The ongoing fights over coverage for junk faxes continue, with the trend favoring policyholders, most recently in the form of a US Court of Appeals for the Tenth Circuit decision, Park University Enterprises, Inc. v. American Cas. Co. (10th Cir. March 27, 2006).
A year ago at this time, policyholders began to feel more confident following an Eighth Circuit opinion that refused to follow negative decisions from the Seventh and Fourth Circuits; since then, the trend has continued to swing toward policyholders, at least insofar as they seek defense coverage to class actions alleging violations of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. 227.
Most recently, the Tenth Circuit found that there was coverage under both the property-damage and the advertising-injury coverage. With respect to property damage, the court focused in part on what I term “prong 2″ property damage, that is, loss of use of tangible property that has not been physically injured. Here, the court considered the loss of use of the fax machine during transmission to be the loss-of-use property damage. The court implicitly considered the waste of paper and ink to be “prong 1″ property damage, that is, physical injury to tangible property. See Park University, slip op. at 8.
The Park University court rejected the argument that the property damage was expected or intended from the standpoint of the insured or was so unfortuitous as not to be covered. Instead, the court focused on the denial of liability of the insured in the TCPA action wherein it alleged (subject to Fed. R. Civ. P. 11) that it believed it had permission to send the offending fax. Id. at 14 n.3. “Hence, from its standpoint, any resulting use of [the recipient's] fax machine, paper, and toner could not have resulted in injury because Park University thought the fax was welcome.” Id. at 11.
As to advertising-injury coverage, the Tenth Circuit rejected the argument that coverage was limited only to injury to “seclusion,” the theory espoused by the Seventh Circuit (per Judge Easterbrook), concluding that the policy, “defined by a reasonable person in the position of the insured, provides coverage for TCPA violations.” Slip op. at 17. Ultimately, the Park University court found that accepting the advertising-injury coverage arguments of the insurer would be to “construe the language of the contract from the vantage of an insurer or an attorney, rather than the insured.” Slip op. at 20.
Accordingly, “[t]he transmission of an allegedly unsolicited fax can constitute a [covered] publishing act, while receiving the same can result in a[ covered] invasion of privacy.” Slip op. at 22. Furthermore, the nature of insurers’ responses to these claims likely will vest in the policyholder the right to select the counsel it wishes to defend it against the TCPA liaiblities.
Note that the increased success of policyholders in obtaining defense and indemnity coverage for these cases pressures insurers not to offer this type of coverage at all, a development I have previously described.