D&O Policies: A Possibility For TCPA Coverage?

Business is booming for plaintiffs' attorneys wielding the Telephone Consumer Protection Act (TCPA). The TCPA restricts unsolicited telemarketing by fax, voice calls and text messages. Violations can trigger liability of at least $500 for each fax, text or call. The prospect of lucrative recoveries has proven to be attractive, with the volume of TCPA class actions steadily rising for almost a decade. Settlements often run in the millions or multi-millions of dollars. In fact, plaintiffs' attorneys have broken records for TCPA settlements the past two years in a row (securing settlements of $32 million from Bank of America in 2013, and a staggering $75.5 million from Capital One and three debt collectors in 2014).

TCPA class action lawsuits pose a substantial risk to just about any business with a marketing budget. Many businesses have sought insurance coverage for TCPA claims under their commercial general liability (CGL) policies, but have met with only mixed success. While some courts have found coverage for TCPA claims under CGL policies, CGL insurers have increasingly added explicit TCPA exclusions to their policies, cutting off that source of coverage.

Some TCPA defendants have turned to their Directors and Officers (D&O) policies in an effort to find coverage. D&O policies cover officers, directors and often the corporation itself for "wrongful acts," subject to various coverage exclusions.

Whether D&O policies can be a source of coverage for TCPA claims is largely untested in the courts. In the few cases that have been decided, the courts have denied coverage. But one of those cases, filed by the Los Angeles Lakers, has just been appealed to the U.S. Court of Appeals for the Ninth Circuit, which raises the possibility of new developments worth watching. Los Angeles Lakers, Inc. v. Fed. Ins. Co., No. CV 14-7743-DMG-SHX, 2015 WL 2088865 (C.D. Cal. 2015).

The Lakers faced a putative class action alleging that texts sent to fans at a game violated the TCPA. That class action was ultimately dismissed, because the court found that the fans had consented to the texts. But the Lakers sought coverage for the costs of defending the class action under a D&O policy issued by Federal Insurance Company. Federal denied coverage, based on a policy exclusion eliminating coverage for claims "based upon, arising from, or in consequence of... invasion of privacy." Federal maintained that TCPA suits are based on "invasions of privacy" of the sort...