Both the number of cases under the Telephone Consumer Protection Act (TCPA) and the types of practices that those cases challenge have mushroomed within the last several years. Yet a dedicated form of insurance against TCPA claims has not yet developed. Instead, businesses seeking defense and indemnification of TCPA suits have resorted to traditional policy provisions dealing with property damage, personal and advertising injury, and (more recently) the language of errors and omissions policies. In recent years, most of these claims have been blocked by express TCPA exclusions. Since the bases for TCPA suits are likely to change in unpredictable ways, these trends should be watched closely.
Litigation Under the TCPA
Enacted in 1991 to curb abusive telemarketing calls to residences, the TCPA, 47 U.S.C. § 227, along with its implementing FCC regulations, also strictly regulate faxed advertisements and various types of calls and texts to cell phones. For example, cell phone calls and text messages using automatic telephone dialing systems (ATDS) or prerecorded voice messages (PVM) are prohibited unless the called party gives “prior express consent.” So is sending faxed advertisements to recipients outside of established business relationships and absent clear and conspicuous opt-out notices. The TCPA affords a private right of action to recipients of unwanted calls, messages, and faxed advertisements, and it imposes statutory damages of $500 to $1500 per violation—i.e., per prohibited call, text, or fax.
Increasing consumer reliance on wireless phones, businesses’ expanded use of ATDS and PVM technology, and the popularity of fax blasts to communicate broadly with customers and prospects, have combined to fuel an explosion of TCPA class litigation in the last several years. While only 14 TCPA cases were filed in 2008, nearly 2,000 cases were filed in 2014. In the last two years, nearly a dozen class actions involving automated calls and fax blasts have been settled for amounts ranging from $10 million to a record $75.5 million. Businesses targeted by TCPA plaintiff attorneys, once limited primarily to debt collectors, now also include health care providers, banks, retail food chains, sports teams, and even the life insurance industry.
A July 2015 ruling by the FCC, FCC 15-72, further widened potential sources of exposure by expanding the definition of an “autodialer” under the TCPA to make it as inclusive as possible. The term now appears to encompass an indeterminable number of modern communications systems used routinely by businesses. (Several industry groups have recently challenged FCC 15-72 in the courts.)
Liability Coverage for TCPA Claims
As TCPA litigation and exposure have increased, insurers have increasingly written TCPA exclusions into standard Commercial General Liability (CGL) policies. Policyholders have begun to look to other types of coverage, such as D&O, E&O, and cyber-liability policies, when faced with a TCPA lawsuit. These attempts at coverage are meeting with mixed results, and they appear to be trending against findings of coverage.
If it holds up, this trend obviously bodes ill for policyholders. Even if it doesn’t, a new market for coverage designed specifically to cover TCPA liability is likely to result from one of two possible developments: (1) either courts will continue the trend of rejecting “shoehorn” coverage theories under policies not meant or underwritten to respond to these claims; or (2) courts may muddy the waters on the issue, and D&O and E&O carriers will respond (like CGL carriers before them) by adopting a more specific policy exclusion for TCPA claims.
In either event, the end result will be a new market for insurance products meant to respond to these types of claims. Until that market arrives, policyholders with potential TCPA exposure should work carefully with their brokers and carriers to ensure that the risks are addressed beforehand—and, if necessary, that they have specialty, manuscripted coverage to address their actual practices.
A brief review of the current landscape and how we got here brings the trends into sharper focus.
Once Upon a Time: TCPA Coverage Under Commercial General Liability Policies
Most of the early claims seeking coverage for underlying TCPA liability were asserted under standard CGL policies, which generally include two primary coverage parts: “Side A” coverage for liability arising from personal injury and property damage, and “Side B” coverage, for liability arising from personal and advertising injury.
These cases met with mixed results. While some courts found that faxes and other communications can “seize up” the phone or fax machine of the recipient, resulting in “loss of use” of tangible property sufficient to demonstrate “property damage” (see, e.g. Melrose Hotel Co. v. St. Paul Fire and Marine Ins. Co., 432 F. Supp. 2d 488 (E.D. Pa. 2006)), most courts held that sending such communications is not accidental, and therefore does not constitute an “occurrence” that could trigger Side A coverage. See e.g., Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 642 (4th Cir. 2005); State Farm Gen. Ins. v. JT’s Frames, 181 Cal. App. 4th 429, 449-50 (2010).
Advertising injury claims met with a bit more success than the Side A theories, but most courts also found that Side B coverage was also not meant to cover TCPA claims. Those cases revealed a split in how courts analyze the question of what constitutes an “invasion of privacy” within the context of “personal and advertising injury.” For example, the Seventh Circuit’s holding in American States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939, 941 (7th Cir. 2004), found a critical difference between the right to privacy (or seclusion) and the right to secrecy, and it held that a TCPA violation implicates only the former, while “advertising injury” coverage is limited to the latter.
