So, imagine that you hear the fax machine at your home or office ring and begin whirling into action. You run to the machine, hoping to hear good news–you won the lottery; a new client is sending you new business; or your name was drawn for that trip to Hawaii you entered at the shopping mall. Much to your chagrin, you learn that instead, the fax was an advertisement for term life insurance, a “get rich quick” seminar or, ironically, a deal on printer cartridges (to replace the ink just used by the fax).
For most people, these types of “blast faxes” would be a mere nuisance, just a small bump in the road in their otherwise busy days. Others, however, have not accepted these fax advertisements with such ease but rather with anger and insult. So much so that they have filed civil lawsuits against the advertisers, claiming everything from “property damage” to “invasion of privacy.” The basis for those suits? The Telephone Consumer Protection Act (“TCPA”), enacted by the United States Congress, makes it illegal to send unsolicited fax advertisements such as those described above.
Of course, when the advertiser is hit with one of these lawsuits, it often turns to its insurance carrier to defend and indemnify them, asserting that its CGL policy covers the claims of “property damage” and/or “invasion of privacy” that are commonly made in these lawsuits. This article will address how courts around the country are resolving coverage issues arising out of such claims, and as we will see, there is no consensus. Claims practitioners are, therefore, urged to be aware of the prevailing law in their jurisdiction and of the nuances in the court decisions discussed below prior to reaching a decision on whether or not to afford coverage.
Background of the TCPA
Before getting into the substantive coverage issues surrounding TCPA claims, it is first necessary to understand the TCPA itself. Only then can one fully understand the divergence of decisions that have arisen concerning coverage for these claims.
For as long as there has been commerce, those wishing to sell their products and services have endeavored to find ways to bring their business to the attention of as many potential consumers as possible. We are all familiar with the deluge of advertising that accompanies a commercial society–there is advertising everywhere we look, from bus benches to sports stadiums (and the blimps flying over those stadiums); from the top of taxi cabs to “pop up” ads on our computers. For the most part, we as consumers accept those ads as part of being in a capitalistic society and they really do not interfere with our everyday activities. However, at some point, the advertising activities go beyond the bounds of acceptability and begin to become an intrusion. Prior to fax machines, one example would be the vacuum cleaner salesman who knocked on your door just as you were sitting down to a family dinner, throwing a handful of dirt into your living room, and trying to sell you a vacuum cleaner. You most certainly did not welcome that invasion of your private time.
With fax machines came the ability to replace the “knock on the door” with a ring of the fax machine. The door-to-door salesmen have been replaced with people feeding a paper advertisement into a fax machine and reaching thousands of potential customers with the simple push of a button. Now, instead of going to answer the door when a salesman knocks, the consumer goes to the fax machine to receive a solicitation for business.
In 1991, the United States Congress decided take action against these unwelcome advertising intrusions and enacted TCPA, found at 47 U.S.C. § 227. TCPA (among other things) generally prohibits the sending of uninvited facsimile advertisements (sometimes called “junk faxes” or “blast faxes”), subject to certain statutory exceptions. The purpose of this piece of legislation was discussed in Senate Report No. 102-178: “The purposes of the bill are to protect the privacy interests of residential telephone subscribers by placing restrictions on unsolicited, automated telephone calls to the home and to facilitate interstate commerce by restricting certain uses of facsimile (fax) machines and automatic dialers.” In other words, Congress’s intent in enacting TCPA was the protection of your privacy rights, thus impliedly deeming the transmission of unsolicited faxes to be an invasion of privacy.
The TCPA allows for a private right of action, permitting an aggrieved person to file an action to recover for “actual monetary loss from such a violation, or to receive $500 in damages for each such violation, whichever is greater…”
Summary of Right of Privacy Laws
Now we know that Congress was trying to protect our privacy interests in passing the TCPA, but when the term “invasion of privacy” is used, what exactly does that entail? An understanding of that question is important, given that the “standard” ISO CGL liability form contains a grant of coverage pertaining to suits involving invasions of privacy.
