Why it matters

Courts across the country have struggled with the application of insurance coverage for Telephone Consumer Protection Act (TCPA) related lawsuits against insureds. In a recent decision, an appellate court in Illinois found an insurer had no duty to defend an insurance agent under a professional liability policy against a claim alleging the insured sent unsolicited, automated telephone calls advertising its services to nonclients. The court reasoned that the insurer was not obligated to provide a defense because the calls alleged in the underlying complaint did not arise out of the agent’s “rendering of services for others” as required by the policy. While TCPA violations may sometimes be covered under a professional liability policy, the outcome will depend on the specific facts and policy language at issue.

Detailed Discussion

The underlying lawsuit arose out of a class action filed by Scott Margulis against Bradford & Associates (“Bradford”), an insurance agent, alleging common law and TCPA violations. Plaintiffs, nonclients of Bradford, alleged Bradford transmitted unsolicited, automated telephone calls advertising its services to them.

Bradford tendered the lawsuit to its professional liability insurer, BCS Insurance Company, which denied coverage. Thereafter, Bradford and Margulis entered into a settlement agreement for nearly $5 million, which was to be satisfied only from the proceeds of the insurance policies and claims against Bradford’s insurers.

Following the settlement, Margulis filed a declaratory judgment action against BCS. Margulis and BCS each filed a motion for summary judgment. The circuit court granted BCS’s motion and denied Margulis’s motion. Margulis appealed. On appeal, Margulis argued that since Bradford’s advertising calls sought to induce the recipients to use its specialized services as an insurance agent, the policy afforded coverage.

The Appellate Court determined that the allegations in the underlying class action did not fall within the potential scope of the policy’s coverage, as the allegedly negligent acts, errors or omissions of Bradford – the transmission of automated, unsolicited calls advertising Bradford’s services – did not arise out of the conduct of Bradford’s business “in rendering services for others” as an insurance agent, general agent, or broker. Although the call advertised Bradford’s services to the plaintiff class, Bradford was not rendering services for the call recipients as an agent or broker, as the recipients of the transmission were not Bradford’s clients or customers.

The policy at issue provided: “The Company does hereby agree to pay on behalf of the Insured such loss in excess of the applicable deductible and within the limit specified in the Declarations sustained by the Insured by reason of the liability imposed by law for damages caused by any negligent act, error or omission by the insured arising out of the conduct of the business of the Insured in rendering services for others” as a licensed agent or broker.

Margulis contended that the resulting injuries arose out of Bradford’s business. The Appellate Court was not convinced, finding instead that the alleged negligent conduct, i.e., the transmission of unsolicited phone calls, did not arise out of Bradford’s rendering services for others as an insurance agent. Notably, the Appellate Court found compelling that the recipients of automated telephone calls were not insurance clients of Bradford, and in turn, Bradford could not have been rendering services as a licensed insurance agent, general agent or broker.

“Comparing the class action petition against Bradford and the BCS policy, we do not read the allegations in the petition as falling within the potential scope of the policy’s coverage because the allegedly negligent acts, errors or omissions – the transmission of automated, unsolicited telephone calls advertising Bradford’s services – did not arise out of the conduct of Bradford’s business in rendering services for others as an insurance agent, general agent or broker,” the court reasoned.

To read the opinion in Margulis v. BCS Insurance Co., click here.