On August 23, 2017 the Ninth Circuit Court of Appeals affirmed the district court’s decision that the “invasion of privacy” exclusion in the Los Angeles Lakers’ Directors and Officers (D&O) insurance policy excluded them from recovering legal costs resulting from their defense against a TCPA claim. The Ninth Circuit upheld the 2015 decision from a federal judge in Los Angeles who found the TCPA lawsuit fell within the exceptions clause written into the Lakers' team insurance policy.
BACKGROUND (Plaintiff vs. Los Angeles Lakers)
On October 13, 2012, David M. Emanuel attended a Lakers basketball home game. A message on the scoreboard invited attendees to send a text message to a specific number for a chance at getting their message displayed on the scoreboard. After sending his message, Mr. Emanuel received a text response that included a promotional message stating that he would be receiving Lakers News Alerts and that he could text “STOP” to end the sending of alerts to his cellphone at any time.
On November 20, 2012, Mr. Emanuel and others brought a class action lawsuit against the team claiming that their text message reply was a violation of the TCPA. The lawsuit alleged that the unsolicited text response was a promotional message sent by the Lakers using an automatic telephone dialing system and was an invasion of privacy.
Two claims were brought against the Lakers:
1. Negligent violations of the TCPA
2. Knowing and/or willful violation of the TCPA
The Lakers approached Federal Insurance Company, the team’s insurer, to defend the team against the TCPA lawsuit. They refused based on their interpretation of an exclusion written into their D&O insurance policy. The Lakers paid for their own legal defense.
Eventually, Mr. Emanuel’s lawsuit was dismissed on the grounds that the initial text message sent by him for an opportunity to appear on the scoreboard had in fact provided consent.
BACKGROUND (LA Lakers vs. Federal Insurance Company)
Once the lawsuit with Mr. Emanuel had been resolved, the Lakers again approached Federal Insurance Company. This time they wanted to recover the expenses incurred from their defense against the TCPA violation claim. Federal again denied their claim, pointing out that their D&O policy included an “invasion of privacy” exclusion.
On September 2 2014, the Lakers filed suit in Los Angeles Superior Court against Federal Insurance Company.
The case focused on the wording in the Lakers’ team insurance policy and its interpretation. The policy provided corporate liability coverage that required Federal to pay for losses suffered by the Lakers “resulting from any Insured Organization Claim . . . for Wrongful Acts.”
The policy defined “Wrongful Acts” as any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted by the team. There were also numerous exclusions. One of these stated that, “no coverage will be available for a claim arising from . . . invasion of privacy.”
"In light of this plainly stated purpose, and the lack of any other indicia of congressional intent in the statute, a TCPA claim is, by its nature, an invasion of privacy claim." -- Judge N. Randy Smith.
Based on the terms of the policy and its understanding of the TCPA, the Ninth Circuit affirmed that the Los Angeles Lakers were not entitled to insurance coverage for the legal expenses incurred by the TCPA class action allegations filed by Mr. Emanuel against the team.
In its decision the court stated, “The panel held that because a Telephone Consumer Protection Act claim is inherently an invasion of privacy claim, Federal Insurance Company correctly concluded that the underlying Telephone Consumer Protection Act claims fell under the Policy’s broad exclusionary clause. Accordingly, Federal Insurance Company did not breach the insurance policy, or the implied covenant of good faith and fair dealing, under any cognizable legal theory, when it declined to defend against or cover the underlying complaint.”
As litigation under the Telephone Consumer Protection Act (TCPA) continues to flood the courts, businesses are looking for ways to supplement the costs of potential lawsuits. For some businesses the solution is a litigation insurance policy. In light of the Laker’s decision, an obvious question is whether your business has insurance that truly covers the potential claims you are exposed to as a telemarketers.
In the past, companies hit with TCPA lawsuits sought coverage for the claims under their Commercial General Liability policies. However, spurred by the increase in lawsuits, newer policies tend to have TCPA exclusions which are worded in such a way that their true intent is obscured. Unfortunately for the Lakers, they were unaware of the “invasion of privacy” exclusion in their policy which allowed the insurer to avoid paying for their legal defense against a TCPA violation claim.
It’s possible that insurers no longer intend to provide coverage for TCPA claims. If that is the case, insurers should expressly state that TCPA claims are excluded and not conceal it in carefully worked legalese that requires interpretation by the courts. For businesses, this may be a good time to pull out your company’s insurance policy for a careful legal review of is and isn’t covered.
TCPA and DNC compliance is becoming a greater headache for marketing companies to manage alone. Thankfully, there is a solution. Contact Center Compliance, the award winning compliance provider, has its time tested processes in place designed to easily keep your business compliant with all federal and state regulatory laws. Sign up for a complimentary strategy session with one of our team members or contact us at email@example.com or call us at 866-DNC-LIST (362-5478).