There are essentially two types of privacy rights: (1) the right to be let alone (i.e., the right to live in seclusion); and (2) the right to have private matters remain private. “Privacy” is a word with many connotations. The two principal meanings are secrecy and seclusion, each of which has multiple shadings (see Restatement (Second) of Torts § 652 (1977); Richard S. Murphy, Property Rights as Personal Information, 84 Geo. L.J. 2381 (1996)). A person who wants to conceal a criminal conviction, bankruptcy, or love affair from friends or business relations asserts a claim to privacy in the sense of secrecy. A person who wants to stop solicitors from ringing his doorbell and peddling vacuum cleaners at 9 p.m. asserts a claim to privacy in the sense of seclusion.
The legislative history of the TCPA suggests that Congress was concerned with the first of these privacy rights, i.e., the right to be let alone (seclusion), the right not to have your privacy disturbed by an unsolicited fax. An unsolicited fax advertisement to your personal fax machine for term life insurance does not publicize your private life to the world at large but, rather, intrudes upon your right of privacy–your right not to have your day interrupted by an unwanted solicitation for business. It is against this backdrop that we can examine the privacy coverage afforded under the CGL policy.
Summary of CGL Coverage
While insurance policies come in many shapes and sizes, for ease of analysis, we will look at the current liability coverage form issued by the ISO: the CG0001 form. That form contains both Coverage A and Coverage B. Coverage A provides for damages that an insured is liable to pay because of “bodily injury” or “property damage” during the policy period caused by an “occurrence.” “Property damage” can be either physical injury to tangible property or loss of use of property that has not been physically injured. An “occurrence” requires accidental conduct. There is no coverage for intentionally-caused damage or injuries.
Coverage B, on the other hand, provides coverage for damages arising out of “personal and advertising injury.” That coverage is defined by seven different “enumerated offenses”–if the conduct falls within one of those seven categories, it is potentially coverage. One such enumerated offense is “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” It excludes coverage for personal and advertising injury arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured.
Having just determined that the TCPA was designed to protect a person’s “right of privacy”, it would seem somewhat easy to conclude that a suit against an insured under the TCPA, alleging that the junk faxes it sent constituted a violation of the plaintiff’s “right of privacy,” is potentially covered under the CGL policy. However, there is a split of authority between the courts that have addressed this issue, a split that is not easily reconciled.
Cases Finding in Favor of Coverage
The facts of the cases which will be discussed in the remainder of this article are substantially similar–the insured (usually through a third party advertising company) sends out unsolicited “blast faxes” to potential customers advertising its good, products or services, gets sued by the recipient(s) of those faxes and tenders the suit to its CGL carrier for defense and indemnity. The courts in these immediate cases held that the CGL policy provided coverage for suits brought under the TCPA.
In Hooters of Augusta, Inc. v. American Global Ins. Co., 272 F. Supp. 2d 1365 (S.D. Ga. 2003), the court held that the term “right of privacy” in Coverage B means freedom from unauthorized intrusion or the right to be let alone. The policy does not define what “right of privacy” means and thus it must be interpreted broadly. Congress meant to protect the right to be let alone, and damages arising out of the violation of that right were intended to be covered under the CGL policy. The court also rejected the insurers’ arguments that the transmission of the blast faxes fell within the exclusion for violation of a “penal statute,” holding that the TCPA is remedial in nature, not penal, since it provides for the recovery of monetary damages by a private citizen.
A similar result was reached in Universal Underwriters Ins. Co. v. Lou Fusz Automotive Network, Inc., 300 F. Supp. 2d 888 (E.D. Mo. 2004). There, the court focused on the fact that the insured had hired an independent third party company to send out the faxes and did not provide them with any instructions, mailing lists, etc. The insured argued that it had contracted with a company engaged in the distribution of facsimile advertisements and other services to distribute an advertisement, but that it did not know the identity of the recipients of the advertisement, even though it knew that the advertisement would be faxed. The insured also argued that it did not know that the advertisement would be sent to individuals or businesses that had not expressly invited receipt of such advertisements. The court held that this precluded application of the intentional acts exclusions of the policy, at least from the duty to defend standpoint, because the insured did not intend to send unsolicited faxes and rightfully assumed that its third party independent contractor would follow the law.
