Insurance Coverage for TCPA Violations?

CourthouseThe Telephone Consumer Protection Act (TCPA) restricts telephone solicitations and limits the use of automatic dialing systems, prerecorded voice messages, SMS text messages, and faxes, and provides consumers with a private right of action that enables them to recover up to $500 for each violation and up to $1,500 for each willful violation.  For this reason, the TCPA has become the darling of class action attorneys.   Considering the fact that most campaigns involve a large number of calls, texts or faxes, the potential damages in TCPA cases can be significant.

New TCPA regulations, implemented on October 16, 2013 by the FCC, require telemarketers to obtain express written consent before making calls or sending texts to consumers’ mobile phones using an autodialer, a pre-recorded or artificial voice, or making calls to any landline using a pre-recorded or artificial voice. These regulations also eliminated the “established business relationship” exemption to the TCPA for telemarketing calls to residential lines made with pre-a recorded or artificial voice. Even before this stricter new rule became law, approximately 40 TCPA class actions were filed in the first half of 2013 (a number that will soon rise exponentially), and many defendants look to their liability insurers to cover the costs of defending the lawsuits.  Not surprisingly, insurers are doing everything possible to avoid having to do so.  

Are You Covered? 

The answer to this question depends upon whether your policy includes an advertising injury rider, and how courts have interpreted the definition of the term “Advertising Injury,” which is commonly defined to include “oral or written publication that violates a person’s right to privacy,”

Some courts have ruled that in the context of an insurance policy, the “right to privacy” only covers the disclosure of a consumer’s private information.  This appears to defy logic, as I can’t think of a single marketing campaign likely to disclose a consumer’s private information.  Other courts, however, have come to a more sensible conclusion, and have held that advertising injury coverage under the same policy language does apply to TCPA violations, interpreting the right to privacy to include the recipient’s right to seclusion.  This conclusion is further supported by the fact that Congress enacted the TCPA to protect a consumer’s right to enjoy their dinner without being interrupted by an unwanted telemarketing call.

In the absence of an advertising injury rider, companies have argued that TCPA coverage exists under the property damage coverage provision in their policies.  Many TCPA plaintiffs have asserted property damages in their complaints, based on the fact that they were charged for the unwanted calls or texts by their cellular provider.   Courts almost universally have held that coverage is precluded in this instance based on the fact that the marketer  expected or intended to send the unwanted solicitation, and insurance policies universally deny coverage for intentional acts.  

Thanks to the rising tide of TCPA class actions, a growing number of policies now contain specific exclusions for TCPA claims.  Ironically, this trend may help stem that tide.  Many marketers lack the deep pockets that attract class actions, and if they are unable to obtain insurance, a multimillion dollar class action judgment be worth less than the paper it’s printed on.

Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.
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