United States: Redial; Third Circuit Again Rules That TCPA Claims Are Not Covered Under A CGL Policy

Last Updated: January 16 2014
Article by Judy Selby

On January 9, 2014, the Third Circuit Court of Appeals again held that an insurance policy issued to class action defendants did not provide coverage for a claim brought under the Telephone Consumer Protection Act (TCPA).  Nationwide Mutual Insurance Co. v. David Randall Associates, Inc., No. 13-1515 (U.S. Court of Appeals for the Third Circuit, January 9, 2014) (unpublished opinion)  The case arose out a 2011 putative class action lawsuit filed by City Select Auto Sales, Inc. ("CSAS") against David Randall Associates, Inc. (Randall) and its director, Raymond H. Miley (Miley).  CSAS alleged that Randall and Miley violated the TCPA by sending unsolicited facsimile advertisements.  The complaint specifically alleged that Miley:

approved, authorized and participated in a scheme to broadcast faxes by (a) directing a list to be purchased and assembled; (b) directing and supervising employees and third parties to send the faxes; (c) creating and approving the form of faxes to be sent; (d) determining the number and frequency of the facsimile transmissions; and (e) approving and paying third parties to send the faxes.

CSAS further alleged that Randall and Miley:

knew or should have known that (a) Plaintiff and the other class members had not given express invitation or permission for Defendants or anybody else to fax advertisements about Defendants' goods or services, (b) that Plaintiff and the other class members did not have an established business relationship, and (c) that [the faxes sent by the Defendants were] an advertisement.

Randall and Miley were insured under a commercial general liability policy issued by Nationwide Mutual Insurance Company (Nationwide), which provided coverage for "bodily injury" and "property damage," but only if such damage was caused by an "occurrence." An "occurrence" was defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."  "Bodily injury' or 'property damage' expected or intended from the standpoint of the insured" was excluded from coverage.

Nationwide denied the insureds' claim for coverage and filed a declaratory judgment action in federal court in Pennsylvania.  The District Court granted Nationwide's motion for summary judgment, finding that the transmission of unsolicited faxes was intentional and therefore not covered under the policy.  The insureds appealed to the Third Circuit.

The Court began its analysis by noting: "In Pennsylvania damages may not be recovered under an "accidental coverage" policy if the insured acted intentionally. Courts consider whether the insured "desired to cause the consequences of his act or if he acted knowing that such consequences were substantially certain to result."

Observing that the case was virtually indistinguishable from its prior case, Melrose Hotel Co. v. St. Paul Fire and Marine Insurance  Co., 432 F. Supp. 2d 488 (E.D. Pa. 2006), aff'd, 503 F.3d 339 (3d Cir. 2007),  the Court held:

CSAS's complaint in the Class Action ... contains no factual allegations that Randall... acted negligently, that the faxes were sent by accident, or that it mistakenly believed the faxes were sent with the recipients' permission. ... Accordingly, the District Court correctly found that, despite language in the Complaint that Randall... "knew or should have known" of the TCPA violations, the Complaint's "allegations of a sophisticated scheme, alongside the inherently intentional nature of sending a fax advertisement ... , [are] squarely outside the Policy's coverage for an 'accident' and within the Policy's exclusion for coverage which is 'expected or intended.'" (bolding added)

The Court declined to follow Telecommunications Network Design Inc. v. Brethren Mutual Insurance Co., 83 Pa. D. & C. 4th 265 (Pa. Com. Pl. 2007),  a Pennsylvania trial court decision that held that questions concerning  the relationship between the insured and the third-party vendor that sent the faxes precluded a finding that the insured acted intentionally.

Unlike [Brethren Mutual], where the nature of the relationship between the policyholder and the third-party vendor was unknown, here the relationship between Randall ... and the third-party vendor is well defined – the Class Action Complaint explicitly alleges Miley's involvement with the fax transmissions. Additionally, in Brethren Mutual the plaintiff amended the underlying complaint to include the third party vendor as a defendant, suggesting that the plaintiff considered the vendor to have committed wrongdoing separate from the policyholder. Here the Class Action Complaint names only Randall ... and Miley as defendants and in no way suggests that Randall... negligently hired a third party that, unbeknownst to it, acted unlawfully.

The Court also noted that to trigger coverage for allegedly negligent conduct, the resultant damages still must be fortutious.  Because the damages caused by sending faxes were reasonably foreseeable, they were not fortuitous. " While [the insureds] might not have intended to violate the TCPA, they did intend to send the faxes and knew that sending them would use the recipients' paper, toner, and time."  Therefore, Nationwide had no duty to defend or indemnify.

We noted in a recent post that TCPA lawsuits are on the rise.  As we discussed in  Call Me, Maybe? A Nationwide Survey of Insurance Coverage for TCPA Class Actions, the availability of insurance coverage  for TCPA claims will depend on the specific policy at issue, as well as the relevant state law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Judy Selby
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