United States: Current Trends In Insurance Coverage For Claims Based On TCPA Liability

The Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, et seq., restricts certain forms of telemarketing and limits in many instances the use of automatic dialing systems, prerecorded voice messages, SMS text messages, and faxes.  The TCPA provides consumers with a private right of action that enables them to recover up to $500 for a single violation, and up to $1,500 for each willful violation, of the TCPA.  Because TCPA lawsuits are often brought as class actions and can involve thousands of alleged individual violations, purported damages can pile up very quickly.  Not surprisingly, the legal bills incurred by companies defending against TCPA litigation can be also be very significant.

As with any sizable and unexpected potential liability, companies frequently turn to their insurance policies to seek coverage for their defense costs and their potential liability under the TCPA.  Claims are most frequently asserted under commercial general liability ("CGL"), Directors' and Officers' ("D&O"), and professional liability/errors and omissions (E&O)  insurance policies.

With respect to CGL insurance policies, policyholders typically argue that the "advertising injury" provisions of their insurance policies, which often cover any "oral or written publication that violates a person's right to privacy."  There are strong arguments that this wording includes claims alleging violations of the TCPA.  This is because most TCPA claims allege that the policyholder company violated the plaintiffs' right to seclusion, which is one form of the right to privacy.  Because CGL policies do not, however, typically include a clear definition of the "right to privacy," whether alleged TCPA violation are covered under the privacy wording may be left to judicial interpretation.

D&O and E&O policies also may cover TCPA liability under provisions providing coverage for claims arising out of a "wrongful act."  While a "wrongful act" in policies sold to publicly-traded companies is often limited to securities suits, a "wrongful act" for privately held companies may include a wide variety of commercial liability, including TCPA claims.  In addition, D&O policies cover individual directors and officers, to the extent that they are not indemnified by the company, and also cover the company for the costs of indemnifying its directors and officers.  Thus, where a suit alleging violations of the TCPA names an individual “director” or “officer” (terms which generally are broadly defined and include any senior level employee), the D&O policy may cover the individual's TCPA liability too.

Insurers are increasingly adding TCPA exclusions to their policies, which are a mixed blessing for policyholders as a whole.  On the one hand, when a policy contains such an exclusion, it may present a significant hurdle to TCPA coverage.  On the other hand, the increasing use of exclusions by insurers supports the argument for coverage on the part of policyholders whose policies do not have an exclusion, namely that the standard policy language surely must provide TCPA coverage, or else the insurer would have had no need to add the exclusion.

Courts Disagree Over Whether or Not Alleged Violations of the TCPA Constitute Violations of the "Right to Privacy" For Purposes of Insurance Coverage

 Assuming that there is no TCPA exclusion, a policyholder's ability to establish that TCPA liability is covered under the terms of its CGL policy will depend greatly on the state law under which the policy is interpreted.  Choice of law is a complex question in insurance coverage disputes (and is beyond the scope of this post), and since insurance coverage is purely a question of state law and different states' laws vary widely, many insurance matters ultimately come down to the choice of law arguments.

Courts have gone both ways on whether or not TCPA suits are covered under a particular set of facts.  The Seventh Circuit was the first federal appellate court to address the issue in American States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939, 941 (7th Cir. 2004.  In American States, the Court (applying Illinois law) held that "advertising injury" privacy provisions cover only allegations that the policyholder-defendant violated the plaintiff's right to privacy in terms of his "right to secrecy," rather than his "right to seclusion."  Because the "right to privacy" protected by the TCPA implicated only the "right to seclusion," TCPA liability did not fall under the "advertising injury" provision and therefore was not covered.  The Fourth Circuit Court of Appeals, relying on American States, reached the same conclusion.  Res. Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 640-41 (4th Cir. 2005) (explaining that a class action complaint, which alleges TCPA liability based on a violation of the right to privacy theory, relates to "seclusion privacy," or "the manner of the advertisement" rather than its content, whereas "the advertising-injury offense part of the policies is exclusively concerned with those types of privacy, like secrecy, [that] are implicated by content of the advertisements") (quoting Am. States Ins. Co., 392 F.3d at 941 (internal citations and quotation marks omitted).

Later, however, when the issue came before the Illinois Supreme Court, that court reached a different conclusion than the Seventh Circuit.  In Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill. 2d 352, 366 (2006), the court explained that "the question we must ask is whether the words in the 'advertising injury' provision of the policies issued to [the policyholder] indicate that [the policyholder] and the insurers intended the policies to cover the type of injury to privacy that is the subject [of the] TCPA fax-ad claim."  The court then held that "[b]ased on the plain, ordinary, and popular meaning of those words, we believe this type of injury falls potentially within the coverage of the policies' 'advertising injury' provision."  Two years after the decision in Valley Forge, the Seventh Circuit (this time applying Iowa law) again held that TCPA liability was not covered under the "advertising injury" provision, for the same reason.  Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 550 (7th Cir. 2008) (concluding that "Iowa is more likely to adopt our interpretation rather than the one adopted by the Illinois Supreme Court").  The Iowa Supreme Court has yet to weigh in on the issue.

Despite the early — and, in the view of many commentators erroneous, — decisions from the Fourth and Seventh Circuits, the majority of federal appellate courts and state courts of last resort that have addressed this issue have held that TCPA liability is covered under the "advertising injury" provision, which covers the policyholder for conduct that allegedly constitutes a violation of the plaintiffs' "right to privacy."  The Fifth, Eighth, Tenth, and Eleventh Circuits interpret alleged violations of the TCPA as falling within the scope of the "advertising injury" provision on the basis that alleged violations of the TCPA constitute the type of "right to privacy" claims that are covered under such provision.  Owners Ins. Co. v. European Auto Works, Inc., 695 F.3d 814, 819 (8th Cir. 2012) (concluding that "the ordinary meaning of the term 'right of privacy' easily includes violations of the type of privacy interest protected by the TCPA"); Park Univ. Enters. v. Am. Cas. Co., 442 F.3d 1239, 1249-1250 (10th Cir. 2006); Hooters of Augusta, Inc. v. Am. Global Ins. Co., 157 Fed. Appx. 201, 208 (11th Cir. 2005); Western Rim Inv. Advisors, Inc. v. Gulf Ins. Co., 96 Fed. Appx. 960, 961 (5th 2004) (per curiam).  All three state courts of last resort that have encountered this issue have reached the same conclusion.  Valley Forge, 223 Ill. 2d at 366 (Illinois law); see also Columbia Cas. Co. v. Hiar Holding, L.L.C., 411 S.W.3d 258, 270 (Missouri 2013) (explaining that Congress intended unsolicited advertisements to constitute an invasion of the "right to privacy" and therefore concluding that TCPA liability is covered under the "advertising injury" provision of an insurance policy); Penzer v. Transp. Ins. Co., 29 So. 3d 1000, 1006-07 (Fla. 2010) (holding that under Florida law, the insurance policy provided coverage "for sending unsolicited fax advertisements in violation of the TCPA").

Conclusion

A majority of federal appellate courts and state courts of last resort hold that TCPA liability is covered under the "advertising injury" provision of an insurance policy because alleged violations of the TCPA constitute alleged violations of the "right to privacy." To the extent that policyholders are located in a jurisdiction where courts have reached the opposite conclusion, experienced policyholder attorneys can frequently make choice of law arguments to achieve the benefits of more favorable states' laws.  As with any insurance claim, policyholders should promptly consult with an experienced coverage attorney, review their policies, and provide notice upon the first sign of potential TCPA liability.

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