Adding to the already fragmented judicial approach to insurance coverage for Telephone Consumer Protection Act claims, an Illinois appellate court has held that an insurance company is responsible for covering a $1.7 million settlement of a class action lawsuit alleging violations of the TCPA. Standard Mutual Insurance Company v. Lay came to the appellate court on remand, after the Illinois Supreme Court ruled last year that damages under the TCPA were not "punitive" for purposes of evaluating an insurer's duty of coverage. The appellate court's opinion found that the insurer had a duty to cover the settlement, while making clear that allowing insurer liability for "telemarketing abuses" creates a moral hazard because businesses responsible for TCPA violations have "no incentive to stop the abuses from occurring in the future[.]"
This ongoing litigation involves "blast faxes" the insureds' real estate agency inadvertently sent to thousands of recipients. Although the insureds purportedly believed that the faxes were being sent (by a third party) to recipients who had given consent, the faxes actually reached a number of individuals who had not consented. One of those recipients filed a class action lawsuit alleging violations of the TCPA. Standard Mutual Insurance afforded the insureds a defense under a reservation of rights and filed a declaratory judgment action seeking a declaration that the insureds were not entitled to coverage.
The appellate court concluded that the general liability policy provided by Standard covered the TCPA violations. Coverage was found under the policy's "personal and advertising injury" provision. The court noted that allegations of advertising injury due to invasion of privacy are covered where the definition of privacy includes the right to seclusion or being left alone. Since the faxes were sent without the permission of the recipient, they violated the fax recipient's right to privacy. The court rejected arguments that the violations fell under the policy's "professional services" or "intentional acts" exclusions.
Nationally, state and federal courts are split on the question of insurance coverage for TCPA awards and settlements. This opinion, which has already been appealed to the Illinois Supreme Court, highlights the financial exposure associated with TCPA violations, not only for businesses but for insurers.