These CGL decisions are now becoming academic, as the insurance industry has responded by adopting a TCPA-specific exclusion, and courts are regularly relying on that exclusion broadly to preclude coverage for any underlying claims “arising” from TCPA liability. See e.g. Illinois Cas. Co. v. W. Dundee China Palace Rest., Inc., No. 2–15–0016 (Ill. App. Ct. Oct. 29, 2015) (enforcing exclusion of “[a]ny liability . . . arising out of … The Telephone Consumer Protection Act (TCPA)”); Westfield Ins. Co. v. Pinnacle Grp., LLC, No. 5:14-CV-25227 (S.D. W. Va. Oct. 7, 2015)(enforcing exclusion for “injuries or damages arising directly or indirectly out of any action or omission that violates or is alleged to violate. . . The Telephone Consumer Protection Act (TCPA)”).
New Coverage Claims
Policyholders, therefore, have looked to other types of policies and coverages for defense and indemnification of TCPA claims. Like the initial round of CGL coverage cases, these suits are meeting with mixed results.
Last year at this time, the Illinois Appellate Court rejected a claim for coverage under an E&O policy, made by an insurance agency that suffered a $5 million class action judgment for unsolicited automated phone call advertising. InMargulis v. BCS Insurance Co., 23 N.E.2d 472 (Ill. App. Ct. Nov. 26, 2014), the court held that the automated phone calls did not fall within the policy’s coverage for negligent acts, errors, or omissions in the course of the agent’s “rendering services for others,”
In April of this year, a California federal court found no coverage under a D&O policy for a TCPA suit against the Los Angeles Lakers. Los Angeles Lakers, Inc. v. Federal Ins. Co. :14-cv-07743-DMG-SH (C.D. Cal. April 17, 2015), arose out of a TCPA class action that started when a fan at a Lakers game sent a text in response to a game-time message on the Staples Center Jumbotron, inviting patrons to text a response. He later received a text back from the Lakers with a promotional message, and he brought a TCPA class action on that basis. While the lawsuit settled, the Lakers looked to their insurer, Federal Insurance Company, for coverage under their D&O policy. Federal declined, citing an exclusion in the D&O policy for claims “arising from . . . invasion of privacy.”
The Lakers sued, but a federal court agreed with Federal that the exclusion unambiguously applied to exclude coverage for the TCPA claims, based on the same interpretation of “privacy” that was applied in earlier CGL cases. The court opined:
At base, violations of the TCPA are rooted in a violation of an individual’s privacy interests. The allegations in the [underlying] Emmanuel Complaint demonstrate that Emmanuel sought relief based on the invasion of his privacy rights. Accordingly, because the Policy specifically excludes claims arising from invasions of privacy, the TCPA claims alleged in the Emmanuel Complaint are not covered under the Policy.
The decision was appealed and was recently argued before the Ninth Circuit Court of Appeals. A decision is imminent.
And, as we reported previously, this past June the Illinois Appellate Court rejected a theory of TCPA coverage under a cyber-liability endorsement. In Doctors Direct Ins., Inc. v. Beaute’ E’mergente, LLC, 2015 IL App (1st) 142919-U (Ill. App. Ct. June 22, 2015), the court affirmed that a medical malpractice liability insurer did not owe a duty to defend or indemnify its insured in an underlying TCPA class action, because there was no coverage under the “privacy wrongful act” provision of the policy’s cyber claims endorsement. It distinguished typical TCPA claims from the types of data breach claims that cyber-liability coverage was designed to address, noting that the TCPA “does not regulate actions that may be taken to prepare for the placement of these automated phone calls,” and therefore cannot be construed to be ” ‘associated with the control and use of personally identifiable financial, credit, or medical information.'” Nothing in the plain language of the TCPA indicates an intent to protect against the compilation of consumers’ names and phone numbers for use in telemarketing. Rather, the court held, the TCPA was intended to protect consumers from certain forms of undesirable communication.
Predictions Are Hard
Somewhat surprisingly, despite the seemingly bleak outlook for coverage under current non-CGL standard form policies, it does not appear at this point that new insurance products have been developed specifically to address TCPA exposure. (If they have, they are not being marketed; just compare search engine results for “purchase insurance to cover cyber liability” with “purchase insurance to cover TCPA liability”).
Such exposure-specific coverage often develops after an industry adjusts to a new exposure, and that industry’s insurers adjust to the underwriting of the new exposure—first, by specifically excluding the liability under standard policies, and then by developing new products to meet the needs of industry/exposure-specific policyholders. This was the case in the 1970s and 1980s, as manufacturing and chemical industries faced new exposure for environmental liabilities. Similarly, as data breach liability exposure has exploded in recent years, and as courts have struggled with coverage issues for those suits under older, standard policies, the industry has responded with new cyber-specific coverage (which policies themselves are also now being tested for possible TCPA coverage, as noted above).
Whatever the reason, no broad market has yet emerged for TCPA insurance coverage. It may be that the exposure is too specific for a workable policy form, and that the industry is simply responding with specialty manuscripted policies on a case-by-case basis. However, and depending on whether the no-coverage trend continues or reverses, sooner or later it seems likely that a market will develop as policyholders increasingly discover that standard policies were not intended, and will not be found by courts, to cover TCPA exposure. For now, industry watchers eagerly await the Ninth Circuit’s ruling in the Lakers’ appeal, as well as new theories of coverage and/or the emergence of new TCPA-specific exclusions in non-CGL policies.