By Erica J. Dominitz and Justin M. Guilder
The Florida Supreme Court’s recent decision in Penzer v. Transp. Ins. Co., No. SC08-2068, 2010 WL 308043 (Fla. Jan. 28, 2010) (Penzer), adds to the growing trend of cases holding that commercial general liability (CGL) insurance policies provide coverage for claims alleging violations of the Telephone Consumer Protection Act (TCPA), sometimes known as “blast fax” cases. The Penzer court held that such cases fall within the scope of a CGL policy’s “advertising injury” coverage clause, which was defined to include, among other things, an “injury arising out of” the “[o]ral or written publication of material that violates a person’s right of privacy.” Id. at *2.
In Penzer, the underlying plaintiff filed a class-action lawsuit against Nextel South Communication, alleging that Nextel (or one of its agents) sent him unsolicited blast-fax advertisements in violation of the TCPA. Nextel filed a third-party complaint against Southeast Wireless, which requested that its commercial liability insurer, Transportation Insurance Company (Transportation), defend it in the class action. Transportation refused to defend Southeast Wireless, disclaiming coverage on a variety of grounds. After Southeast Wireless and Penzer settled the underlying action, Southeast assigned Penzer its right to seek insurance coverage from Transportation.
Transportation asserted that it had no duty to defend or to indemnify Southeast Wireless in connection with the underlying TCPA class-action claims. More specifically, Transportation argued that the policy covered only “injuries to privacy rights caused by the content of the material,” as opposed to the act of sending the material, and that coverage exists only when “private matters about one person are communicated to another person.” Penzer, 2010 WL 308043, at *2. In other words, Transportation argued that the “right of privacy” at issue must involve the right to secrecy rather than the right to solitude. The trial court agreed with Transportation, and Penzer appealed. The U.S. Court of Appeals for the Eleventh Circuit found that the disposition of the case turned on an unsettled question of Florida law, which involved a legal question regarding the interpretation of “widely used” policy language. Id. The Eleventh Circuit thus certified the question to the Florida Supreme Court.
Applying a plain meaning analysis, the Florida Supreme Court held that the policy’s advertising injury provision—which included injuries arising out of “[o]ral or written publication of material that violates a person’s right of privacy”—covered the underlying alleged TCPA violations even though they involved the privacy right of seclusion rather than the privacy right of secrecy. The court focused its analysis on the following three policy terms: (1) “publication,” (2) “material,” and (3) “right of privacy,” all of which were undefined in the policy. The court thus consulted dictionary definitions to discern the meaning of the first two terms and federal privacy law to interpret the third term.
The court explained that “publication” means the communication or dissemination of news or information to the public and that sending fax advertisements to Penzer and others falls within the “broad definition” of that term. Penzer, 2010 WL 308043, at *3. It further explained that “material” means, among other things, “of, relating to, or consisting of matter” and that a faxed advertisement “consists of matter.” Id. Finally, the court explained that the “right of privacy” springs from state or federal law, namely the TCPA, “which provides the privacy right to seclusion.” Id. at *4. Applying these definitions to the policy language, the court held that the policy provided coverage as there was “a written publication [dissemination] of material [of 24,000 facsimiles] that violated a person’s right of privacy [that violated the TCPA].” Id. The court thus rejected Transportation’s argument that the insurance policy covers only advertising injuries involving an alleged violation of the privacy right of secrecy and instead held that the policy covered advertising injuries based on alleged violations of the privacy right to seclusion. On May 11, 2010, the Eleventh Circuit applied the Florida Supreme Court’s analysis from Penzer and reversed the district court’s summary judgment for Transportation, remanding the action to the district court to grant partial judgment for Penzer as to the coverage issues and to consider other motions it previously had denied as moot. Penzer v. Transp. Ins. Co., No. 07-13827 (11th Cir. May 11, 2010), slip op at 4.
While the majority opinion in Penzer was based on a finding that the policy unambiguously provided coverage, two concurring justices found the policy language ambiguous. They explained that the term “right of privacy” encompasses both privacy violations based on the content of the material; i.e., the right to secrecy, and privacy violations based on the act of sending the material; i.e., the right to seclusion. They thus would have construed the ambiguity in favor of coverage. 2010 WL 308043, at ** 6-7.
As one concurring justice further explained, if Transportation had intended for the policy to cover only violations of privacy rights involving the right to secrecy, it could have and should have drafted language that clearly and unambiguously reflected that intent.
"The bottom line is that if the insurer, as the drafter of the language, intended to limit coverage to material whose content violated the right of privacy, then it could have easily done so by simply adding a phrase as follows: Oral or written publication of material, the content of which violates the right of privacy. Transportation Insurance Company did not do so and thus left the policy open to a reasonable interpretation in favor of coverage."
Id. at *7.
Indeed, the concurring justices’ point is reinforced by the Insurance Services Office’s introduction, in 2005, of an exclusion purporting to bar coverage for TCPA claims as well as claims under other federal regulations addressing unsolicited e-mails, such as the CAN-SPAM Act. The exclusion states that there is no coverage for “any claim for or award of fines, penalties or damages resulting from violation of any federal, state or local statute, law or ordinance restricting or prohibiting unsolicited communications made via telecommunications equipment. . . .” ISO Form CG00 67 03 05. A company in a dispute over coverage for alleged TCPA or comparable violations can thus argue that its insurance carrier’s failure to include this exclusion into its CGL policy reflects an intent to provide coverage for claims alleging such violations.
