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(Article from Insurance Law Alert, January 2015)

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A Florida federal district court ruled that an insurer had no duty to defend a suit alleging both statutory and common law conversion claims because the policy’s Violation of Statutes exclusion barred coverage for both claims. Am. Cas. Co. of Reading, Pa. v. Superior Pharmacy, LLC, No. 8:13-cv-622 (M.D. Fla. Jan. 8, 2015).

A class action was filed against the policy-holder alleging violations of the Telephone Consumer Protection Act ("TCPA") and conversion, based on the transmission of unsolicited fax advertisements. American Casualty sought a declaaration that it had no duty to defend or indemnify the claims based on the Violation of Statutes exclusion, which barred coverage for damage "arising directly or indirectly out of any action or omission that violates or is alleged to violate" the TCPA. Although the policyholder did not dispute that the exclusion barred coverage for the TCPA claim, it argued that it did not apply to the common law conversion claim. The court disagreed.

The court concluded that the conversion claim "arose out of" an alleged violation of the TCPA because it was based on the same operative facts. The court noted that under Florida law, the phrase "arising out of" is broader than the term "caused by" and is comparable to "having a connection with." The court found it immaterial that the conversion claim arose under common law and required different elements of proof and sought independent damages. Additionally, the court dismissed the policyholder’s argument that the statutory exclusion did not bar coverage for the conversion claim because some of the faxes might constitute conversion yet not violate the TCPA. In rejecting this contention, the court explained that possible factual defenses to the TCPA claim were irrelevant to the duty to defend analysis because regardless of the merits of the TCPA claim, the "conversion claim arises out of conduct alleged to have violated the TCPA."

Policyholders have frequently sought coverage for TCPA-related claims under general liability policies. The first wave of TCPA coverage litigation focused on whether such claims alleged a violation of the "right to privacy" under personal and advertising injury provisions. See March 2010 Alert; October 2011 Alert; October 2012 Alert. Subsequent coverage litigation addressed whether TCPA-based damages constitute uninsurable punitive damages. See June and September 2013 Alerts. With many general liability insurance policies now including statutory violation exclusions, more recent decisions have addressed the application of such exclusions to TCPA or related non-statutory claims. See April and May 2014 Alerts.

For more information, please visit the Insurance Law Alert Resource Center.