TCPA Exclusions Not Enough To Avoid Text Blasting Claims

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1 Law360 Portfolio Media. Inc. 860 Broadway, 6th Floor New York, NY Phone: Fax: TCPA Exclusions Not Enough To Avoid Text Blasting Claims By Allison Grande Law360, New York (February 15, 2012, 2:56 PM ET) -- Insurers are increasingly turning to policy exclusions to avoid statutory claims in class actions over the transmission of unsolicited text messages, but their terms may not be broad enough to entirely preclude coverage for invasion of privacy allegations, attorneys say. A slew of companies including GameStop Corp., Google Inc., Wenner Media LLC, Nascar Holdings Inc. and Microsoft Corp. are facing litigation accusing them of violating the Telephone Consumer Protection Act by barraging consumers with unwanted text messages advertising services and promotions. As companies begin seeking coverage for these class actions and their eventual resolutions, insurers are likely to point to recently drafted exclusions that bar claims under the TCPA and other similar privacy statutes as their first line of defense. Increasingly, the standard commercial general liability policies are turning up with exclusions built into them for claims arising out of or in connection with the TCPA, Neil Posner, the chairman of the policyholders insurance coverage group at Much Shelist PC, told Law360. While "a broad exclusion might sweep these class actions into their scope... a narrowly worded one might not explicitly exclude text messaging, Posner said. The coverage dispute over these text message blasting cases has its roots in the early 2000s, when consumers began filing suits alleging that retailers violated the TCPA by sending

2 unsolicited advertisements to consumers' fax machines. Insurers argued that their policies covered only consumers' right to not have information about themselves unlawfully distributed under the common law definition of an invasion of privacy, and not their right to seclusion under this definition that was violated when they received junk faxes. Courts that agreed with the insurers' position found no coverage, but the majority of courts which found that consumers had a right to seclusion based on the governing law of their jurisdiction ruled that the insurers were obligated to cover these suits. In response to these adverse decisions, insurers began putting provisions in their policies clarifying their coverage for consumer protection statute violations that could encompass the latest incarnation of privacy class actions related to telemarketing and mass marketing activity. Because CGL policies cover such a broad range of risk, when new things come along, insurance companies may start to feel like that s not what they wanted to cover and that they want to exclude them, Posner said. Text message blasting was not on the insurance industry s radar in the early part of the last decade when a lot of these insurance policies that are floating around today were drafted. While these relatively new statutory exclusions bar coverage for claims arising under the statute, the pleading in the underlying class action may assert common law claims either explicitly or indirectly that are not as clearly covered under the policy language. The exclusion is about claims under the statute, so it naturally begs the question that if the complaint alleges state and common law liability as well as statutory violations, is there the duty to defend the entire suit, Gilbert LLP partner Barry Buchman said. This is an untested issue that some policyholders may be willing to push.

3 The insurers coverage duty is complicated when a case settles because it raises additional questions regarding which portion of the settlement covers asserted common law claims and which portion addresses the TCPA claims, according to Buchman. Complaints that only raise formal counts for statutory violations may be easier for insurers to shake, but policyholders can still push for coverage if the factual allegations contained in these class actions support a common law invasion of privacy, Buchman added. What constitutes a duty to defend is not the caption of the counts, but the facts of the case, he said. The class periods for text-blasting actions can also go back a number of years, reaching years when no exclusion was included in the policy, Reed Smith LLP partner Timothy Law noted. Given that form exclusions have been commonly available in the insurance industry since 2005, any policy that does not contain an explicit exclusion for TCPA claims should be construed as providing coverage for TCPA claims, he said. Policyholders could also defeat statutory exclusions by proving that they are too broad or ambiguous, or that the insurer slipped in these provisions deceptively, according to attorneys. Insurance companies can t write exclusions for things that don't exist when they draft the policy, like text message blasting like text message blasting, Posner said. If an exclusion is so broad that it includes everything under the sun, then it s more than likely that the insurance-buying community will see this exclusion as not covering anything, and courts may find that it is capable of more than one reasonable interpretation and therefore ambiguous. Courts have yet to strongly weigh in on this coverage issue, which is in the early stage of court battles. U.S. District Judge Nancy Atlas for the Southern District of Texas

4 ruled in January that Indemnity Insurance Corp. did not have to defend Rick's Cabaret International Inc. against two class actions accusing the strip club chain of illegally barraging customers with unwanted text messages. In her decision, Judge Atlas held that the underlying class actions fell under so-called field-of-entertainment exclusions barring coverage for claims tied to Federal Communications Commission rules and laws. This is the first case I ve seen that lists the FCC exclusion, Hinshaw & Culbertson LLP partner James Vlahakis said. This appears to be a narrow exclusion, as other polices that I am familiar with attempt to broadly exclude coverage for violations of federal statutes without referencing the FCC." Until this issue is more settled, policyholders should read their policies together with the operative pleading of an underlying action to determine what coverage exists or if the suit could fall outside of the personal and advertising coverage of their commercial general liability policies. It could be that the class action is really aimed at the conduct of the managers and the business, which might make the complaint fall under a directors and officers policy rather than a general liability policy, or if the members of the class are clients of the business, then this may fall within the errors and omissions policy, Posner said. Umbrella insurance can also provide broader coverage and can drop down to pay for the defense of the class action and any resulting settlement or judgment, Law added. While the insurance industry may react to these text messaging blasting cases by adding or clarifying their exclusions as they did when fax blasting first arose, policyholders that are most susceptible to text message blasting claims could minimize the risk of these potential revisions by proactively obtaining some type of coverage for these allegations.

5 The best strategy is to think ahead and make sure that you get coverage for the risks that your company is really concerned about, Posner said. Companies want to be proactive about it and not wait until a class action is already in the court to think about coverage. --Editing by Lindsay Naylor. All Content , Portfolio Media, Inc.

TCPA Insurance Claim Issues Continue To Evolve

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