D&O Policies: A Possibility for TCPA Coverage?
Business is booming for plaintiffs’ attorneys wielding the Telephone Consumer Protection Act (TCPA). The TCPA restricts unsolicited telemarketing by fax, voice calls and text messages. Violations can trigger liability of at least $500 for each fax, text or call. The prospect of lucrative recoveries has proven to be attractive, with the volume of TCPA class actions steadily rising for almost a decade. Settlements often run in the millions or multi-millions of dollars. In fact, plaintiffs’ attorneys have broken records for TCPA settlements the past two years in a row (securing settlements of $32 million from Bank of America in 2013, and a staggering $75.5 million from Capital One and three debt collectors in 2014).
TCPA class action lawsuits pose a substantial risk to just about any business with a marketing budget. Many businesses have sought insurance coverage for TCPA claims under their commercial general liability (CGL) policies, but have met with only mixed success. While some courts have found coverage for TCPA claims under CGL policies, CGL insurers have increasingly added explicit TCPA exclusions to their policies, cutting off that source of coverage.
Some TCPA defendants have turned to their Directors and Officers (D&O) policies in an effort to find coverage. D&O policies cover officers, directors and often the corporation itself for “wrongful acts,” subject to various coverage exclusions.
Whether D&O policies can be a source of coverage for TCPA claims is largely untested in the courts. In the few cases that have been decided, the courts have denied coverage. But one of those cases, filed by the Los Angeles Lakers, has just been appealed to the U.S. Court of Appeals for the Ninth Circuit, which raises the possibility of new developments worth watching. Los Angeles Lakers, Inc. v. Fed. Ins. Co., No. CV 14-7743-DMG-SHX, 2015 WL 2088865 (C.D. Cal. 2015).
The Lakers faced a putative class action alleging that texts sent to fans at a game violated the TCPA. That class action was ultimately dismissed, because the court found that the fans had consented to the texts. But the Lakers sought coverage for the costs of defending the class action under a D&O policy issued by Federal Insurance Company. Federal denied coverage, based on a policy exclusion eliminating coverage for claims “based upon, arising from, or in consequence of… invasion of privacy.” Federal maintained that TCPA suits are based on “invasions of privacy” of the sort encompassed by the policy exclusion. The Lakers sued, and the U.S. District Court for the Central District of California dismissed their claim, finding that the invasion of privacy exclusion eliminated coverage. That decision is now being appealed.
The issue on appeal will be whether claims concerning communications sent in violation of the TCPA fall within the “invasion of privacy” exclusion. Federal circuit courts have addressed a closely related issue in the context of CGL policies, but not D&O policies. Most CGL policies provide some measure of coverage for invasion of privacy, in the form of coverage for advertising injury that “violates a person’s right to privacy.” But the federal courts have reached different conclusions as to whether that coverage extends to TCPA violations.
The Seventh Circuit, for example, held that a TCPA claim was not covered by a CGL policy’s “right to privacy” provision. The court distinguished between secrecy-based privacy interests (not having confidential information divulged) and seclusion-based privacy interests (not being bothered). It concluded that TCPA violations impinge on seclusion interests—“an unexpected fax, like a jangling telephone or a knock on the door, can disrupt… peace and quiet”—but not secrecy interests, since unsolicited texts, faxes, and calls do not divulge secrets about the person receiving the message. It then found that the “right to privacy” provision in the CGL policy covered only claims based on secrecy-based privacy interests, not seclusion-based ones, and therefore held there was no coverage. See American States Insurance Co. v. Capital Associates of Jackson County, Inc., 392 F.3d 939, 941 (7th Cir. 2004).
The Fourth Circuit has followed the Seventh Circuit’s lead. See Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631 (4th Cir. 2005). The Fifth, Eighth, Tenth, and Eleventh Circuits have gone the other way, holding that CGL coverage does extend to seclusion-based privacy interests, and therefore that TCPA claims are covered. The Ninth Circuit has not yet weighed in on this issue. The Lakers’ case gives it an opportunity to do so, albeit in a very different context.
In the cases involving CGL policies, a finding that a TCPA violation is an invasion of privacy within the meaning of the policy terms means there is coverage. But in the Lakers’ case, involving a D&O policy, a finding that the alleged TCPA violation was an invasion of privacy would mean there is no coverage, because of the invasion of privacy exclusion. The district court in the Lakers case reviewed the cases addressing CGL policies, and found itself “persuaded by the Eighth Circuit’s reasoning” that the privacy provision in CGL policies extends to seclusion-based privacy interests. It then extended that reasoning to the “invasion of privacy” exclusion in the Lakers’ D&O policy, and held that the exclusion eliminates coverage for TCPA claims.
If the Ninth Circuit reverses, it could issue a decision finding coverage for TCPA claims under D&O policies despite the “invasion of privacy” exclusion. That could open up a new source of insurance coverage for TCPA claims and lead to an increasing number of TCPA defendants seeking coverage under their D&O policies.