Insurer is Off the Hook because of Invasion of Privacy Exclusion in TCPA Litigation

 

September 25, 2017

 

In August, the Ninth Circuit determined that when following the purpose of the TCPA there could be no coverage when a policy, in this case a directors and officers liability (D&O) policy, included exclusionary language for invasion of privacy claims. The case is L.A. Lakers, Inc. v. Fed. Ins. Co., 2017 U.S. App. LEXIS 16109.

 

In 2012 during a Los Angeles Lakers game at the Staples Center, a Lakers fan saw a message on the scoreboard asking attendees to send a text message to a certain number in order to have his message appear on the scoreboard screen. In response to his message, the fan received this text message:

Thnx! Txt as many times as u like. Not all msgs go on screen. Txt ALERTS for Lakers News alerts. Msgs&Data Rates May Apply. Txt STOP to quit. Txt INFO for info.

 

The fan, Mr. Emanuel, brought forth a class action lawsuit for himself and on behalf of the other fans that had initially texted the number. The lawsuit was based on allegations that the text message was sent out using an automated telephone dialing system in violation of the Telephone Consumer Protection Act, also known as the TCPA. Mr. Emanuel sought statutory damages and injunctive relief based on two claims, negligent violation of the TCPA and knowing or willful violation of the TCPA.

 

The Federal Insurance Company (Federal) provided a D&O policy to the Lakers. Upon hearing of the lawsuit, Federal denied coverage and declined to defend the claim stating that Emanuel had brought a suit based on invasion of privacy, a claim that is specifically excluded from the coverage the Lakers had in place. The policy in place provided that no coverage was available for a claim “based upon, arising from, or in consequence of . . . invasion of privacy”.

 

The Lakers sued Federal for breach of contract, stating that Federal had violated the policy by denying coverage, and for tortious breach of the implied covenant of good faith and fair dealing, also for the denial of coverage. Federal filed a motion to dismiss and the district court granted its motion finding that the Lakers could not succeed under any cognizable legal theory because TCPA claims were “implicit invasion of privacy claims” that clearly fell within the policy's “broad exclusionary clause”. The Lakers followed this decision with an appeal to the Ninth Circuit.

 

The TCPA makes it unlawful for a person to make any call (other than one for emergency purposes or with prior consent) “using any automatic telephone dialing system or an artificial or prerecorded voice. . . to any telephone number assigned to a . . . cellular telephone service. . . or any service for which the called party is charged for the call”. The statute also provides that the Federal Communications Commission may exempt classes or categories of calls made for commercial purposes that the Commission decides will not adversely affect the privacy rights that the statute was made to protect.

The circuit court affirmed the decision of the district court pointing out that the Federal policy excluded coverage for claims based on invasion of privacy. The court said that since California law had a broad interpretation of the arising from clause, which excluded coverage for claims with even “a minimal causal connection or incidental relationship” to invasion of privacy. The Ninth Circuit noted that although the Federal policy did not specifically exclude coverage for TCPA claims, the purpose of TCPA was specifically to prevent invasion of privacy, a claim which is not covered by the Federal policy. The Ninth Circuit noted that the TCPA stated twice that it was intended to protect privacy rights, and the TCPA contained no statement of an alternative purpose, so in pleading the elements of a TCPA claim the plaintiff plead an invasion of privacy claim, which was not covered under the Federal policy.

 

Because there was a specific exclusion for the invasion of privacy claim, Federal had no duty to defend Emanuel's complaint.

 

Editor's Note:

One dissenting circuit judge said that the TCPA claim did not automatically qualify as a privacy claim because they were “statutory TCPA claims”. The dissenting judge concluded that Emanuel's claim did not fall under the privacy exclusion of the insurance policy, Federal had a duty to defend Emanuel, and the district court erred in dismissing the Lakers initial claims.

 

Despite this dissenting judge, this is a significant case for insurers fighting TCPA claims. When insurers have claims arise under policies that do not contain a specific TCPA clause, this decision will be specifically useful. Insureds will always seek coverage from some insurer when they are being sued or suffer a loss, so in light of this decision insurers should prepare for insureds to seek coverage and defense under policies other than their CGL policies.