Why it matters

Courts across the country are tackling the first wave of the insurance disputes arising out of Telephone Consumer Protection Act lawsuits. Recently, the Missouri Supreme Court 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. As coverage litigation over the TCPA continues, new decisions emerge in this very unsettled atmosphere. Under the facts it reviewed, a New York federal court found that allegations in a TCPA complaint alleging a consumer protection violation, rather than a privacy violation, were expressly excluded. The court noted that TCPA allegations in and of themselves were not automatically excluded by the policy but, rather, the allegations at issue were excluded by the specific exclusion for the claims alleged violations of consumer protection laws. Court will continue to grapple with TCPA claim on a case-by-case basis.

Detailed Discussion

Convergys Corporation was named as a defendant in a Telephone Consumer Protection Act suit filed in Illinois federal court by Nicholas Martin. 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 to a settlement in January.

Meanwhile, Convergys sought a defense from insurer Beazley, a syndicate of Lloyd’s, London. Beazley initially denied coverage but relented, providing a defense with a reservation of rights. The insurer subsequently filed a declaratory action in New York federal court and filed a motion for summary judgment.

Beazley argues that 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.).”

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 Insuring Clause exception was unavailing. Although the court noted that the “TCPA can reasonably be viewed as both a consumer protection law and consumer privacy protection law under the policy’s language,” the exception to the exclusion did not apply to the underlying complaint.

“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.