The Tenth Circuit U.S. Court of Appeals upheld a district court’s summary judgment in favor of an insurer that no coverage existed for “junk fax” advertisements by its insured. Emcasco Ins. Co. v. CE Design, Ltd., 784 F.3d 1371 (10th Cir. 2015).
The insured was subject to a class action suit by businesses who had received unauthorized faxes. After its insurer declined to defend, the insured settled with the plaintiffs in exchange for an agreement that the judgment against the insured would not be enforced against it, and that the plaintiffs would proceed against the insurer. Both the insurer and the plaintiffs filed declaratory judgment actions. The plaintiffs alleged that the insured faxed unsolicited advertisements which 1) caused damages by costing time, paper and ink toner; 2) constituted conversions; and 3) violated the Telephone Consumer Protection Act (TCPA) and Illinois statutes. Coverage was subject to two exclusions: (1) an “expected or intended injury” exclusion; and (2) a “statutory violation” exclusion, which listed violations of the TCPA, the CAN-SPAM Act of 2003 and “any statute, ordinance or regulation, other than TCPA or CAN-SPAM Act of 2003, that prohibits or limits the sending, transmitting, communicating, or distribution of material or information.”
The policy insured against “personal and advertising injury,” which included “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” There were exclusions for a “knowing violation” and a “statutory violation.” The Tenth Circuit held that the policy provisions were unambiguous and that the claims for violation of the TCPA as pled were subject to the “statutory violation” exclusion. It further found that the TCPA required a showing that the violator intended to rely on deception, such that the “expected or intended injury,” “knowing-violation,” and “statutory-violation” exclusions applied. The suit also alleged common law conversion, and the Tenth Circuit held that one element of intentional conversion under Oklahoma law is that a defendant intentionally divert property for his own use, triggering the “expected or intended injury” exclusion. It deemed the plaintiffs’ claim to be for traditional conversion committed under a mistaken factual or legal belief of a right to appropriate property, and held that any bare claim of a mistake would not trigger coverage as an accident. The plaintiffs argued that there was a claim for negligent conversion, but the Tenth Circuit held that no such action was recognized under the law of either Oklahoma or Illinois.