The court in Prime TV, L.L.C. v. Travelers Ins. Co., 223 F. Supp. 2d 744 (M.D.N.C. 2002) went one step further and held that not only was there coverage under Coverage B of the policy, but that the unsolicited faxes constituted “property damage” caused by an “occurrence” under Coverage A. The court held that the use of “blast faxes” shifts some of the costs of advertising from the sender to the recipient. Second, it occupies the recipient’s facsimile machine so that it is unavailable for legitimate business messages while processing and printing the junk fax. The recipient assumes both the cost associated with the use of the facsimile machine, and the cost of the expensive paper used to print out facsimile messages. Thus, as a result of the facsimiles, the recipients lost the use of their fax machines as well as permanent loss of facsimile paper and ink, i.e., they sustained “property damage.” The court further held that this “property damage” was the result of an “occurrence” due to the insured’s use of fax company to send the faxes. Although the fax companies intentionally sent the facsimiles to the recipients, as ordered by the insured, the insured believed that the recipients requested the information regarding its services. Therefore, although the insured intentionally requested the advertisements to be faxed, the request was not an intentional act made with the intent to cause property damage.
In Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307 (Ill.2006), the Supreme Court of Illinois held that the CGL policy potentially applies to TCPA claims. There, the insurers argued that the CGL policy is applicable only where the content of the published material reveals private information about a person that violates the person’s right of privacy. According to the insurers, the basis of the TCPA liability alleged in the complaint was the mere sending of an unsolicited fax containing no private information. This type of claim, they argued, does not give rise to the “content-based privacy” coverage provided by the policies. As further support for their position, the insurers emphasized that the TCPA’s fax-ad prohibitions make no reference to “publication” or “right of privacy,” suggesting that the policies, which refer both to “publication” and “right of privacy,” were not intended to cover TCPA claims. The court rejected that argument, noting that the word “publication” and the phrase “right of privacy” are not defined in the CGL policy. It, therefore, gave those terms a broad interpretation in favor of coverage. The court held that “publication” could include a one-on-one advertising solicitation and that the “right of privacy” referred to in the CGL policy includes both secrecy and seclusion rights.
Substantially similar conclusions were reached by the courts in Park University Enterprises, Inc. v. American Cas. Co. of Reading, PA., 314 F. Supp. 2d 1094 (D. Kan. 2004); TIG Ins. Co. v. Dallas Basketball, Ltd., 129 S.W.3d 232 (Tex.Ct.App.2004) and Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (2006).
In general, the courts in these cases have concluded that the “invasion of privacy” coverage contained in the CGL policy is consistent with the privacy rights sought to be protected by the TCPA–the right to be let alone. Since the CGL policy does not articulate what type of privacy rights were to be protected, it is reasonable to conclude that the seclusion branch of privacy rights is implicated by TCPA violations. Secondly, because the unsolicited faxes use the recipient’s fax machines, the faxes cause “property damage” both in terms of physical damage and loss of use (i.e., the recipient cannot use the fax machine for legitimate purposes). Lastly, in those cases in which the insured simply hired a third party company to send the faxes, there is no intentional conduct on the part of the insured.
Cases Finding Against Coverage
In American States Ins. Co. v. Capital Associates of Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004), the court focused on the use of the word “publication” in finding that the CGL policy does not cover suits under the TCPA. Remember, the offense reads “oral or written publication of material…that violates a person’s right of privacy.” The American States court held that “[t]he structure of the policy strongly implies that coverage is limited to secrecy interests. It covers a ‘publication’ that violates a right of privacy.” Thus, it is the content of the material that matters, not the fact of the transmission–the TCPA condemns a particular means of communicating an advertisement, rather than the contents of that advertisement, while the CGL policy deals with informational content. In short, the TCPA was passed to address violations of the “seclusion” prong of the right to privacy, while the CGL policy, through the “publication” requirement, was intended to cover the “secrecy” prong.
The American States court also rejected the notion of potential coverage under the CGL policy’s “property damage” definition. The court noted that junk faxes use up the recipients’ ink and paper, but that senders anticipate that consequence. Senders may be uncertain whether particular faxes violate the TCPA, but all senders know exactly how faxes deplete recipients’ consumables. That activates the policy’s intentional-tort exception–it forecloses coverage when the recipient’s loss is “expected or intended from the standpoint of the insured.” Because every junk fax invades the recipient’s property interest in consumables, the court held that this normal outcome is not covered.
