The Telephone Consumer Protection Act (TCPA) has proven to be a fruitful source of consumer class action litigation. Plaintiffs’ lawyers are attracted by the potentially lucrative recoveries under the statue, and indeed several recent settlements in TCPA class action lawsuits have run into the millions of dollars. The volume of litigation under the statute and the potential damages associated with the claims has inevitably led to insurance coverage questions. In the past, defendants in TCPA lawsuits looked to their Commercial General Liability (CGL) policies for their defense of these kinds of claims. However, CGL carriers increasingly are expressly excluding coverage for TCPA lawsuits, which has led other companies seeking insurance for TCPA claims to look to other coverages for possible insurance protection, including their D&O insurance policies. As discussed below, carriers may contend that standard D&O insurance policy exclusions preclude coverage for these kinds of claims, but courts continue to sort out the issues.
Congress passed the TCPA in 1991 in order to provide consumers protection against unsolicited telemarketing using various electronic technologies such as fax machines, automatic dialing machines and text messaging. The TCPA includes a private right of action under which a plaintiff may recover the greater of actual monetary loss or $500 per violation. A could may treble the amount of damages in the event of a “willful or knowing” violation.
As discussed in an interesting March 3, 2015 memo from the K&L Gates law firm (here), TCPA lawsuit defendants in the past sought coverage for the claims under their CGL policies. The policyholders argued that the TCPA claims fell within in the CGL’s advertising injury coverage part. Under this coverage provision, the term “advertising injury” is typically defined to include “oral or written publication, in any manner, of material that violates a person’s right of privacy.” The question of coverage under the CGL policies turned on whether a TCPA claim alleges a violation of the “right to privacy.” In considering this question, the courts had analyzed whether the right to privacy includes only the right to secrecy, or whether it also included a right to seclusion. Some courts concluded that a claim for violation of the right to privacy includes claims for violations of the right to seclusion, and therefore that the CGL policy provides coverage for a TCPA claim; other courts have disagreed. However, it is important to note that many newly issued CGL policies now contain a specific exclusion for TCPA claims.
As TCPA-related claims exclusions have become more common in CGL policies, TCPA claim defendants have sought coverage under other kinds of policies, including under their D&O insurance policies. In attempting to establish coverage under their D&O insurance policies, the policyholders have run into impediments. In particular, carriers have attempted in argue that the TCPA claims are precluded from coverage under the personal injury claim exclusion typically found in most private company D&O insurance policies, and in particular in the “invasion of privacy” provision of the personal injury claim exclusion. These exclusions typically states, among other things, that the policy will provide no coverage for loss in any claim “based upon, arising out from, or in consequence of … invasion of privacy.”
As discussed in September 9, 2015 post on the Foley & Lardner law firm’s CFSL Bulletin Blog entitled “D&O Policies: A Possibility for TCPA Coverage?” (here), court have relied on this exclusionary language to preclude coverage under D&O insurance policies for TCPA claims. The blog post discusses a recent TCPA class action lawsuit involving the Los Angeles Lakers, in which a Lakers fan had claimed that the team had violated the TCPA when, after the fan had texted a message to the team during a fan promotion, the team them texted him (and other fans) a promotional message. The fan’s lawsuit ultimately was dismissed on the grounds that in sending his initial message to the team, the fan had consented to the text. The team sought coverage for its defense expenses incurred in defending the claim. The insurer denied coverage for the claim in reliance on the “invasion of privacy” language in the policy’s personal injury exclusion.
In an April 17, 2015 opinion (here), Central District of California Judge Dolly Gee granted the insurer’s motion to dismiss, holding that coverage for the TCPA action was precluded by the “invasion of privacy” provision in the Lakers’ D&O insurance policy’s personal injury exclusion. In reaching this decision, Judge Gee expressly referred to the prior case law interpreting the CGL policies’ coverage provision, in which the various courts had concluded that a TCPA claim represents an “invasion of privacy” claim within the meaning of the CGL policies advertising injury provision. Judge Gee also cited prior federal district court decisions (including a prior decision relating to the question of D&O insurance coverage for a nearly identical TCPA claim filed against the Lakers’ cross-town rivals, the Los Angeles Clippers) had also found that the “invasion of privacy” provision in D&O insurance policies’ personal injury exclusion precluded coverage for the claims.
As the Foley & Lardner firm’s blog post notes, the Lakers have filed an appeal of Judge Gee’s ruling in the case. The law firm optimistically notes that if the Ninth Circuit reverses the district court, it “could issue a decision finding coverage for TCPA claims under D&O policies despite the ‘invasion of privacy.’” If the Ninth Circuit were to reverse the district court’s holding, the blog post notes, “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.” Of course, though the blog post fails to note it, the reverse is also true; that is, if the Ninth Circuit were to affirm Judge Gee’s ruling, that could make it that much more difficult for TCPA defendants to find coverage under the D&O insurance policies for the claims.
It is probably worth noting that the question of D&O insurance coverage for TCPA claims is largely restricted to private company policyholders. In a TCPA action, the claimants typically name as defendants only the corporate entity that allegedly violated the statute. Entity coverage under public company D&O insurance policies is limited to claims for violations of the securities laws. So if the defendant company is a public company and no individual directors or officers are named as defendants, there will be no coverage for the claim under the company’s D&O insurance policy simply because the claim does not fall within any of the policy’s insuring provisions. Entity coverage under a private company D&O insurance policy is broader than under a public company D&O insurance policy, and so the claim arguably does fall within the entity coverage afforded in a private company policy. However, the question is whether the “invasion of privacy” exclusionary provision precludes coverage.
The “invasion of privacy” provision in the private company D&O insurance policy’s personal injury claim exclusion is already under challenge now, out of concerns that the provision could have the unintended effect of precluding coverage under a D&O insurance policy for a data breach-related D&O insurance claim. Questions about scope of the preclusive effect of the invasion of privacy provisions are further highlighted by these questions about the scope of coverage available under the D&O insurance policy for TCPA-related claims. Carriers may well contend that they do not intend to provide coverage for TCPA claims, and I don’t dispute the carriers right to choose to exclude coverage for claims for which it does not want to provide insurance. However, my preference when carriers seek to preclude coverage for certain specific classes of claims is that they expressly state that they will not cover a class of claims – that is, in this context, expressly state that TCPA claims are excluded from coverage. That not only provides further clarity but it also allows the possibility of trying to negotiate off the policy exclusion as part of the policy placement process.
In any event, even outside of the TCPA claim context, I believe claims alleging invasion of privacy violations could become an increasingly important part of the D&O claims environment. I believe that the invasion of privacy provision could become a critically coverage determinative provision. It seems likely to me that carriers will face increasing pressure for coverage carve backs to the policy exclusion, particularly to provide clarification that the exclusion applies only to claims against the entity and not against individuals, or even that the exclusion does not apply to defense expenses.
Upcoming Advisen European D&O Conference:On Thursday, November 19, 2015, Advisen will be holding its pan-European Executive Risk Insights Conference at the SCOR Headquarters in Paris. The program will address developments in policy wordings, claims trends and include discussions from European risk managers on the issues facing their organizations today. The agenda will also include sessions on crucial risk issues in Europe, including privacy and network security issues, anti-corruption, board diversity, the rise of the activist investor and regulatory developments. Victor Peignet, Chief Executive Officer of SCOR Global P&C SE will give the keynote address. Information about the conference, including registration instructions, can be found here. I will be participating in a panel at the conference about rising global anti-corruption enforcement and its impact on executive liability.