cv-867-JDT-TAB, 2006 U.S. Dist. LEXIS 35828 (S.D. Ind. 2006) (applying Indiana law but following Am. States, supra). Since disclosure of private facts is not an issue in typical blast fax TCPA cases, this interpretation would preclude coverage under similarly worded policies in most cases.
Meanwhile, other courts, including the Illinois and Florida Supreme Courts, the Court of Appeals of Wisconsin, and the Fifth, Tenth, and Eleventh Circuits, and the Supreme Judicial Court of Massachusetts disagreed and have held that advertising injury coverage under the same policy language does apply to TCPA violations, interpreting the right to privacy to include the recipient’s right to seclusion. See Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill. 2d 352 (Ill. 2006); Penzer v. Transp. Ins. Co., 29 So. 3d 1000 (Fla. 2010); Sawyer v. West Bend Mut. Ins. Co., 343 Wis. 2d 714 (2012); Western Rim Inv. Advisors, Inc. v. Gulf Ins. Co., 269 F. Supp. 2d 836 (N.D. Tx. 2003), aff’d 96 Fed. Appx. 960 (5th Cir. 2004) (Texas law); Park Univ. Enters. v. Am. Cas. Co., supra at 1247-50 (Kansas law); Hooters of Augusta, Inc. v. Am. Global Ins. Co., 157 Fed. Appx. 201 (11th Cir. 2005) (Georgia law), Terra Nova Ins. Co. v. Fray-Witzer, 449 Mass. 406 (Mass. 2007) (applying NJ law).
Coverage for a TCPA claim was found where the policy at issue defined “INJURY” to include “private nuisance (except pollution), invasion of rights of privacy or possession of personal property.” The policy also contained a separate “advertising injury” definition. Universal Underwriters Ins. Co. v. Lou Fusz Auto. Network, Inc., 401 F.3d 876, 878 n. 2 (8th Cir. 2005). The Eighth Circuit held that the TCPA was covered, reasoning, “The policy lists ‘private nuisance (except pollution), [and] invasion of rights of privacy or possession of personal property’ under the definition of INJURY. It does not limit or qualify these terms in any manner. It sets forth technical definitions for neither ‘private nuisance’ nor ‘invasion of rights of privacy.’ Accordingly, under Missouri law, we must apply ordinary, lay definitions to these terms.” Id. at 881. The court also seized on the fact that unlike the policy discussed above, this policy “defines advertising injury in a section that is entirely separate from the definition of INJURY that includes ‘invasion of privacy.’” The court specifically distinguished its case from the Seventh Circuit’s decision in Am. States based on these differences in policy language and structure. Id. at 883.
In addition to its property damage ruling, the court in Resource Bankshares, supra, also held that there was no coverage for the TCPA claim in that case under the following Advertising Injury insuring agreement:
We’ll pay amounts any protected person is legally required to pay as damages for covered advertising injury that results from the advertising of your products, work, or completed work; and is caused by an advertising injury offense committed while this agreement is in effect. The limitation to ‘advertising injury offense’ means that coverage extends only to damages arising from the following offenses: “Libel or slander; making known to any person or organization written or spoken material that disparages the products, work, or completed work of others; making known to any person or organization written or spoken material that violates a person’s right to privacy; and unauthorized use of any advertising idea, material, slogan, style, or title of others in your advertising.
Resource Bankshares, 407 F.3d at 634-635 (emphasis added).
In interpreting this policy, the Fourth Circuit zeroed in on the term “making known,” finding that “[i]t requires undue strain to believe that sending an unsolicited fax ad that has no private information or content (but rather simply advertised fairly the sender’s wares) can reasonably be said to ‘make known’ material that violates a person’s right to privacy.” Id. at 641. Focusing also on the context of the “making known” language, the court noted that all four categories of “advertising injury offense” assume the victim is harmed by the content of the ad, not its receipt, and distinguished the language and structure of the policy before it from the policy before the Eighth Circuit in Universal Underwriters. See also Melrose Hotel Co., supra, at 42.
Nonetheless, differences in policy language may not always be the deciding factor. Indeed, in one case, the insured argued that because its policy covered “oral or written publication that violates a person’s right to privacy,” the Fourth Circuit’s decision in Resource Bankshares, which contained the “making known” language cited above, was inapplicable. The Court of Appeal of California disagreed: “We decline to find the existence of insurance coverage depends on any marginal semantic difference.” State Farm General Ins. Co. v. JT’s Frames, Inc., 181 Cal. App. 4th 429, 447 (Ct. App. Cal. 2d Dist. 2010.
Exclusions for Statutory Privacy Claims
A growing number of policies now contain exclusions for statutory privacy claims, some of which expressly reference the TCPA. Inclusion of such an exclusion likely will be dispositive of the coverage issue. See Collective Brands, Inc. v. Nat’l Union Fire Ins. Co., 2013 U.S. Dist. LEXIS 1338 at *18 (D. Kan. January 4, 2013); Rick’s Cabaret Int’l, Inc. v. Indem. Ins. Corp., 2012 U.S. Dist. LEXIS 8062, at *7 (S.D. Tx. January 24, 2012).
Coverage for Punitive Damages/Willful Violation of Statute Exclusions
Some insurers have argued that TPCA damages are punitive in nature and therefore uninsurable as a matter of public policy or that coverage is precluded if the policy contains a willful violation of statute exclusion. In addressing the public policy issue, the Illinois Supreme Court recently held that because the TCPA was designed to create remedies for the protection of rights and was remedial in nature as opposed to punitive, the insurer’s public policy argument could not succeed. Std. Mut. Ins. Co. v. Lay, 2013 IL 114617 (IL 2013). Similarly, in Terra Nova Ins. Co., supra at 418-20, the court refused to apply an exclusion for injury arising out of the willful violation of a penal statute on the ground that the TCPA is remedial, not penal.
Notably, in non-insurance contexts, at least three courts found the TCPA to be punitive in nature. See US Fax Law Center, Inc. v. iHire, Inc., 362 F. Supp. 2d 1248, 1253 (D. Colo. 2005), aff’d, 476 F.3d 1112 (10th Cir. 2007) ($500 liquidated damages TCPA claim cannot be assigned because it is punitive in nature); Kruse v. McKenna, 178 P.3d 1198, 1201 (Colo. 2008) (en banc) ($500 liquidated damages TCPA claim cannot be assigned because it is punitive in nature); Kaplan v. Democrat & Chronicle, 266 A.D.2d 848, 800 (App. Div. 1999) (TCPA actual damages need not be proved in state court because the statutory remedy is punitive). Insurers may be able to piggyback off the holdings in these cases to deny coverage where the relevant state law precludes coverage for punitive damages.
The recent amendments to the TCPA are likely to give rise to additional class action and subsequent insurance coverage claims. Coverage determinations will largely be dependent on the specific policy wording at issue and on the applicable state law.