The American States decision is an important one because it was the first Federal appellate court opinion in this area.
Other courts have followed American States. For example, in ACS Systems, Inc. v. St. Paul Fire and Marine Ins. Co., 147 Cal.App.4th 137 (2007), the court held that there was no coverage under Coverage B. However, the language in the policy there was slightly different than that found in the ISO CGL policy. The offense in the St. Paul policy covered “making known to any person or organization written or spoken material that violates an individual’s right of privacy.” The court held that the “making known” clause indicated that the intent was to cover only the privacy right of “secrecy,” and that the TCPA protects only the “seclusion” right of privacy.
The policy in Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F. 3d 631 (4th Cir. 2005) also contained the “making known” clause. The court held that the plainest and most common reading of the phrase indicates that “making known” implies telling, sharing or otherwise divulging, such that the injured party is the one whose private material is made known, not the one to whom the material is made known. In the court’s view, the TCPA’s unsolicited fax prohibition provides one small bit of sanctuary from certain solicitations, but does not even hint at protecting anyone from private facts being divulged through an advertisement (which the policies plainly do). Thus, the court held that the privacy prong of the advertising injury provision cannot be construed to cover a violation of the TCPA. The court also rejected the “property damage” argument, noting that the sending of unsolicited faxes is not accidental. “It is obvious to anyone familiar with a modern office that receipt is a ‘natural or probable consequence’ of sending a fax, and receipt alone occasions the very property damage the TCPA was written to address: depletion of the recipient’s time, toner, and paper, and occupation of the fax machine and phone line.”
In March of 2008, a federal district court in Ace Mortg. Funding, Inc. v. Travelers Indem. Co. of America, 2008 WL 686953, followed the rationale of these decisions in finding no coverage for a claim brought under the TCPA. Judge Tinder held that the TCPA claims were not covered because they were not based on the publication of the content of the messages and thus did not invade the secrecy type of privacy interest contemplated by the insurance policy. On the property damage issue, Judge Tinder concluded as a matter of law that the property damage to the fax recipient-tying up the recipient’s equipment and using ink and paper-was an expected or intended injury.
Can These Decisions be Reconciled?
Clearly, there is no uniform view from the courts as to whether or not a CGL policy covers claims under the TCPA. There are divergent views from state and federal courts at all levels. There is even disagreement between state and federal courts within the State of Illinois. As such, a claims practitioner presented with a TCPA claim needs to tread carefully before reaching a decision on coverage. For example, many of the coverage denial cases construe policy language that uses the words “making known to any person or organization” in place of “publication.” If the policy you are construing does not contain that same “making known” phrase but instead uses the familiar “publication” phrase, reliance on these denial cases is not recommended.
Ultimately, the battleground appears to be centered around the word “publication” in the “right of privacy” offense and whether, as some courts have held, that requires a dissemination of private facts, conduct not implicated by the TCPA. However, even then, there is no clear answer. Webster’s Third New International Dictionary defines “publication” as “communication (as of news or information) to the public,” and alternatively, as “the act or process of issuing copies * * * for general distribution to the public.” Likewise, Black’s Law Dictionary defines “publication” as “[g]enerally, the act of declaring or announcing to the public” and, alternatively, as “[t]he offering or distribution of copies of a work to the public.” Thus, the undefined word “publication” in the CGL policy could encompass both a general dissemination to the public and a one time announcement, such as a junk fax.
In the year to come, we anticipate seeing a great move towards reconciliation of these competing decisions. On October 23, 2008, a federal court in the 11th Circuit, Penzer v. Transportation Ins. Co., 545 F.3d 1303 (11th Cir. 2008), has certified this issue for resolution by the Florida Supreme Court. In so doing, it issued a variety of comments indicating its disagreement with the decisions finding against coverage. The following quote perhaps sums up the current state of affairs best: “It is fair to say that even the most sophisticated and informed insurance consumer would be confused as to the boundaries of advertising injury coverage in light of the deep difference of opinion symbolized in these cases.”
So, just as Florida played such a crucial role in deciding the 2000 presidential election, it appears that it will have that opportunity to do so again in the area of coverage for TCPA claims. Let’s just hope there are no “hanging chads” this time around!
