In its recent decision in Interline Brands, Inc. v. Chartis Specialty Ins. Co., 2014 U.S. App. LEXIS 6945 (11th Cir. Apr. 15, 2014), the United States Court of Appeals for the Eleventh Circuit, applying Florida law, had occasion to consider the application of a junk fax exclusion.
Chartis insured Interline under a series of general liability policies. Interline sought coverage under the policies for an underlying lawsuit relating to Interline’s transmittal of unwanted “junk” faxes in violation of the Telephone Consumer Protection Act (the “Act”), 47 U.S.C. § 227, et seq. Chartis denied coverage on the basis of an exclusion applicable to:
Personal and advertising injury arising out of or resulting from, caused directly or indirectly, in whole or in part by, any act that violates any statute, ordinance or regulation of any federal, state or local government, including any amendment of or addition to such laws, that includes, addresses or applies to the sending, transmitting or communicating of any material or information, by any means whatsoever.
On motion for summary judgment, the United States District Court for the Middle District of Florida rejected Interline’s arguments that the exclusion was ambiguous because it failed to define the word “violates,” or that it was void as against public policy, and held in Chartis’ favor.
On appeal, Interline renewed its argument that the exclusion was ambiguous on the basis the language either did not support its application to the Act or because the exclusion did not expressly refer to the Act. The court rejected these assertions, observing that the exclusionary language – applicable to violation of “any statute” and to the “sending, transmitting or communicating” of any material – could reasonably be interpreted to encompass a violation of the Act. The court further rejected Interline’s argument that that Chartis should have specifically identify the Act in the exclusion and that its failure to do so rendered the exclusion ambiguous, explaining:
Interline estimates that this exclusion relates to “hundreds of thousands of laws, ordinances and codes,” although there is no such information in the record. A list of hundreds of thousands of laws would be painstakingly difficult to analyze and would likely provide the insured with less, not more, meaningful notice. And, it would be difficult for a specific list to account for laws that are amended, renamed, or enacted after the policy is signed. To be sure, the language of the Exclusion is broad and excludes coverage for violations of many laws. But, a broadly written provision is not the same as an ambiguous one.
The court also considered and rejected Interline’s argument that the exclusion was void as against public policy. While Interline contended that the exclusion rendered coverage virtually illusory since it eliminated a large chunk of coverage under the policy, the court found persuasive Chartis’ rejoinder that junk fax exclusions are relatively standard in the industry and that its inclusion in the policy left Interline with coverage for wide range of potential personal and advertising injury claims, as well as for bodily injury and property damage claims. The court further reasoned that the exclusion did not render the policy’s coverage “absurd” or otherwise invert or negate the policy’s insuring agreements. In passing, the court also found a beneficial purpose for such exclusions, explaining:
Furthermore, exclusions are not necessarily harmful. Exclusions—like this one—allow creation of a policy that provides the insured the coverage it needs at a price it can afford. Without such exclusions, coverage would undoubtedly be more expensive. A company primarily needs insurance for risks it may be ill equipped to anticipate or prevent (e.g. property damage). Without an exclusion, a company would also have to pay for coverage of risks it can easily anticipate and avoid (e.g. violations of laws related to its business). And, coverage for violations of law creates a moral hazard that could substantially increase insurance costs, especially when the coverage is closely related to the company’s business.