Applying Florida law, the United States Court of Appeals for the 11th Circuit recently upheld the enforceability of an exclusion in commercial general liability insurance policies that bar coverage for “any act that violates any statute, ordinance or regulation” that applies “to the sending, transmitting or communicating of any material or information.”  The 11th Circuit rejected the policyholder’s claim that the exclusion was void, and the court ruled that the exclusion was unambiguous and not against public policy.  Interline Brands, Inc. v. Chartis Specialty Insurance Company, No. 13-10025, 2014 WL 1424432 (11th Cir. Apr. 15, 2014).

The policyholder was sued for sending unwanted “junk” faxes in violation of the Telephone Consumer Protection Act.  It sought coverage under the personal and advertising liability coverage part of its commercial general liability insurance policies.  The insurer disclaimed coverage for the “junk” fax lawsuits based on the following exclusion:

Personal and advertising injury arising out of or resulting from, caused directly or indirectly, in whole or in part by, any act that violates any statute, ordinance or regulation of any federal, state or local government, including any amendment of or addition to such laws, that includes, addresses or applies to the sending, transmitting or communicating of any material or information, by any means whatsoever.

The district court granted judgment on the pleadings to the insurer, and the 11th Circuit affirmed.  The policyholder sought to have the exclusion set aside as void based on three contentions.  The 11th Circuit rejected each of the policyholder’s contentions.

First, the policyholder contended that the exclusion was ambiguous because a reasonable interpretation of the exclusion would not include violations of the Telephone Consumer Protection Act as falling within the exclusion.  Examining the plain language of the exclusion, 11th Circuit declared that any reasonable interpretation of the language excludes coverage for violations of the Telephone Consumer Protection Act.

Second, the policyholder contended that the exclusion was void because it was overbroad.  Rejecting this argument, the 11th Circuit explained that it would be infeasible to set forth a specific list of laws in the exclusion.  “A list of hundreds of thousands of laws would be painstakingly difficult to analyze and would likely provide the insured with less, not more, meaningful notice” and “it would be difficult for a specific list to account for laws that are amended, renamed, or enacted after the policy is signed.”  The court explained that “a broadly written provision is not the same as an ambiguous one.”

Third, the policyholder contended that the exclusion was void as against public policy.  The policyholder argued that the exclusion leads to “an absurd result” because it “altogether eliminates coverage under the policy.”  The 11th Circuit disagreed, and observed that “the policy still contains extensive coverage” even if the exclusion was “significant” in light of the policyholder’s business. 

The court explained that exclusions in insurance policies “allow [the] creation of a policy that provides the insured the coverage it needs at a price it can afford.”  Without exclusions, “coverage would undoubtedly be more expensive” to the policyholder.  The 11th Circuit further reasoned that coverage for violations of law creates “a moral hazard problem that could substantially increase insurance costs.”