No Duty to Indemnify for “Junk Fax” Class Action Suit Where Claims Could Not Reach $1,000 Deductible

The U.S. Court of Appeals for the Eighth Circuit, affirming a decision by the U.S. District Court for the Western District of Missouri, has ruled that an insurance company had no duty to indemnify its insured in a putative “junk fax” class action lawsuit where the policy had a $1,000 deductible and claims by individual members of the class could not reach that amount.

The Case

Asphalt Wizards, a parking-lot repair business, hired a company to fax advertisements to potential customers. From 2005 until 2008, more than 44,000 faxes were sent on Asphalt Wizards’ behalf.

Fun Services of Kansas City, which received some of the faxes, filed a class action in Missouri state court alleging that Asphalt Wizards had violated the federal Telephone Consumer Protection Act (“TCPA”) by sending these faxes. For the alleged TCPA violations, Fun Services and the class sought statutory damages of $500 for each fax.

Shortly after the lawsuit was filed, Asphalt Wizards notified its insurance carrier, Western Heritage Insurance Company. The insurer went to court, seeking a declaration that it did not have a duty to indemnify Asphalt Wizards in connection with the class action lawsuit.

The district court ruled in favor of Western Heritage. The district court found that the policy’s $1,000 deductible amount applied separately to each fax and reasoned that one fax could not create damages and legal expenses in excess of $1,000.

The dispute reached the Eighth Circuit.

The Eighth Circuit’s Decision

The Eighth Circuit affirmed.

In its decision, the circuit court observed that the policy stated that Western Heritage’s coverage obligations applied only to damages “in excess of the [$1,000] deductible amount” and that the $1,000 deductible amount applied “to all damages sustained by one person or organization as the result of any one claim.”

It then agreed with the district court that the term “claim” connoted that the $1,000 deductible amount applied separately to each fax and that because damages from one fax could not exceed $1,000, Western Heritage was not obligated to indemnify Asphalt Wizards.

The Eighth Circuit rejected the argument that “claim” meant an insured’s request for insurance coverage, stating that an ordinary person would interpret the term “claim” to mean a third-party claimant’s assertion of damages against an insured. The circuit court also was not persuaded by the argument that “claim” meant a third-party claimant’s assertion of damages from all of the faxes sent to that claimant in a policy year, finding no evidence that any class member had received more than one fax in any policy year.

Accordingly, the Eighth Circuit decided that the trial court had not erred in ruling in favor of Western Heritage.

The case is Western Heritage Ins. Co. v. Asphalt Wizards, Nos. 14-2587, 14-2697 (8th Cir. July 30, 2015).