Once TCPA liability claims began to be asserted, defendants started to look towards their insurance coverage. In this context, the United States Court of Appeals for the Eighth Circuit recently addressed a policy covering “private nuisance [and] invasion of rights of privacy or possession of personal property.” See Universal Underwriters Ins. Co. v. Lou Fusz Automotive Network, Inc., http://www.ca8.uscourts.gov/opndir/05/03/041497P.pdf (8th Cir. March 21, 2005). The court recognized that Congress made clear its intent to establish liability for unsolicited faxes inasmuch as they were “intrusive invasion[s] of privacy” and were “intrusive, nuisance calls” that affected “the privacy of individuals” and constitute “a nuisance [and] an invasion of privacy.” Slip op at 8-9 (quoting notes to 47 U.S.C. § 227). The Eighth Circuit further found that the statutory damages were covered amounts under the policy, rejecting the argument that they were uncovered civil penalties. Consequently, the court found the insurer had a duty to defend.

In reaching its conclusion, the Eighth Circuit distinguished the decision of the United States Court of Appeals for the Seventh Circuit in American States Ins. Co. v. Capital Associates of Jackson County, Inc., http://www.ca7.uscourts.gov/tmp/IH0KQK7M.pdf (7th Cir. Dec. 23, 2004), which held broadly that there was no coverage under the “advertising injury” coverage at issue. The policy there covered “[o]ral or written publication of material that violates a person’s right of privacy.” The court found that the covered “right of privacy” extends only to invasions affecting the interest in secrecy rather than in “seclusion.” Focusing on common-law torts dealing with ‘false light' and publication of private facts, the Seventh Circuit found the policy to dovetail (only) with common-law liability. Assuming that the policy covered only interests in seclusion, the court then examined whether a corporation can suffer such injury from a fax's coming in over its phone lines. Id. at 6. The court further found that coverage hinged not on publication to someone but effectively only publication about someone. Thus, while Congress prohibited junk faxes as a means of publication, the court found that the insurance contract did not apply because of the advertising injury coverage applies or not based on content. Id. at 7.

The Capital Associates court further addressed whether coverage exists for “property damage” liability and ruled that coverage did not apply because it found, as a matter of law, any resulting property damage was “expected or intended” from the standpoint of the insured. Id. at 8. The court reasoned that the property damage would be the depletion of the printer’s ink and paper and that senders of uninvited faxes necessarily anticipate that damage. As a result, the Seventh Circuit found there was no possibility of coverage under the general-liability property-damage coverage. Accord Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 323 F. Supp. 2d. 709 (E.D. Va. 2004), aff’d (4th Cir. May 11, 2005) (http://caselaw.lp.findlaw.com/data2/circs/4th/041946p.pdf) .

Finding the issues not to be “close,” id. at 8, the Seventh Circuit further expressed offense that the insured sought punitive damages against the insurer who was defending under a reservation of rights and chided the district court for failing to summarily reject the bad-faith claim. Id. at 2. The court said that the insurer “has not acted vexatiously; this suit represents an effort to clear up an interpretative disagreement. Presenting a dispute to a court for resolution is hardly a reason to award punitive damages!” Id.

There seems to be little doubt that the Seventh Circuit thought it was blocking coverage for TCPA on a wholesale basis. And another federal appellate court got that message in following Capital Associates and distinguishing – or in reality not following – Lou Fusz. The Fourth Circuit ruled in Resource Bankshares Inc. v. St. Paul Mercury Ins. Co., http://caselaw.lp.findlaw.com/data2/circs/4th/041946p.pdf (4th Cir. May 11, 2005) that coverage was not shown under either the property-damage or advertising-injury components. The Fourth Circuit stated that the policyholder had the burden of showing that the loss arose from an accident and held that the policyholder’s speculation that the faxes had been sent to people who approved of receiving them was insufficient to meet its burden on summary judgment. Id. at 12. The Resource Bankshares court furthermore embraced the reasoning of the Seventh Circuit regarding the “privacy” coverage, thus rejecting the policyholder’s claim. As the court explained: “Unfortunately for Resource, it did not buy insurance policies for seclusion damages; instead, it insured against, among other things, damages arising from violations of content-based privacy. This reasonable, non-technical distinction precludes coverage for an advertising injury offense." Id. at 19.

Yet, as the Eighth Circuit properly recognized in distinguishing Capital Associates and as the Fourth Circuit did in distinguishing Lou Fusz, questions of coverage turn on the language of the policy at issue. Many courts that have addressed TCPA liability have recognized at least a possibility of coverage triggering the duty to defend. Park Univ. Enterprises, Inc. v. Am Cas. Co. of Reading PA, 314 F. Supp. 2d. 1094 (D. Kan. 2004); Registry Dallas Assoc. v. Wausau Bus. Ins. Ins., 2004 WL 614836 (N.D. Tex. Feb 26, 2004); TIG Ins. Co. v. Dallas Basketball, Ltd., 129 S.W.3d 232 (Tex. App. 2004); Hooters of Augusta, Inc. v. Am. Global Ins. Co., 272 F. Supp. 2d. 1365 (S.D. Ga. 2003); Western Rim Investment Advisors, Inc. v. Gulf Ins. Co., 269 F. Supp. 2d. 836 (N.D. Tex. 2003), aff ’d, 96 Fed. Appx. 960 (5th Cir. 2004); Merchant’s & Businessmen’s Mut. Ins. Co. v. A.P.O. Health Co., Inc., 228 N.Y.L.J. 22 (N.Y. Sup.Ct. Aug. 29, 2002); Prime TV, LLC v. Travelers Ins. Co. Co., 223 F. Supp. 2d. 744 (M.D. N.C. 2002). While the combined weight of the Seventh and Fourth Circuit decisions lend considerable aid to insurance companies that would seek to deny coverage, the Eighth Circuit’s decision underscores that a detailed analysis of the policy provisions is required in order to assure that coverage properly should be denied (even assuming arguendo the correctness of Capital Associates and Resource Bankshares).

Rather than requiring the parsing of particular of policy language, however, the insurance industry’s drafting organization has responded by introducing a new exclusion governing “Methods of Sending Material or Information.” This exclusion reads:

2. Exclusions
This insurance does not apply to:
DISTRIBUTION OF MATERIAL IN VIOLATION
OF STATUTES
“Personal and advertising injury” arising directly
or indirectly out of any action or omission
that violates or is alleged to violate:
a. The Telephone Consumer Protection
Act (TCPA), including any amendment
of or addition to such law; or
b. The CAN-SPAM Act of 2003 including
any amendment of or addition to such
law; or
c. Any statute, ordinance or regulation,
other than the TCPA or CAN-SPAM
Act of 2003, that prohibits or limits the
sending, transmitting, communicating or
distribution of material or information.