Although an insured’s transmission of junk faxes was not an “accident” as that term is defined in the commercial general liability policy, the Massachusetts Supreme Judicial Court (the State’s highest court), interpreting New Jersey law, held that coverage is afforded to the insured for an underlying suit alleging violations of the Telephone Consumer Protection Act (TCPA) because the fax advertisements constitute “advertising injury” under the policy. Terra Nova Insurance Co., et al. v. Metropolitan Antiques LLC and Evan Fray-Witzer, No. SJC-09801 (Mass. July 10, 2007)
Factual and Procedural Background
Metropolitan Antiques LLC (“Metropolitan”), a New Jersey Auctioneer services company, contracted with Village Fax, a California company, to execute a telemarketing strategy that provided unsolicited facsimile advertisements about Metropolitan’s services to targeted professionals throughout New England for the period 2001 to 2003.
Royal & SunAlliance USA (“Royal”) insured Metropolitan under a commercial general liability policy for the period February 9, 2001 to February 9, 2002, and Terra Nova Insurance Company (“Terra Nova”) insured Metropolitan under a commercial general liability policy for the period February 9, 2002 to February 9, 2003. The Terra Nova policy contained separate definitions for “personal injury” and “advertising injury” and the Royal policy combined the definition of “personal and advertising injury” into a single definition. Both policy definitions did, however, contain the same language: “[o]ral or written publication of material that violates a person’s right of privacy.”
In 2003, plaintiffs filed a class-action suit in Massachusetts state court alleging, among other things, that Metropolitan’s facsimilemarketing practice violated the TCPA.
Metropolitan tendered the class-action suit to both Royal and Terra Nova for defense and indemnity under each insurer’s commercial general liability policy. Terra Nova then filed a declaratory judgment action seeking a ruling that there was no coverage for the class-action suit under policy section “Coverage A” because there was no “accident” triggering coverage, or section “Coverage B” because there was no “personal injury” or “advertising injury” triggering coverage under the general liability policy.
The class-action plaintiffs counterclaimed seeking a declaration in favor of coverage and also brought Royal into the action via a third-party complaint. The trial court ruled in favor of both insurers, concluding that each did not have a duty to defend Metropolitan.
The class-action plaintiffs appealed directly to the Massachusetts Supreme Judicial Court for review of whether the unsolicited facsimile advertisements caused covered injuries under the terms of Metropolitan’s two commercial general liability policies.
The Supreme Judicial Court affirmed that the policies did not afford coverage to Metropolitan under policy section “Coverage A” because the unsolicited facsimile advertisements were not “accidents” under the general liability policy. The Court also held, however, that the unsolicited advertisements violated the recipient’s right of privacy and that policy section “Coverage B” afforded coverage for both defense and indemnity for such claims.
The insurers made two principal arguments at the appellate level. First, the insurers argued that there was not a “publication” of written material that “violate[d] a person’s right of privacy.” Second, the insurers argued that the “content of the publication, rather than the act of sending it, must account for the invasion of privacy.” The class-action plaintiffs and policyholder countered that there was indeed a “publication” because the fax advertisements were sent to approximately 60,000 people. They also contended that the insurers’ argument that “the content of the publication” must cause the injury read language into the policy that simply was not there.
The Massachusetts Supreme Judicial Court—noting that under New Jersey law insurance contracts must be interpreted by affording the contract language its plain and ordinary meaning—used a dictionary to construe the term “publication” to mean: “communication (as of news or information) to the public.” Using this plain meaning of the term, the court rejected the insurers’ argument and held that the facsimile transmissions to 60,000 people did constitute a “publication” of written material.
The court next examined the meaning of “invasion of privacy.” The court noted that other jurisdictions, while purporting to give this phrase its “plain and ordinary meaning,” had construed this term in a variety of ways. The court stated that “the use of the phrase ‘right of privacy’ does not evince a plain meaning that is limited in the manner the [insurers] contend,” and held that under New Jersey law, the meaning of the term “invasion of privacy” was ambiguous. The court determined that New Jersey law required that this ambiguous term be construed in favor of the policyholder. In so doing, the Massachusetts Supreme Judicial Court held that the unsolicited facsimile transmissions caused an invasion of the recipient’s privacy and that Coverage B under the commercial general liability policy afforded coverage for defense and indemnity of the underlying lawsuit.
The Massachusetts Supreme Judicial court also rejected the insurers’ contention that the TCPA was a penal statute and that the policy excluded claims alleging willful violation of a penal statute.
Ruling that the TCPA was a remedial, and not a penal statute, the court reasoned that “the purpose of the [TCPA] is to protect facsimile machine owners from unsolicited advertisements” and the “remedy flows directly to the private consumer . . . rather than to the government.” The court also rejected Terra Nova’s additional contention that the entire amount of damages were punitive in nature because the statute permitted treble damages.
The court ruled that on remand, if the trial court awarded treble damages, then only the treble damages portion of the award would be excluded under the policy.
According to the Massachusetts Supreme Judicial Court’s interpretation of New Jersey law, the term “invasion of privacy” in the definition of “advertising injury” is ambiguous in the context of unsolicited facsimile transmissions. As such, there may likely be coverage, absent other facts, for unsolicited “junk” or “blast” facsimile transmissions under the definition of “advertising injury” in a commercial general liability policy.
This case may provide insight as to how Massachusetts courts will decide this issue under Massachusetts law as well. On the other hand, New Jersey’s highest court has yet to rule on this specific issue and it may be the case that the New Jersey court could rule differently. Nonetheless, insurance companies doing business in New Jersey and Massachusetts that have provided “advertising injury” coverage should continue to monitor the courts of each jurisdiction for a more definitive ruling on this issue. The court itself highlighted another implication of its holding: That if the intent was to provide coverage “only to violations of privacy created by the content of material,” it was incumbent on the insurers to draft explicit language to that effect.
If you have any questions about this Alert, or any other coverage issue, please contact one of the attorneys listed in this Alert.