Insurance Coverage

Face the Fax: TCPA Comes to PA

by Randy J. Maniloff and Jennifer L. Wojciechowski

Editor’s Note: The material in this article was originally published in the Pennsylvania Association of Mutual Insurance Company’s Pulse Newsletter, Volume 37, Issue 6.

A new coverage issue has arrived at the courthouse door: theavailability of insurance for Telephone Consumer Protection Act (“TCPA”) claims. The TCPA was enacted by Congress to protect the public from unsolicited faxes or so-called “blast faxes” or “junk faxes.” See 47 U.S.C. § 227 et seq. It has become commonplace for the recipient of an unwanted fax to sue the sender for statutory damages of $500 that are available under the TCPA (trebled, in the court’s discretion, if the violation was willful or knowing). That doesn’t sound like much, considering the effort to bring suit. But it adds up fast in a class action, which has been the principal modus operandi of plaintiffs in these cases. Insureds seeking coverage for TCPA claims typically argue that they constitute either “advertising injury” or “property damage” within a commercial general liability policy. The results have been a mixed bag.

Some courts have found no CGL policy coverage for TCPA claims. See, Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631 (4th Cir. 2005), Am. States Ins. Co. v. Capital Assocs., 392 F.3d 939 (7th Cir. 2004), St. Paul Fire & Marine Ins. Co. v. Brunswick Corp., 405 F. Supp. 2d 890 (N.D. Ill. 2005). These courts determined that TCPA claims did not implicate the “advertising injury” offense of “making known to any person covered material that violates a person’s right to privacy” (or similar language) because the policy’s reference to “privacy” refers to secrecy, while the TCPA addresses the privacy interest in seclusion (the right to beleft alone).

Other courts have determined that TCPA claims are within the “advertising injury” coverage of a CGL policy because the term “privacy” may include both the interests in seclusion and secrecy. See Park Univ. Enters., Inc. v. Am. Cas. Co., 2006 U.S. App. LEXIS 7458 (10th Cir. March 27, 2006); Hooters of Augusta, Inc. v. Am. Global Ins. Co., 157 Fed. Appx. 201 (11th Cir. 2005), Valley Forge Ins. Co. v. Swiderski, 359 Ill. App. 3d 372 (Ill. App. Ct. 2005), Western Rim Investment Advisors, Inc. v. Gulf Ins. Co., 269 F. Supp. 2d 836 (N.D. Tex. 2003).

On April 19, 2006, the United States District Court for the Eastern District of Pennsylvania, in a case of first impression for Pennsylvania courts, addressed coverage for TCPA claims. In Melrose Hotel Company v. St. Paul Fire and Marine Insurance Company, 2006 U.S. Dist. LEXIS 21112, the Court undertook what it called a “‘faxtual’ journey” and joined those courts rejecting coverage for TCPA claims under a CGL policy.

In Melrose, the Travel 100 Group brought a class action lawsuit against the Melrose Hotel Company. Melrose, through a third-party vendor, had sent thousands of fax advertisements to travel groups. The class action alleged violation of the TCPA, as well as common law torts. Melrose’s insurer, St. Paul, initially denied coverage. But after considering Melrose’s recitation of the developments in TCPA litigation, St. Paul withdrew its denial of coverage and agreed to participate in Melrose’s defense subject to a reservation of rights. In January 2005, after a failed settlement offer, St. Paul again denied coverage and withdrew from Melrose’s defense. Melrose then settled the Travel 100 Group litigation for a $1.9 million consent judgment and commenced a declaratory judgment action against St. Paul seeking a determination of coverage for the TCPA claims. Melrose alleged that the TCPA claims implicated CGL coverage as an “advertising injury” and/or as “property damage” caused by an “event.” The St. Paul policy defined “advertising injury” in part as “making known to any person or organization covered material that violates a person’s right to privacy.”

The Melrose Court predicted that the Pennsylvania Supreme Court would determine that no coverage is available for these TCPA claims. The Court determined that “privacy” within the St. Paul policy is not ambiguous and is solely concerned with the interest in “secrecy.” The Court determined that “advertising injury” offenses (such as defamation, disparagement and misappropriation) solely concern the content of the message, not the method of transmittal. Conversely, TCPA claims concern the intrusive nature of the fax transmission—not its content. “Much the same way a telemarketing call invades one’s right to be left alone, an unsolicited fax intrudes upon the right to be free from nuisance. But neither the telemarketer’s call nor the unsolicited fax implicate the disclosure of personal information. Accordingly, the TCPA seeks to protect privacy interests in seclusion, not secrecy.” Melroseat *33. Because the complaint’s allegations did not concern the content of the communication, the Melrose Court concluded that St. Paul’s “advertising injury” coverage was not implicated by the sending of unsolicited faxes.

While concluding that the TCPA claims did not implicate St. Paul’s “advertising injury” coverage, the Melrose Court nonetheless agreed that “blast faxes” result in “property damage”—noting (1) the wasted paper, toner, and ink, (2) the “wear and tear” on the fax machine, and (3) the temporary “loss of use” associated with the “faxjacking” of the recipient’s machine. Coverage was precluded, however, because this “property damage” did not result from a covered “event” because St. Paul’s policy defined an “event” as “an accident….” The Court considered prior interpretations of “accident” under Pennsylvania law, including the recent decision from the Superior Court in Donegal Mut. Ins. Co. v. Baumhammers, 893 A.2d 797 (Pa. Super. 2006), and found that the class action lawsuit only alleged intentional acts—not an “event.” Specifically, there were no allegations of negligence, no evidence that the faxes were “accidentally” sent to unwilling recipients and no evidence that Melrose believed that the faxes were only going to willing recipients. Thus, as the class action did not allege either an “advertising injury” or “property damage” caused by an “event,” the court granted St. Paul’s Motion for Summary Judgment.

If the development of TCPA coverage litigation over the past few years is an indication, Melrosemay have been the first word on the subject in Pennsylvania, but it may not be the last.

Randy Maniloff concentrates his practice on the representation of insurers in coverage disputes. He can be contacted at 215-864-6311 or maniloffr@whiteandwilliams.com.

Jennifer Wojciechowski also focuses on representing insurers in coverage disputes. She can be contacted at 215-864-7019 or wojciechowskij@whiteandwilliams.com.