As litigation under the Telephone Consumer Protection Act (TCPA) has proliferated in recent years, one of the recurring questions has been whether the defendants have insurance coverage for these kinds of claims. The insurance questions have in turn generated insurance coverage litigation, primarily with respect to the defendants’ CGL insurance policies, but also with respect to their D&O insurance policies as well. One closely watched recent case involved a D&O insurance dispute arising out of a TCPA claim against the Los Angeles Lakers. The district court had held that the Lakers’ D&O insurance policy did not cover the TCPA claim and the Lakers’ appealed. On August 23, 2017, in a decision that is sure to attract both attention and perhaps further skirmishing on these issues, a divided Ninth Circuit panel affirmed the district court’s holding, concluding that the invasion of privacy exclusion in the Lakers’ D&O insurance policy precluded coverage for the claim. The Ninth Circuit’s opinion can be found here.
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.
In the past, companies hit with these TCPA lawsuits have sought coverage for the claims under their CGL policies. However, many newly issued CGL policies have TCPA exclusions. 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 state, 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.”
The Los Angeles Lakers’ TCPA Claim and Insurance Dispute
A Lakers fan had claimed that the team 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. Coverage litigation ensured.
In an April 17, 2015 opinion (here), Central District of California Judge Dolly Gee granted the insurer’s motion to dismiss the coverage action, 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.
The Ninth Circuit’s Opinion
In an August 23, 2017 opinion written by Judge N. Randy Smith, with a concurring opinion by Eastern District of Michigan Judge Stephen Joseph Murphy, III (sitting by designation), over a dissent by Judge Richard C. Tallman, a divided panel affirmed the district court’s opinion that the policy’s invasion of privacy exclusion precluded coverage for the underlying TCPA action.
In his opinion, Judge Smith wrote that because a claim for a violation of the TCPA is “inherently an invasion of privacy claim,” the insurer correctly concluded that the underlying TCPA claim fell under the policy’s broad invasion of privacy exclusion. In his concurring opinion, Judge Murphy said that he thought the case could have been decided on narrower grounds. He said that the allegations in the underlying action were sufficient to determine that the claims arose from an invasion of privacy and the Court did not need to hold more broadly that a TCPA claim is inherently an invasion of privacy claim.
Judge Tallman wrote in dissent that the underlying action sought recovery based on an alleged violation of the TCPA, and did not seek recovery based on invasion of privacy, and accordingly he would reverse the district court’s order dismissing the Lakers’ claims.
The Ninth Circuit’s opinion establishes that the coverage for this claim is precluded under the invasion of privacy exclusion in the Lakers’ policy. But that may be about all the ruling decides. The court’s division over the reasoning leaves ample grounds for further dispute in other cases on the question of whether or not other insurers’ D&O insurance policies provide coverage for TCPA claims.
In particular, the Ninth Circuit panel split on the issue of whether or not a TCPA claim inherently represents a claim for invasion of privacy. There was no majority consensus on this issue; indeed the three-judge panel split three ways on this issue, meaning that this issue remains undecided in the Ninth Circuit.
The Ninth Circuit panel’s decision does seem to mean at least that the question of whether or not a particular TCPA claim represents a claim for invasion of privacy at least is a factual question for the court to decide. However, in view of the dissenting opinion’s view that a TCPA claim does not represent an invasion of privacy claim, there would appear to continue to be grounds on which insureds could continue to try to argue that their D&O policy’s invasion of privacy exclusion does not preclude coverage for a TCPA claim.
At the time that the Lakers filed their appeal, there had been some hope (as discussed here) that the Ninth Circuit’s ruling in this case would provide some clarity on the recurring questions regarding D&O insurance coverage for TCPA claims. Unfortunately, because of the split nature of the Ninth Circuit’s opinion, there would appear to be sufficient grounds for continued division and contention on these issues. The likelihood is that even though the Ninth Circuit affirmed the district court’s opinion that the policy exclusion applied to preclude coverage disputes regarding potential coverage for these kinds of claims will continue.
It should be noted 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 in other contexts, out of concern 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.
Insurers may well contend that they do not intend to provide coverage for TCPA claims, and I don’t dispute an insurer’s right to choose to exclude coverage for claims for which it does not want to provide insurance. However, in my view, when insurers seek to preclude coverage for specific classes of claim, they should expressly state that they will not cover the claims class – 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, claims actually or arguably alleging invasion of privacy violations could become an increasingly important part of the D&O claims environment. The invasion of privacy provision could become an increasingly important coverage determinative provision. Insurers likely 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.
Special thanks to several loyal readers for calling my attention to the Ninth Circuit’s opinion.