The Los Angeles Lakers are ready to play hardball.

The team filed suit against Federal Insurance Company after the insurer refused to provide defense coverage when the Lakers were hit with a Telephone Consumer Protection Act lawsuit last year.

Alleging Federal breached the terms of its contract and engaged in bad faith, the Lakers’ state court complaint seeks to recover all attorneys’ fees and expenses incurred, plus interest, as well as punitive damages.

Tipoff for the dispute occurred when David M. Emanuel filed a putative class action suit against the Lakers in November 2012. Emanuel claimed that he received multiple text messages from the team in violation of the TCPA. Importantly, Emanuel sought statutory damages under the Act and did not assert any claims or seek damages for personal injury, such as invasion of privacy.

The Lakers tendered the dispute to Federal pursuant to a $5 million coverage policy. The insurer responded with a letter denying coverage for the Emanuel lawsuit on the grounds that the policy contained an exclusion for invasion of privacy. Despite multiple attempts by the Lakers to change the insurer’s mind, Federal continued to reaffirm the coverage denial for the same reason.

In the interim, the Emanuel suit was tossed by a federal court in California with prejudice. When the plaintiff appealed to the Ninth U.S. Circuit Court of Appeals, the parties settled. Throughout the litigation, the Lakers paid their own defense fees and costs as well as the settlement amount.

Fed up, the Lakers filed suit. Unlike other policies, Federal’s policy did not contain an exclusion for TCPA claims, the team noted. And while the policy did feature an exclusion for invasion of privacy, the Lakers said it was inapplicable to the underlying litigation.

“The crux of the allegations in the Emanuel lawsuit focused upon the economic damages from the annoyance and nuisance of incurring cellular telephone charges or consumer cellular telephone time,” the team alleged in its complaint. The TCPA reflects not only “a concern over intrusions into privacy, but also the separate recognition of, and protection against, the economic impact associated with the receipt of unauthorized communications.”

Therefore, by refusing to provide defense coverage to the Lakers, Federal breached the terms of the policy, the team said. “Federal had a duty to conduct a thorough investigation of [the Lakers’] claim for coverage and seek facts that would support [the Lakers’] claim.”

Further, Federal’s repeated “shuffling” of inquiries from the Lakers among multiple claims handlers and disregard for information provided by the team amounted to “despicable” conduct, according to the complaint. Federal “engaged in a series of acts designed to deny the benefits due under the policy,” and the insurer’s actions were “done with a conscious disregard of [the Lakers’] rights, continuing oppression, fraud, and/or malice.”

Based on such conduct, the Lakers requested punitive damages in addition to the damages the team incurred from the Emanuel litigation as well as the costs of the current action against Federal.

To read the complaint in Los Angeles Lakers v. Federal Insurance Co., click here.

Why it matters: As TCPA cases continue to proliferate, companies often find themselves facing a two-pronged battle against not only the plaintiff but also an insurer refusing to chip in for a defense. While policies increasingly feature an exclusion for TCPA litigation (an option that Federal declined to exercise, the Lakers’ complaint notes), Federal opted to rely upon the invasion of privacy exclusion in the Lakers’ policy.