In 1991 Congress passed the Telephone Consumer Protection Act ("TCPA") to protect customers from unsolicited telemarketing. It has since become an attractive avenue for consumer class action litigation. In the past, defendant-policyholders sought coverage under their Commercial General Liability (CGL) policies for costs incurred as a result of TCPA claims. When CGL policies began to include exclusions for TCPA claims, insureds began to seek coverage elsewhere, including under D&O policies. When presented with a TCPA claim, many D&O carriers have argued that coverage is precluded under the personal injury claim exclusion—particularly the "invasion of privacy" provision of the personal injury claim exclusion—found in the majority of private company D&O policies. While some courts have relied on this exclusion to bar coverage for TCPA claims, its application is questionable. Now the Ninth Circuit is about to weigh in.
In 2012, Los Angeles Laker fan David Emanuel sent a text message to a number posted on the scoreboard at the Staples Center during a game. He was responding to an invitation to attendees to text personal messages for the purpose of having them featured on the scoreboard. After sending his text, Mr. Emanuel received a promotional text back from the Los Angeles Lakers and incurred a charge from his phone company for the incoming text.
The Lakers' response text message became the basis of a class action lawsuit brought by Mr. Emanuel on behalf of himself and others similarly situated. The lawsuit alleged that the Lakers violated the TCPA when the promotional response to Mr. Emanuel was sent. The California district court ultimately dismissed the case with prejudice, and the parties settled the case while an appeal was pending.
The Lakers turned to their insurer, Federal Insurance Co., for coverage related to the class action. Federal denied coverage and refused to defend the Lakers against the claims alleged in the lawsuit. Federal's basis for denial was an exclusion for claims "based on, arising from, or in consequence of . . . invasion of privacy."
The Lakers then sued Federal, alleging that the insurer breached the contractual terms of the insurance policy by denying coverage and refusing to defend the team in the underlying lawsuit The action also alleged that Federal breached the implied covenant of good faith and fair dealing in numerous ways. Federal filed a motion to dismiss, which the district court granted with prejudice, finding that coverage was precluded by the "invasion of privacy" provision in the Lakers' D&O policy.
The NBA team isn't accepting defeat just yet—it filed an appeal with the Ninth Circuit on November 2, arguing that the district court accepted an "overly broad" interpretation of the exclusion, and even if the exclusion does apply, it doesn't cover all of the TCPA claims brought by Mr. Emanuel. According to the Lakers, the complaint did not state a claim for invasion of privacy, and sought damages for economic and property damages, not personal injury. The Lakers are further arguing that their bad faith claim is sufficiently pled.
This is a game to watch. If the Ninth Circuit reverses the district court's holding it could solidify insured's claim to coverage for TCPA claims under D&O policies. If the Ninth Circuit affirms the District Court opinion, however, coverage under many D&O policies for TCPA claims may become more difficult than a half-court buzzer beater. Stay tuned.
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