In the age of email, text messaging, and Twitter, litigation focused on the sending of unwanted fax messages sounds old-fashioned. Indeed, it was nearly twenty years ago that Congress passed the Telephone Consumer Protection Act (47 U.S.C. § 227) (“TCPA”), which provides for damages of $500 per violation for sending fax spam to thousands of recipients at once. Citing freedom from nuisance, peace and quiet, and conservation of ink and paper, among other reasons, courts across the country have found liability for violations of the TCPA. Many courts, including the Supreme Courts of Florida, Illinois, and Massachusetts, and courts of appeal in Ohio and Texas, have also found that violations of the TCPA are covered by the “personal and advertising injury” coverage in the standard commercial general liability policy, which typically includes the “oral or written publication of material that violates a person’s right of privacy.”
On January 27, 2010, the California Court of Appeal, Second Appellate District, faced the issue in State Farm Gen. Ins. Co. v. JT’s Frames, Inc., and decided that sending unsolicited “blast” faxes in violation of the TCPA does not trigger coverage for advertising injury or property damage under a standard CGL policy. Between 2002 and 2007, the insured transmitted tens of thousands of unsolicited ads by fax to a number of parties, including a business called JT’s Frames. In April 2007, JT’s Frames filed a class action lawsuit against the sender of the faxes. In February 2008, JT’s Frames settled on behalf of the class for $19.52 million, and stipulated that the judgment would only be enforceable against the proceeds of the sender’s insurance policies.
Following the settlement, State Farm General Insurance Company, which issued policies to the sender of the faxes, brought an action for declaratory relief seeking a declaration that there was no coverage for the settlement. The trial court granted State Farm’s motion for summary judgment, holding that fax blasting was “not an invasion of privacy” under the policies’ advertising injury coverage “in any ordinary or simple English usage.”
The court of appeal affirmed, holding that the policies’ provision defining advertising injury as “oral or written publication of material that violates a person’s right of privacy” does not cover fax blasting. The term “right of privacy” is generally understood to include both an interest in seclusion and an interest in the secrecy of personal information. A person asserting the privacy right of seclusion asserts the right to be free from highly offensive disturbances by others. Some courts have found that the TCPA presumes that all unsolicited advertising is an offensive intrusion upon seclusion.
In JT’s Frames, the court interpreted the phrase “material that violates a person’s right of privacy” to mean that the material transmitted must violate the recipient’s right of privacy, which would be the case only if the material contained confidential information or violated the victim’s right to secrecy. Since the spam was merely annoying and did not involve publication of a secret held by the recipient, it could not be within the definition of advertising injury.
The court of appeal also relied on the four types of “advertising injury” defined in the CGL policy to support its conclusion that only advertising material whose content violates a person’s right of privacy can be covered. The CGL policy includes the following four definitions:
oral or written publication of material that slanders or libels a person or organization’s goods, products or services;
oral or written publication of material that violates a person’s right of privacy;
misappropriation of advertising ideas or style of doing business; or
infringement of copyright, title or slogan.
The court concluded that, because the first, third and fourth definitions all involve injury necessarily caused by the content of the advertisement, the most reasonable interpretation of the second definition is that the information in the ad must violate the victim’s right to secrecy. Based on this contextual analysis, the court decided that any advertising injury offense must be based on the content of the ad, and not just the mere receipt of an unwanted fax.
In concluding that the right to privacy in the context of advertising injury does not include intrusions upon seclusion, the California Court of Appeal took a broader than necessary route. Because the plaintiff in JT’s Frames was a corporation rather than an individual, the court could have simply concluded that businesses generally do not enjoy a common-law right to seclusion and, therefore, the insurance policy could not have been intended to cover intrusions upon seclusion. Indeed, this was the approach used by the Seventh Circuit in American States Ins. Co. v. Capital Associates, which the court of appeal examined in JT’s Frames. The opinion is not explicit on this point, but it may be that because the class included both individuals and corporate entities, the court determined that it was necessary to broadly decide the issue. Although it remains to be seen how other divisions of the California Court of Appeal might decide the issue if asserted solely by an individual, or how the California Supreme Court would view the issue, the rationale of the Second Appellate District would foreclose all claims for coverage, regardless of the identity of the insured.
The court of appeal also rejected JT’s Frames’ contention that fax blasting was covered by the policies’ “property damage” provision based on the consumption of paper and ink, and temporary loss of use of the fax line. The State Farm policies covered “property damage caused by an occurrence,” and defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions which result in bodily injury or property damage.” Following a 2007 California Court of Appeal decision,
ACS Systems, Inc. v. St. Paul Fire & Marine Ins. Co., which concluded that there is no “accident” if the sender intended to send the fax advertisements, the court in JT’s Frames stated that there was no evidence that the sender believed that any of the tens of thousands of faxes were solicited or sent accidentally.
Moreover, at least with respect to recently issued standard CGL policies, the issue was already moot. Beginning in 2005, the insurance industry began to unequivocally exclude violations of communications laws, including violations of the TCPA, from coverage. Accordingly, if you are seeking coverage for transmitting spam, it is important to evaluate whether your policies contain this exclusion or include non-standard language, as well as whether coverage might be available under policies issued prior to 2005. Insureds should also consider whether the claim might be covered as a “property damage” claim if there is evidence to suggest that the transmissions were sent by mistake or that the recipients may have solicited the advertisements. A variety of media and advertising liability insurance products are also available that may provide coverage for such claims, or similar claims of unwanted intrusion by electronic media.