Unsolicited Fax Advertising Does Not Constitute an “Advertising Injury”

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Superior Court of Pennsylvania

In Telecommunications Network Design and Paradise Distributing, Inc. v. Brethren Mut. Ins. Co., ___ A.2d ___, 2010 WL 3294319 (Pa. Super. Aug. 23, 2010), the Superior Court of Pennsylvania determined that an insurer had no duty to defend its insured in a lawsuit arising out of the insured’s transmission of unsolicited advertising faxes based on a policy provision providing coverage for “advertising injury.” Paradise was insured under business owners’ liability insurance policies issued by Brethren Mutual.

Paradise transmitted more than 1,000,000 unsolicited advertising faxes, which were received by, among others, Telecommunications Network Design (TND). TND filed a class action lawsuit against Paradise under the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227, on behalf of the persons and entities who had wrongfully received faxes sent by Paradise. Brethren refused to defend and indemnify Paradise under the policies. The action ultimately settled by way of a judgment against Paradise in the amount of $3,999,999.00, to be satisfied only from the proceeds of the policies, which had been assigned to the plaintiff class.

Paradise and TND then filed a declaratory judgment action to determine Brethren’s liability, alleging that Brethren had acted in bad faith in denying coverage. The trial court determined that Brethren did not have a duty to defend under the policies’ “personal injury” and “advertising injury” provisions, but that it did have a duty to defend under the “property damages” provision based on the amended complaint’s allegations that Paradise had unintentionally transmitted the advertisements to the plaintiff class. Prior to trial of the action, Paradise and TND had agreed to dismiss with prejudice all the remaining claims under the “property damages” coverage and the one remaining bad faith claim.

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