A Telephone Consumer Protection Act defendant was not entitled to coverage under its insurance policy because the policy excluded violations of consumer protection laws, a New York federal court recently held.

Convergys Corporation was named as a defendant in a TCPA lawsuit filed by Nicholas Martin in Illinois federal court. The class action charged that Convergys and a second defendant violated the statute by sending unsolicited autodialed calls to the class members’ cell phones.

A federal district court judge granted preliminary approval of a settlement in January.

Meanwhile, Convergys sought assistance from insurer Beazley, a syndicate of Lloyd’s, London. Although Beazley provided defense coverage, it also filed a declaratory action in New York federal court seeking an order that it was not required to defend the suit or indemnify Convergys for the settlement.

While the policy itself provided coverage for the TCPA, an exclusion took it away, Beazley argued. Exclusion K barred coverage for claims “arising out of or resulting from any actual or alleged . . . violation of consumer protection laws (except for consumer privacy protection laws under Insuring Clause I.C.).”

In response, Convergys pointed to the exclusion’s exception under Insuring Clause I.C.2.(c)(iii), characterizing the underlying suit as a violation of the class members’ privacy rights.

But U.S. District Court Judge Claire R. Kelly concluded that the exclusion – and not the exception to the exclusion – was in force.

“By its plain terms, Exclusion K bars coverage for the Martin action,” she wrote. The class action, “which sought recovery under the TCPA, was a claim ‘[f]or, arising out of or resulting from any actual or alleged . . . violation of consumer protection laws,’ ” as it alleged a violation of the TCPA and sought redress for violation of the statute. “[T]here can be no reasonable difference of opinion that the Martin action was a claim for a violation of a consumer protection law,” the court added.

Convergys’ attempt to rely upon the exception was unsuccessful. Although the court noted that a TCPA complaint could trigger coverage under the policy, the specific complaint filed against the insured in the case at bar did not.

“There is nothing in the Martin complaint that would lead to the conclusion that the class sought to recover for failure to comply with a privacy policy. Nor did the class seek to recover under a privacy policy that provides a person with the ability to opt-in or opt-out of the collection or use of his personally identifiable non-public information,” Judge Kelly wrote. “Both the Martin complaint and the settlement release make clear the Martin action was ‘for’ a violation of a consumer protection law, the TCPA, not for a failure of Convergys to comply with a privacy policy.”

Even assuming that one of Convergys’ privacy policies was violated by the same conduct challenged in the Martin litigation, “there is no genuine dispute that either the complaint, or the settlement was ‘for’ the ‘failure by the insured to comply’ with a privacy policy, let alone any of the specific enumerated parts of a privacy policy to which I.C.2(c) applies,” the court said.

To read the decision in Certain Underwriters at Lloyd’s v. Convergys Corp., click here.

Why it matters: Courts across the country are struggling with the issue of coverage when policyholders are faced with a TCPA suit, a developing area of insurance recovery law. A Missouri Supreme Court recently held that the purpose of the statute is remedial and not punitive, making damages for the suits insurable, while a federal court in Illinois concluded that a policyholder was entitled to indemnification for a $5.8 million settlement. Despite these favorable rulings, policyholders can’t always win, as the Convergys decision demonstrates.