Advertising Injury Claims: What Adjusters Should Know

Trends in liability insurance often are a direct result of what is happening within the tort system. The law is changing constantly in response to society's needs and its discernment of what is fair and just. For adjusters, this means that being informed about new trends is crucial to understanding and handling claims that might be unfamiliar.

In the last few years, surges have occurred in particular coverage areas in response to new laws. One of the biggest trends that has occurred is the rise in advertising injury claims, which is combined with personal injury in Coverage B of most Standard Commercial General Liability policies. Part of the increase can be attributed to the success of the Telephone Consumer Protection Act of 1991, which was created in response to consumer concerns about the growing number of unsolicited marketing calls and the use of automated and prerecorded messages. Now, the FCC has rules to aid consumers who wish to limit these uninvited calls.

An extension of unsolicited phone calls by advertisers is the mass faxing of advertisements to homes and businesses, which also falls subject to the TCPA. At this time, companies accused of violating the TCPA through blast faxing are facing lawsuits by fax recipients, many of which are class actions. In turn, the companies who advertised through blast faxing are looking toward their CGL carriers for defense and indemnity under Coverage B for advertising injury.

The definitions of what offenses constitute advertising injury are defined specifically in the CGL policy. The provision that most blast-fax companies have looked to for coverage is the advertising injury definition of an “oral or written publication of material that violates a person's right to privacy.”

The key coverage dispute is what is meant by the term “a person's right to privacy.” Insureds have been fairly successful at the district court level, contending that the actual fax itself is an invasion of privacy (see Park University Enterprises, Inc. v. American Cas. Co., 414 F. Supp. 2d 1094 [D. Kan. 2004]). Other insureds have argued successfully that a fax is an invasion of privacy because it takes control over the fax machine, paper, and ink (see Universal Underwriters Ins. Co. v. Lou Fusz Auto. Network, Inc., 300 F. Supp. 2d 888 [E.D. Mo. 2004]). These courts have found a duty to defend on behalf of the insurers.

In American States Ins. Co. v. Capital Assoc. of Jackson County, Inc., however, the Seventh Circuit looked at advertising injury policy language differently and found that the insurer did not have a duty to defend (392 F.3d 939 [7th Cir. 2004]). The court noted that the right to privacy involves two types of interests: secrecy and seclusion. It further noted that the advertising injury coverage only covered a person's interest in secrecy. The court then looked to the content of the faxes and found that it did not violate an interest in secrecy and, thus, no duty to defend existed.

Canned Ham

The exposure to insurance companies of allegations of mass faxes could be large, because many of these lawsuits involve class actions. The enactment of another new and similar law covering unsolicited e-mail also may increase claims by insureds' seeking coverage under advertising injury. The CAN-SPAM Act of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act) establishes requirements for those who send commercial e-mail, spells out penalties for spammers and companies whose products are advertised in spam if they violate the law, and gives consumers the right to ask e-mail senders to stop spamming them, according to the Federal Trade Commission.

Effective Jan. 1, 2004, the law began covering e-mail whose primary purpose is advertising or promoting commercial products or services, including content on web sites. A “transactional or relationship message,” which facilitates agreed-upon transactions or updates customers in existing business relationships, may not contain false or misleading routing information but, otherwise, is exempt from most provisions of the CAN-SPAM Act.

According to its site, the FTC is authorized to enforce the CAN-SPAM Act. CAN-SPAM also gives the Department of Justice the authority to enforce criminal sanctions. Other federal and state agencies can enforce the law against organizations under their jurisdictions, and companies that provide Internet access may sue violators, as well.

The FTC outlines the main provisions of the CAN-SPAM Act to include:

Banning false or misleading header information. The e-mail's From, To, and routing information – including the originating domain name and e-mail address – must be accurate and identify the person who initiated the e-mail.

Prohibiting deceptive subject lines. The subject line cannot mislead the recipient about the contents or subject matter of the message.

Provision of an opt-out method. The sender must provide a return e-mail address or other Internet-based response mechanism that allows a recipient to ask that future e-mail messages not be sent to that e-mail address, and the sender must honor the requests. The sender may create a menu of choices to allow a recipient to decline certain types of messages, but he must include the option to end any commercial messages from the sender.

Any opt-out mechanism offered must be able to process requests for at least 30 days after the commercial e-mail has been sent. When the sender receives an opt-out request, the law gives 10 business days to stop sending e-mail to the requestor's e-mail address. The sender cannot help another entity send e-mail to that address, or have another entity send e-mail on its behalf to that address. Finally, it's illegal for to sell or transfer the e-mail addresses of people who have chosen not to receive e-mail, even in the form of mailing lists, unless the addresses are transferred so that another entity can comply with the law.

Requiring that commercial e-mail be identified as advertisements and that it include senders' postal addresses. The actual message must contain clear and conspicuous notice that the message is an advertisement or solicitation and that the recipient can opt out of receiving more commercial e-mail. It also must include the sender's valid physical postal address.

It is important to note that each violation of the above provisions is subject to fines of up to $11,000. Deceptive commercial e-mail also is subject to laws banning false or misleading advertising.

Claims made under Advertising Injury Coverage B may rise as more claims are made under the TCPA and the new CAN-SPAM Acts. Policy endorsements that exclude coverage for claims made under the TCPA and the CAN-SPAM Acts have been developed and likely will become part of future policies. In the meantime, however, many policies in effect do not contain exclusions for TCPA and CAN-SPAM Act claims, and only time will tell if courts will follow the direction of the Seventh Circuit or several district court cases in interpreting what is meant by the term “privacy” in Advertising Injury Coverage B.

John J. McDonald is a partner and Sarah Frisque is an associate with the law firm, Meagher & Geer, in Minneapolis, Minn.