As noted above, Penzer is part of a growing trend of finding coverage for alleged TCPA violations. In Hooters of Augusta, Inc. v. Am. Global Insur. Co., 157 Fed. Appx. 201 (11th Cir. 2005) (applying Georgia law), the court also held that the insurance company owed coverage under an advertising injury clause. As in Penzer, the policy did not define “privacy,” and the court concluded that term was ambiguous, covering both violations of a person’s right to seclusion and violations of a person’s right to secrecy. Accordingly, the court construed the term in favor of the policyholder. See also Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 860 N.E.2d 307 (Ill. 2006) (holding that under Illinois law, policy’s advertising injury provision covered violations of TCPA); Motorists Mutual Insur. Co. v. Dany-Jim, Inc., 912 N.E.2d 659 (Ohio App. 2009) (same under Ohio law); Western Rim Inv. Advisors, Inc. v. Gulf Ins. Co., 269 F. Supp. 2d 836 (N.D. Tex. 2003) (same under Texas law) aff'd, 96 Fed. Appx. 960 (5th Cir. 2004).
Moreover, some courts have held that alleged TCPA violations are covered under a CGL policy’s coverage for liability arising from “property damage,” defined as including the “loss of use of tangible property that is not physically injured.” For example, in Park University Enterprises, Inc. v. American Cas. Co. Of Reading, PA, 442 F.3d 1239, 1244-45 (10th Cir. 2006) (applying Kansas law), the court explained that negligently sending unsolicited faxes resulted in the loss of use of tangible property, as the underlying plaintiff who received the allegedly unauthorized fax lost the use of its fax machine, ink and paper. The court thus held that the carrier’s duty to defend against the underlying TCPA violations was based not only on the policy’s advertising injury provisions but also pursuant to its property damage provision. Id. at 1247, 1251. The court in Prime TV, LLC v. Travelers Insurance Co., 223 F. Supp. 2d 744 (M.D.N.C. 2002), likewise found that CGL policies’ “property damage” and “advertising injury” coverage provisions required it to defend the policyholder against underlying TCPA claims. The court reasoned, in part, that the transmission of allegedly unauthorized faxes caused the recipients to “los[e] the use of their fax machines as well as permanent loss of facsimile paper and ink” and thus constituted “property damage” within the meaning of a CGL policy. Id. at 750.
Of course, not all courts have found that insurance coverage exists for claims based on alleged TCPA violations. But in most of those cases, the insurance policy insured against “making known” material that violates a person’s right to privacy rather than insuring against “publication” of material that violates a person’s right to privacy. In Resource Bankshares Corp. v. St. Paul Mercury Ins., 407 F.3d 631 (4th Cir. 2005) (applying Virginia law), for example, the court held that a CGL policy’s “advertising injury” provision did not cover an alleged violation of the TCPA. The CGL policy at issue defined “advertising injury” as, inter alia, “making known to any person or organization written or spoken material that violates a person’s right of privacy.” Id. at 639 (emphasis added). First, the court explained that the two “principal meanings” of the word “privacy” are “secrecy and seclusion.” Id. at 640. It then explained that to the extent the underlying complaint “alleged any violation of privacy, it is ‘seclusion’ privacy,” which is “concerned with the manner of the advertisement.” Id. By contrast, it found, the policies at issue were concerned with “those types of privacy which, like secrecy, are implicated by the content of the advertisements.” Id. at 641. In so concluding, the court emphasized the significance of the term “making known” and reasoned that it “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.” The term “making known” thus was central to the court’s holding. But see State Farm Gen. Insur. Co. v. JT’s Frames, Inc., 181 Cal. App. 4th 429, 104 Cal. Rpt. 3d 573, 587 (Cal. App. 2 Dist. 2010) (finding no meaningful difference between the word “publication” and the phrase “making known”).
Significantly, the “advertising injury” clause at issue in Resource Bankshares is different than that at issue in Hooters, which included the word “publication” rather than the term “making known.” One can reasonably and credibly argue that the term “publication” concerns the act of disseminating or transmitting information, whereas the term “making known” concerns the act of a third party receiving information. Hence, even if Virginia law were to apply to a CGL policy with an advertising injury clause identical to that in Penzer et al., one can argue that Resource Bankshares is distinguishable and therefore not controlling. Indeed, other courts, including the Hooters court, have distinguished Resource Bankshares in part on the ground that that case involved “a more tightly worded advertising injury provision.” Hooters, 175 Fed. Appx. at 208.
Companies defending against TCPA or similar claims should carefully consider not only the coverage rulings on this issue in the relevant jurisdictions, but also should closely examine their specific policy language when evaluating their potential right to coverage. As discussed above, many jurisdictions have held that CGL policies cover alleged TCPA violations under CGL policies’ property damage and/or advertising injury provisions. Additionally, some of the cases from other jurisdictions that go the other way are based on different, and narrower, policy language and therefore may be distinguishable. Hence, simply reviewing a case holding that no coverage exists may lead one to incorrectly conclude that there is no possibility of coverage, even when the facts and the policy language at issue are different and provide a stronger case for coverage.
Erica Dominitz is a partner in the Washington, DC office of Kilpatrick Stockton. She focuses on insurance coverage issues. Justin Guilder is an associate in the Washington, DC office of Kilpatrick Stockton. He concentrates on complex class-action litigation and business litigation. The authors and other attorneys at Kilpatrick Stockton LLP form a leading policyholder practice that handles complex insurance-coverage cases throughout the United States and internationally. This invitation is not to be construed as a solicitation for legal work, and any new attorney-client relationship must be confirmed in writing. The information contained herein is not legal advice or an opinion on specific facts.