Third Circuit Rejects Insureds’ Claim for Coverage in Unsolicited Fax Case

January 31, 2014 | Insurance Coverage

The U.S. Court of Appeals for the Third Circuit, affirming a district court’s decision, has ruled that an insurance company was not required to defend or indemnify its insureds for claims that they had sent out unsolicited facsimile advertisements in violation of the federal Telephone Consumer Protection Act (“TCPA”). 

The Case

After an insured corporation and its director were named as defendants in a putative class action filed in the U.S. District Court for the District of New Jersey alleging that they had violated the TCPA by sending unsolicited fax ads, they sought coverage under their commercial general liability insurance policy. Their insurer went to court, seeking a declaratory judgment that it was not obligated to defend or indemnify either of the insureds, as their alleged transmission of unsolicited faxes had been intentional and, therefore, was not covered by the policy. 

The district court granted the insurer’s motion for summary judgment, and the insureds appealed. 

The Circuit Court’s Decision 

The circuit court affirmed. It explained that the complaint contained “no factual allegations” that the insured corporation had acted negligently, that the faxes had been sent by accident, or that it mistakenly had believed that the faxes were sent with the recipients’ permission. Rather, the appellate court continued, the complaint alleged that the corporation’s director was “actively involved in the scheme to broadcast fax advertisements.” 

Accordingly, the circuit court ruled, the district court had correctly decided that, despite language in the complaint alleging that the company “knew or should have known” of the TCPA violations, the complaint’s allegations of a sophisticated scheme, alongside the inherently intentional nature of sending a fax advertisement, were “squarely outside” the policy’s coverage for an “accident” and within the policy’s “expected or intended” exclusion. 

The circuit court determined that although the insureds “might not have intended to violate the TCPA, they did intend to send the faxes and knew that sending them would use the recipients’ paper, toner, and time.” The district court correctly had found that the insurer did not have a duty to defend or indemnify, the circuit court concluded. 

The case is Nationwide Mutual Ins. Co. v. David Randall Associates, Inc., No. 13-1515 (3d Cir. Jan. 9, 2014).

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