Last week saw two separate Telephone Consumer Protection Act (“TCPA”) decisions in which federal district courts, one for the Eastern District of Pennsylvania, the other for the Northern District of Illinois, held no coverage existed for underlying TCPA litigation. The decisions’ results were not surprising, as TCPA coverage claims have been wilting like Wisconsin’s lead over Duke in last night’s final. What is interesting in the cases, Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., No. 12-7228, 2015 WL 1456085 (E.D. Pa. Mar. 31, 2015) and Addison Automatics, Inc. v. Hartford Cas. Ins. Co., No. 13-1922, slip op. (N.D. Ill. Mar. 31, 2015), is that the courts reached their decisions on different bases. The reasoning behind each basis can apply to other privacy litigation.
In Stevens & Ricci, the insured was sued in a class action for faxing over 18,000 unsolicited fax advertisements in violation of the TCPA, 47 U.S.C. § 227. The underlying litigation alleged, among other claims, that the unsolicited faxes violated the privacy rights of class members who received them. Id. at *1. The insured’s policy defined “personal injury” and “advertising injury” in part as “oral or written publication of material that violates a person’s right of privacy.” Id. at *2-3.
The insurer argued that because the underlying complaint did not plead a cause of action for invasion of privacy, there was no coverage because the policy provided coverage only for the tort. In the alternative, the insurer argued that even if the tort were alleged, the underlying action did not implicate coverage. Although the invasion of privacy claim entails four separate torts, the privacy right covered under insurance policies contemplates the right to secrecy only. Id. at *8. Because TCPA litigation implicated the privacy right of seclusion, and not the right of secrecy, there was no coverage. Id.
The trial court agreed with the second argument and explained:
No coverage exists for “advertising injury,” as determined by the Third Circuit, this District Court, and the Pennsylvania courts which have so held because the type of privacy violation covered by insurance policies such as the Auto–Owners Policy—privacy interests in secrecy—are not violated by “junk” faxes.
* * *
In this case, Stevens & Ricci hired a third party to send out the faxes. Each court that concluded that privacy interests in secrecy are not violated by junk faxes holds that such violations are violative of the right of seclusion, even when it is alleged that a policyholder hired a third-party vendor, and the third-party vendor was responsible for sending the problematic faxes. [Citations omitted.] Accordingly, there is no coverage under the Auto–Owners Policy because the privacy interests in secrecy are not violated by the junk faxes sent out by Hymed.
Id. at *8-9.
In Addison Automatics, the insured was sued in a class action for violation of the TCPA, the Illinois Consumer Fraud Act and Deceptive Business Practices Act, and common law conversion following its involvement in a blast-faxing campaign. The underlying action settled and the class pursued claims under assignment against the insured’s insurance carrier. Addison Automatics, slip op., at 1, 3.
Two different policies were at issue, each containing a “Violation of Statutes That Govern E-Mails, Fax, Phone Calls or Other Methods of Sending Material or Information” exclusion. Id. at 5, 7. The exclusions barred coverage for claims “arising directly or indirectly out of any action or omission that violates or is alleged to violate . . . . the Telephone Consumer Protection Act.” Id. The claimants argued that the exclusions did not bar coverage because many of their claims did not involve the TCPA or any other statute that prohibited a method of sending material or information. Id. at 14-15. In particular, the claimants argued that because their conversion claims had nothing to do with any statute, the exclusions could not apply. Id.
I encounter this argument often in the context that such exclusions do not apply to common law claims for invasion of privacy. The argument has a fatal flaw – it ignores the “arising out of” language contained in the exclusion. Here, the Addison Automatics court recognized that flaw. Explaining that a court must focus upon the language of the policies, and not “peer myopically at the elements of” underlying causes of action, the court held that the exclusions barred coverage because the common law conversion claims involved injuries from conduct that violated the TCPA:
A close reading of the exclusionary provisions reveal that their focus is not on the legal elements of a particular claim asserted by the underling plaintiff, but the factual cause of the “bodily injury” and “property damage” that is alleged in the underlying complaint. So long as the injury and damage alleged in the operative complaint “arises directly or indirectly out of any action or omission that violates or is alleged to violate” the TCPA, the claims asserting the injury (whatever the particular legal theory may be) falls within the purview of the exclusions. This is what the language of the exclusionary provisions require.
Id. at 14-15.
What Do These Cases Mean? The real value in these cases is found in the reasoning behind the decisions. Stevens & Ricci shows that “privacy” is more than a buzz word to guarantee coverage. Some jurisdictions assign a limited meaning to the phrase “right of privacy” found in business and general liability policies, and a court should examine the factual allegations of an underlying complaint to ascertain exactly what privacy interests are implicated in the case. Sometimes those interests are not covered. In Addison Automatics, the court correctly focused on the broad language of the exclusions at issue and the underlying factual allegations, not the elements of the causes of action pleaded in the underlying complaint.
The reasoning on both these cases can apply to coverage actions involving privacy rights, including ZIP code lawsuits, the collection and use of consumer data, unauthorized surveillance, and cyber/data breach cases. Feel free to email me with any questions.