Posted on: 9/21/2011
Bryan M. Weiss, Murchison & Cumming
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In this age of instant communication – messaging, social networking, etc. - conditions are ripe for abuse. These types of media can easily be used to invade privacy rights, engage in unsolicited advertising, and other such unwelcome communications. It is for this reason that Congress enacted the Telephone Consumer Protection Act ("TCPA"), largely to curb the runaway use of fax machines for improper purposes. The TCPA was enacted by Congress to protect the public from unsolicited faxes or so-called "blast faxes" or "junk faxes." (see 47 U.S.C. § 227 et seq.). The Act makes it illegal "to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement." In other words, a person may not send unsolicited advertisements by facsimile to telephone subscribers. "Unsolicited advertisement" is defined as "any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person's prior express invitation or permission."
Of course, the mere enactment of the Act has not prevented all "blast faxes" from occurring. And with the continuing use of that prohibited practice comes lawsuits from consumers who receive such unsolicited fax communications. Thus, we have seen a number of suits brought under the TCPA, which naturally trigger tenders to the defendants' insurance carriers. The typical CGL policy contains coverage for both "property damage" (Coverage A) and "personal and advertising injury" (Coverage B), and insurers have argued for coverage under either or both coverages. As to the latter, the argument has been that the receipt of an unsolicited fax intrudes upon the privacy of the recipient, thus triggering the "invasion of privacy" offense under Coverage B. As to the former, insureds have argued that unsolicited faxes use ink and toner from the fax machine and generally cause "wear and tear" to the fax machine, thus constituting "property damage".
As a result of these claims and tenders for coverage, a number of decisions have arisen, and there is far from a majority rule. Some courts have found no CGL policy coverage for TCPA claims. See, Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631 (4th Cir. 2005), Am. States Ins. Co. v. Capital Assocs., 392 F.3d 939 (7th Cir. 2004), St. Paul Fire & Marine Ins. Co. v. Brunswick Corp., 405 F. Supp. 2d 890 (N.D. Ill. 2005). These courts have held that the TCPA claims did not implicate the Coverage B offense of "making known to any person covered material that violates a person's right to privacy" (or similar language) because the policy's reference to "privacy" refers to secrecy, while the TCPA addresses the privacy interest in seclusion (the right to be left alone).
Other courts have determined that TCPA claims are within the "advertising injury" coverage of a CGL policy because the term "privacy" may include both the interests in seclusion and secrecy. See, Park Univ. Enters., Inc. v. Am. Cas. Co., 2006 U.S. App. LEXIS 7458 (10th Cir. March 27, 2006); Hooters of Augusta, Inc. v. Am. Global Ins. Co., 157 Fed. Appx. 201 (11th Cir. 2005), Valley Forge Ins. Co. v. Swiderski, 359 Ill. App. 3d 372 (Ill. App. Ct. 2005), Western Rim Investment Advisors, Inc. v. Gulf Ins. Co., 269 F. Supp. 2d 836 (N.D. Tex. 2003).
Most courts have affirmed denials of coverage under Coverage A, holding that even if the unsolicited fax caused "property damage", that damage was caused intentionally in that the sender intended that that fax be transmitted and received (see, e.g., Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., (4th Cir. 2005) 407 F.3d 631).
Two recent decisions, however, have moved the ball towards a finding of no coverage for these TCPA suits. The U.S. Court of Appeals for the First Circuit recently held that there is no coverage under a CGL policy for TCPA violations. In Cynosure, Inc. v. St. Paul Fire & Marine Ins. Co., No. 10-1119 (1st Cir. May 12, 2011), plaintiff Cynosure sued St. Paul for declaratory relief arising out of a TCPA suit it tendered to St. Paul. The underlying action alleged that Cynosure sent commercial fax messages "without consent from the recipients" in violation of the TCPA. Cynosure's insurance policy provided coverage for "making known to any person or organization covered material that violates a person's right of privacy." St. Paul denied coverage, asserting that the policy only applied "where an insured makes known to others covered material that violates some other person's right of privacy," but not where the recipient of the fax suffered the privacy injury.
Thus, the issue before the court was whether "policies insuring against liability for violating privacy by advertising activity mean privacy understood as repose undisturbed by commercial intrusion (and thus liability for violating the [TCPA]), or privacy as freedom from disclosure to a third-party recipient of information" that the third-party does not want disclosed.
The trial court found that the provision was ambiguous because it could be interpreted either way, and thus resolved the ambiguity in favor of coverage. The First Circuit reversed, holding that the relevant policy provisions referred unambiguously to "disclosure" of private third-party information, and not to "intrusion" as to the recipient of the communication, and therefore the policy did not cover liability for violating the TCPA. In other words, if an insured violates the TCPA by publicizing private facts about a person, that disclosure could trigger a duty to defend under the "invasion of privacy rights" sought to be protected by Coverage B. But the mere receipt of an unsolicited fax is not the privacy right sought to be protected by Coverage B.
Following on the heels of Cynosure is a decision out of a federal district court for the Northern District of Illinois, Maxum Indemnity Co. v. Eclipse Manufacturing Co., No. 06 C 4946 (June 13, 2011) (Dkt. # 367). The court there held that business entities have no right of privacy. The invasion of privacy offense found in Coverage B applies to the privacy rights of a "person." The Maxum court held that any TCPA claims asserted by business entities against a defendant will not trigger the "personal and advertising injury" coverage of the defendant's CGL policy because a business entity is not a "person." The court further held that when a business entity receives an unsolicited fax, indeed its property interests in the paper, ink and fax machine are affected. The court, however, refused to find coverage under Coverage A for this asserted "property damage" because the sender of the fax anticipates that the recipient's paper and toner will be used. Thus any property damage to the plaintiff is expected.
While these decisions may not represent the "last word" on coverage for TCPA claims under a CGL policy, they certainly symbolize a strong step in a direction of no coverage. It should also be noted that many policies after 2004 have included endorsements specifically excluding coverage for TCPA claims, so it may be that these cases such as these will slowly trickle to a halt.
Bryan M. Weiss
Murchison & Cumming
Los Angeles, CA