I. Introduction
In the past several years, plaintiffs’ attorneys around the country have exploited a once-unknown 1991 law, the Telephone Consumer Protection Act (“TCPA”), to obtain headline-grabbing, multimillion-dollar judgments and settlements from some of the country’s largest financial services companies. Because financial services companies are often required to communicate with customers by telephone, these companies have attracted an undue amount of attention from the TCPA plaintiffs’ bar. Seemingly, each new day brings another lawsuit or settlement, and so, it is no surprise that the TCPA remains a hot topic in the financial services and related industries. In this alert, we explore current trends in insurance coverage claims attendant to TCPA class action claims.
II. Background
Congress enacted the TCPA in 1991 to address what it perceived as the growing problem of unsolicited telemarketing that made use of emerging technologies such as fax machines and automatic dialing systems to reach greater numbers of people than was previously possible. In general, the TCPA’s restrictions on calls vary depending on whether (a) the call is made to a wireless or residential line and (b) the call is informational or conveys a telemarketing or advertising message.
With respect to informational calls made to wireless lines, the TCPA states that it is unlawful to make a call using “artificial or prerecorded voice;” or an “automatic telephone dialing system” (“ATDS”) without the called party’s prior express consent. Calls to wireless lines using an ATDS or artificial/prerecorded voice that introduce advertising or constitute telemarketing require the prior express written consent of the called party.
With respect to calls placed to residential telephone lines, the TCPA states that it is unlawful to make an artificial/prerecorded voice call without the prior express consent of the called party. In 2005, however, acting under its statutory authority, the Federal CommunicationsCommission (“FCC”) ruled that the restriction on artificial/prerecorded voice calls to residential lines applies only to “commercial purpose” calls. That is, an artificial/prerecorded voice call to a residential line does not violate the TCPA if, among other characteristics, the call “is not made for a commercial purpose” or “is made for a commercial purpose but does not include or introduce an advertisement or constitute telemarketing.”
A. ATDS
The statute defines an ATDS as “equipment which has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator; and to dial such numbers.” The FCC has taken the position that a “predictive dialer” is an ATDS and, therefore, covered by TCPA to the extent that it has the capability of dialing numbers randomly or sequentially. The FCC defines a “predictive dialer” for these purposes as equipment that (a) dials numbers and, when certain computer software is attached, predicts when an agent will be available to take calls, and (b) consists of hardware that, when paired with certain software, has the capacity to store or produce numbers and dial those numbers at random, in sequential order, or from a database of numbers.
Whether a predictive dialing system qualifies as an ATDS is a fact-bound determination. Several courts have taken an expansive view of the FCC’s position, and have found that a dialing system may be considered an ATDS so long as there is a theoretical possibility that the system may have the capacity to dial numbers randomly or sequentially. Other decisions have taken a more pragmatic view, however, and have declined to find the existence of an ATDS where the relevant system would require significant modification to “have the capacity” to dial randomly, sequentially, or in a predictive fashion.
B. Prior Expess Consent
The TCPA does not define the term “prior express consent”; in its 1992 Order, however, the FCC ruled that “persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary.” And in a subsequent Declaratory Ruling, the FCC stated that “autodialed and prerecorded message calls to wireless numbers provided by the called party in connection with an existing debt are made with the ‘prior express consent’ of the called party” and, therefore, “such calls are permissible” under the TCPA. The FCC reasoned that “the provision of a cell phone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted at that number regarding the debt.” A number of federal courts have concluded, therefore, that where a consumer provides a cellular number to a creditor as a “home” number or as the only number, the consumer has provided prior express consent to be called on the cellular number for purposes of the TCPA.
In February 2012, the FCC issued rules with respect to telemarketing calls that are covered by the TCPA. In particular, as to any telemarketing communication covered by the TCPA made after October 16, 2013, the party making the call must first obtain “prior express written consent” from the called party. The FCC regulations set forth the specific requirements for obtaining such consent and for providing required disclosures.
C. Private Right of Action under the TCPA
The TCPA provides a private right of action under which a plaintiff may recover the greater of actual monetary loss or $500 per violation. A court may treble the amount of damages upon a finding of a “willful or knowing” violation. The TCPA places no cap on damages for claims brought individually or as a class action, so the number of potential violations can mount quickly.
III. Insurance Coverage for TCPA Claims
Companies and individuals facing TCPA claims have sought insurance coverage for defense costs, as well as the costs of judgment or settlement, under at least three different kinds of insurance policies, commercial general liability (“CGL”) policies, errors and omissions (“E&O”) or professional liability policies, and Directors and Officers (“D&O”) liability policies. As discussed below, although policyholders have had some success securing coverage under these policies, insurers are increasingly challenging coverage for TCPA claims or outright excluding TCPA liability under their policies. In light of this changing landscape, policyholders should consider their risks and, where appropriate, consider securing policies that specifically cover TCPA liability. The key insurance coverage considerations for traditional policies are considered below, along with a brief discussion on alternative policies.
A. Coverage for TCPA Violation Claims under Commercial General Liability Policies
CGL policyholders have historically argued for coverage on the grounds that TCPA claims typically allege either “advertising injury” or “property damage,” which types of injury are generally within the scope of CGL policies. As to both types of injuries, insurers have argued that TCPA claims should not be covered because the damages available under the TCPA amount to penalties, which are not covered under most CGL policies.
1. Advertising Injury and Violations of Right to Privacy
Policyholders have often sought coverage for TCPA claims under the advertising injury provision in standard CGL policies. This provision usually provides that the insurer will cover damages the policyholder is legally obligated to pay as a result of any “personal and advertising injury.” Personal and advertising injury is typically defined to include “oral or written publication, in any manner, of material that violates a person’s right to privacy.” Most courts have found that fax and text fax transmissions amount to a “publication.” As a result, a court’s decision as to whether coverage exists frequently turns on whether the court finds that there has been a violation of a person’s “right to privacy.”
The...
