Article: April 2016: Insurance Litigation Update

Insurance Coverage for Liability Under the Telephone Consumer Protection Act. The Telephone Consumer Protection Act (“TCPA”), enacted in 1991, prohibits certain telephone solicitations conducted with automated systems. 47 U.S.C. § 227. Spurred by advances in automated systems such as artificial voices, and by the FCC’s June 2015 order (FCC 15-72) strengthening TCPA protections, TCPA claims have surged and can result in significant legal fees and costly settlements or judgments. For example, in 2015, Capital One and its co-defendants paid more than $75,000,000 to settle a TCPA class action. Vulnerable companies are eager to confirm that their insurance will cover TCPA claims, but, as discussed in this article, that question is not easily answered and depends on the coverage available.

In determining coverage under commercial general liability (“CGL”) insurance policies, courts are split on whether coverage for “personal and advertising injury” extends to TCPA claims. The type of injury TCPA claims may fall within is usually defined as “oral or written publication, in any manner, of material that violates a person’s right to privacy.” One question raised is whether contacting a consumer can count as “publication.” The majority of courts have held it can. However, one recent opinion disagreed based on the reasoning that “publication requires dissemination to the public at large.” OneBeacon America Ins. Co. v. Urban Outfitters, Inc., 625 Fed. Appx. 177, 180 (3d Cir. September 15, 2015). OneBeacon focused on dictionary definitions of “publication,” but the Eleventh Circuit pointed out that texts and faxes fit within dictionary definitions of “publication” such as “to produce or release for publication; specif[ically]: print.” Hooters of Augusta, Inc. v. American Global Ins. Co., 157 Fed. Appx. 201, 208 (11th Cir. 2005). Another question raised by CGL policies is whether unauthorized solicitations violate a right to privacy given that they do not divulge personal information. The Seventh Circuit distinguished between the right to secrecy (i.e. the right to protection of personal information) and the right to seclusion, holding that the “right to privacy” in the TCPA context includes only the latter. American States Ins. Co. v. Capital Assoc. of Jackson County, Inc., 392 F.3d 939, 943 (7th Cir. 2004). However, the majority of courts have interpreted “right to privacy” to include a right to seclusion. See, e.g., Penzer v. Transp. Ins. Co., 29 So. 3d 1000, 1006-07 (Fla. 2010).

Courts also differ as to whether the TCPA is penal and therefore falls into a commonly used exclusion for willful violations of a penal statute. In US Fax Law Center, Inc. v. iHire, Inc., 362 F. Supp 2d 1248 (D. Colo. 2005), the court classified the TCPA as penal because it authorizes recovery in excess of actual damages (“actual damages . . . or . . . $500” and treble damages for willful violation) and serves the public interest through a deterrent effect. Id. at 1250, 1253. However, the majority of courts to consider this have held that the TCPA is not penal. See, e.g., Terra Nova Ins. Co. v. Fray-Witzer, 869 N.E.2d 565, 420 (Mass. 2007) (holding that the TCPA is remedial based on legislative intent and the fact that the “remedy flows directly to the private consumer who suffered the injury, rather than to the government”).

Professional liability insurance may also cover TCPA violations. Coverage, however, varies depending on the wording of the contract and the type of profession. In BCS Ins. Co. v. Big Thyme Enterprises, Inc. 2013 WL 594858 (D. S.C. 2013), the insured argued that “advertising is an integral component of an insurance agent’s livelihood” and requires specialized skill, but the court held that “sending unsolicited faxes to potential clients is neither the rendering nor the failure to render Professional Services.” Id. at *3. Based on different contract language, the court in Landmark American Ins. Co. v. NIP Group, Inc., 962 N.E.2d 562, 576 (Ill. App. Ct. 2011) held that a professional liability policy could cover an insurance company’s TCPA violations because that policy expressly excluded some types of advertising without mentioning the TCPA.

In response to increasing litigation and persisting uncertainty about coverage, it has become increasingly common for insurers to simply exclude coverage for TCPA claims. The effect of such exclusions can be wide, as illustrated by Illinois Cas. Co. v. West Dundee China Palace Restaurant, Inc., 2015 WL 9437903 (Ill. App. 2 Dist. December 23, 2015), a recent case holding that an exclusion of liabilities “arising from” the TCPA excluded coverage not just for a claim citing the TCPA but also for claims based on the same facts as the TCPA claim, such as a claim for common law conversion of fax toner. Id. at *4-5; see also State Farm Fire & Cas. Co. v. Easy PC Solutions, LLC, 2015 WL 8215533, at *2 (Wis. App. 2015).

Due to the complex, still-evolving law regarding TCPA coverage, the changes being made by insurers to exclude coverage for TCPA liability, and the high potential liability untethered to a requirement to show actual damages, companies that call, fax, or text consumers, and the companies that insure them, should carefully analyze whether their policies will cover TCPA violations.