(Article from Insurance Law Alert, March 2023)
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Holding
A Michigan appellate court ruled that an insurer had no duty to indemnify a class action settlement for claims alleging violations of the Telephone Consumer Protection Act (“TCPA”). Bridging Communities, Inc. v. Hartford Cas. Ins. Co., No. 355955 (Mich. Ct. App. Mar. 2, 2023).
Background
As a result of an advertising campaign initiated by Top Flite, thousands of individuals received unsolicited fax messages. The recipients filed a class action suit, alleging violations of the TCPA. After the suit settled, Top Flite sought indemnification from Hartford under a commercial business policy that provided coverage for “property damage” caused by an “occurrence,” as well as “personal and advertising injury,” defined to include violations of a person’s right to privacy. Hartford denied coverage on several bases, including the lack of a covered occurrence, an expected or intended exclusion and a statutory right to privacy exclusion. The trial court concluded that both exclusions barred coverage and the appellate court affirmed.
Decision
The appellate court ruled that coverage was barred by a statutory right of privacy exclusion, which applied to personal or advertising injury claims “[a]rising out of the violation of a person’s right to privacy created by any state or federal act.” However, the exclusion did not apply to “liability for damages that the insured would have in the absence of such state or federal act.” The court explained that the claims against Top Flite were brought pursuant to the TCPA and that no common law cause of action exists under Michigan law for invasion of privacy arising out of unsolicited fax advertising. In so ruling, the court rejected the assertion that a right to seclusion from unwanted fax advertisements preexisted in common law and that the TCPA merely provided a remedy for violations of that right. Further, the court ruled that the exclusion was unambiguous and applied squarely to the underlying settlement even though the exclusion did not specifically mention the TCPA. In this respect, the court noted that the inclusion of a specific TCPA exclusion in a subsequent policy did not create ambiguity as to the exclusion in the operative policy.
The court also held that there was no covered “occurrence” because Top Flite intended to transmit the fax advertisements. The court explained that the “natural consequence” of that intentional act was the resulting property damage, in the form of depleted paper and ink supplies and use of the plaintiffs’ fax machines. Based on this same reasoning, the court concluded that coverage was barred by an exclusion for damage that was “expected or intended from the standpoint of the insured.”
Comments
Numerous courts have addressed coverage for TCPA violations. Courts of Appeals in the Ninth and Eleventh Circuits have upheld coverage denials for TCPA claims based on exclusions for invasion of privacy claims. While those decisions involved different policy language than that presented in Bridging Communities, a common issue among many TCPA coverage decisions is whether a “right of solitude” (i.e., the right to be free from unwanted intrusions) is part of a more general “right to privacy.” Bridging Communities illustrates that even when a state recognizes a common law right to privacy, policyholders may face challenges in arguing that such a common law right encompasses unwanted fax advertising claims because such activity does not involve private information.