The Los Angeles Lakers are still dealing with the fallout from having sent confirmatory text messages to spectators in 2013, after having invited text messages from those spectators for potential display on the scoreboard. The ensuing Telephone Consumer Protection Act (TCPA) class action settled, but the Lakers’ suit against its insurer seeking coverage for defense costs and indemnification remains pending. The outcome of this dispute could have deep implications for any business using text messaging as part of its platform.

Oral argument in the Lakers’ appeal from the district court’s judgment of no coverage was held on February 15, 2017, with the opinion pending. See Recording of oral argument in LA Lakers v. Fed. Ins. Co., No. 15-55777 (9th Cir.).At issue in the case is whether Federal Insurance Company (Federal) had to defend and indemnify the Lakers with respect to the underlying class action (the Class Action) under the Lakers’ Directors and Officers policy (the Policy). The district court ruled that there was no coverage because TCPA claims are by definition claims for invasion of privacy, and such claims fall under the Policy’s exclusion for claims against the Lakers “based on, arising from, or in consequence of . . . invasion of privacy.” Los Angeles Lakers, Inc. v. Fed. Ins. Co., No. CV 15-7743 DMG (SHx), 2015 WL 2088865 (C.D. Cal. Apr. 17, 2015). On appeal, the parties’ central positions are laid out below. 

Arguments on Appeal of LA Lakers v. Fed. Ins. Co

The Lakers’ main argument is that the TCPA’s language, its legislative history, and FCC comments to its implementing regulations make clear that protection against invasions of privacy is not the TCPA’s only purpose, but that it was also intended to protect consumers from the nuisance and costs associated with prohibited phone calls (both actual charges for incoming messages and diminution in paid-for plan minutes or message limits).

Since, according to the Lakers, the Class Action plaintiff based his TCPA claim on the costs and lost minutes resulting from the Lakers’ text, the district court’s conclusion that the invasion of privacy exclusion applied was incorrect. And even if some aspect of the Class Action claim was related to invasion of privacy, there was also the economic/nuisance claim, obliging Federal to defend (though not indemnify) the entire Class Action. The Lakers also argue that the exclusion is ambiguous (and has to be construed in favor of the Lakers) because it merely contains a list of torts, so that a reasonable insured would not understand it to apply to statutory TCPA claims, especially since other exclusions specifically mention statutory claims.

Federal, on the other hand, argues that TCPA claims are inherently claims relating to invasions of privacy, and that the references to “nuisances” in the legislative history and elsewhere are best understood in their natural reading as something “annoying,” and not a term of art referencing a tort.

Moreover, the underlying complaint mentioned “invasion of privacy” repeatedly, so that its claims are at the very least “based upon, or arising from or in consequence of” such an invasion and hence fall under the broad language of the exclusion. Federal also contends that the exclusion is not ambiguous because the term “invasion of privacy” has a readily understood meaning that applies to things such as unwanted, intrusive phone calls and text messages.

Finally, Federal seeks to distinguish the precedent on which the Lakers rely to argue that courts have found coverage for TCPA claims as property damage or a private nuisance because those cases implicated commercial general liability (CGL) policies with different wording—according to Federal, all cases addressing coverage for TCPA claims under D&O policies have found no coverage.

At the February 15, 2017 oral argument, the judges focused on whether a TCPA claim is one for invasion of privacy only or could comprise other types of claims, like ones for nuisance, and on whether the Class Action complaint sufficiently pled a nuisance claim. From the argument (and trying to read the tea leaves), it sounds as if the panel was inclined to uphold the district court’s decision because (1) a TCPA claim is one for invasion of privacy; (2) even if a TCPA claim could be a claim for nuisance, the Class Action complaint did not properly plead that; and (3) even if there were a nuisance claim, it would be in consequence of the invasion of privacy and thus still fall under the exclusion.

Such an outcome would reinforce the dichotomy for which Federal argued on appeal, namely that there is no coverage for TCPA claims under D&O policies because those generally include invasion-of-privacy-related exclusions, while there may be coverage for TCPA claims under CGL policies, which typically provide coverage for accidental property damage and for advertising injury defined as including invasion of privacy. The “may” in the preceding sentence is important though: Caselaw on the issue of TCPA-claim coverage under CGL policies is all over the map, generally depending on the relevant policy language.

Caselaw Lessons

A few principles that emerge from the cases, the vast majority of which concern junk faxes as opposed to unauthorized calls or text messages, are as follows:

To the extent that CGL policies define property-damage-related occurrences as having to be “accidental,” the majority of courts finds that there is no coverage for TCPA claims because the advertiser intends, or at least knows, that the injury will result from its conduct. E.g.Am. States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004). One notable exception to this principle is Park University Enterprises v. American Casualty Co. of Reading, 314 F. Supp. 2d 1094, 1101-05 (D. Kan. 2004), where the court found that there was a duty to defend on the basis of property damage because the underlying complaint alleged negligence, which the court considered an accidental event.

As to advertising injury, courts often find that there is no coverage because CGL policies address only the right to secrecy (i.e., not to have private information published), whereas the TCPA is concerned only with the right to seclusion (i.e., to be free from unwarranted intrusion)—at least where the policy defines advertising injury as requiring something along the lines of the “making known . . . of material that violates an individual’s right to privacy.” E.g.ACS Sys., Inc. v. St. Paul Fire & Marine Ins. Co., 147 Cal. App. 4th 137, 147-49 (2007). But where that definition only requires the “oral or written publication” of such material (without the “making known” language), courts have split, with some finding potential coverage and others not. Compare State Farm Gen. Ins. Co. v. JT’s Frames, Inc., 181 Cal. App. 4th 429, 447 (2010), with Owners Ins. Co. v. European Auto Works, Inc., 695 F.3d 814, 817-20 (8th Cir. 2012).

Overall, the best that can be said for now is that it is likely easier to obtain coverage for TCPA claims under CGL policies than under D&O policies (though there are now some CGL policies that specifically exclude coverage for TCPA claims), and that that may, but currently does not appear too likely to, change depending on how the U.S. Court of Appeals for the Ninth Circuit rules on the Lakers’ appeal.