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Third Circuit Moves Pennsylvania Courts Closer to Viewing TCPA Violations as Uncovered Acts Under BOP and CGL Policies

In Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., 2016 U.S. App. LEXIS 16182 (Sept. 1, 2016 3d. Cir.), the Third Circuit predicted that the Supreme Court of Pennsylvania, if given the opportunity, would find that Telephone Consumer Protection Act (TCPA)1 violations are not covered under Businessowners (BOP) or CGL policies as a TCPA violation is not an “occurrence,” and does not cause an “advertising injury.”


Stevens & Ricci, Inc. had permitted an advertiser to send thousands of fax advertisements to potential clients based upon a representation by the advertiser that they had a TCPA-compliant fax program. Id. at 3.  Hymed, whom had received faxes, filed a class action lawsuit against Stevens & Ricci alleging the faxes violated the TCPA.  Id.  Hymed, on behalf of the class, alleged permission was not given to Stevens & Ricci to send the faxes and that the unsolicited faxes had damaged the recipients by causing them to waste paper and ink in the printing process.  Id.  Additionally, the complaint alleged the faxes had violated the plaintiffs’ privacy interest in being left alone. Id. at *4-5.

At the time of the alleged violations, Stevens & Ricci was insured under a Businessowners Insurance Policy issued by Auto-Owners. Id.   The Policy covered “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’, ‘property damage’, ‘personal injury’ or ‘advertising injury’” which were the result of an “occurrence.”  Id. at *5.

The policy defined “property damage” as “[p]hysical injury to tangible property, including all resulting loss of use of that property.” It defined an “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  Id.  The policy did not define “accident,” but excluded “property damage” which was “expected or intended from the standpoint of the insured.”  Id.  Additionally, the policy defined “advertising injury” as injury arising out of:

a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

b. Oral or written publication of material that violates a person's right of privacy;

c. Misappropriation of advertising ideas or style of doing business; or

d. Infringement of copyright, title or slogan.

Id. at *6. 

Auto-Owners agreed to defend Stevens & Ricci under a reservation of rights in the underlying action.  Id. at *6.  The parties ultimately agreed upon a settlement for the class in the amount of $2,000,000.  However, Hymed and the class also agreed to seek recovery to satisfy the judgment only from Auto-Owners under the policy.  Id.   The court in the underlying action approved the settlement, and in its order approving the settlement noted that Stevens & Ricci did not “willfully or knowingly” violate the TCPA.  Id. at *7.

After settlement, Auto-Owners then filed a declaratory judgment action against Stevens & Ricci and Hymed, seeking a declaration that the policy did not provide coverage for the TCPA violations in the underlying action, and thus, owed no duty to defend or indemnify them.  Id.  Auto-Owners and Hymed filed cross-motions for summary judgment.  The District Court granted Auto-Owners’ motion for summary judgment and concluded that the sending of unsolicited faxes to Hymed and other class members did not cause “property damage” or “advertising injury” as defined by the policy.   Id.  Hymed appealed.  Id. at *8.  Upon review, the Third Circuit framed the central issue before them as “whether the sending of unsolicited faxes inflicted . . . property damage and advertising injury.”2  Id. at *5.

Sending the Unsolicited Faxes Did Not Constitute an “Accident” and Therefore Were Not an “Occurrence”

When considering whether or not the sending of the unsolicited faxes constituted an “accident,” the Court focused on Donegal Mutual Insurance Co. v. Baumhammers, 938 A.2d 286 (Pa. 2007).  In Baumhammers the Pennsylvania Supreme Court stated that when an “accident” is undefined in an insurance policy, Pennsylvania courts should treat the term as:

refer[ing] to an unexpected and undesirable event occurring unintentionally. . . . [T]he key term in the definition of the “accident” is “unexpected” which implies a degree of fortuity. An injury therefore is not "accidental" if the injury was the natural and expected result of the insured's actions. . . .

Id. at 292.  The Baumhammers decision also stands for the proposition that intentional conduct of third parties may still be a covered “accident” under Pennsylvania law.3

As applied to the instant matter, the Court noted that Hymed's claimed property damage was the use of ink, toner, and time that was caused by the receipt of unsolicited faxes, and that those injuries are “the natural and expected result of the intentional sending of faxes, a far cry from Pennsylvania's definition of an ‘accident.’” Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., 2016 U.S. App. LEXIS 16182 at *43. The Court stated:

[T]he sending of faxes necessarily results in the receipt of faxes, and any sender of a fax knows that its recipient will need to consume paper and toner and will temporarily lose the use of its fax line. That does not happen by accident. While the Supreme Court of Pennsylvania has not addressed whether unintended damages from faxes sent in violation of the TCPA constitute an “accident,” we predict that the court would reject coverage under the “property damage” provision of the [p]olicy.

Id. at *43.  Thus, even though Stevens & Ricci did not intend the injury, it intended for the third-party advertiser to send the faxes to the recipients.  Therefore, the Court concluded that although the Pennsylvania Supreme Court had not yet addressed “whether unintended damages from faxes sent in violation of the TCPA constitute an ‘accident,’” the Court believed the Pennsylvania Supreme Court “would reject coverage under the ‘property damage’ provision of the Policy. . . because the alleged injury was not the result of an ‘accident.’ It was, instead, the foreseeable result of the intentional sending of faxes to the class recipients.”  Id. at *43-45.

Receipt of the Unsolicited Faxes Was Not an “Advertising Injury” as Defined By the Policy

Addressing Hymed’s argument that the receipt of the unsolicitedfaxes amounted to an “advertising injury” the Court affirmed the trial court’s finding that there was no coverage under the Policy.  Id. at 48.  The policy defined an “advertising injury” in part, as “[o]ral or written publication of material that violates a person's right of privacy.” 

Although the policy did not define the term “privacy,” the Court turned to the Pennsylvania Superior Court in Telecommunications Network Design v. Brethren Mutual Insurance Co., 5 A.3d 331 (Pa. Super. 2010), which had examined numerous TCPA cases and had determined that the right to privacy encompasses both  the privacy interest in secrecy and the privacy interest in seclusion. The Brethren Court had also determined that the TCPA protects only the latter category by shielding people from unsolicited messages, and that the content of the messages is immaterial for a TCPA violation.  Citing Melrose Hotel Co. v. St. Paul Fire & Marine Ins. Co., 432 F. Supp. 2d 488, 502 (E.D. Pa. 2006), the Third Circuit noted:

The sending of unsolicited faxes does not necessarily result in the dissemination of confidential information. Rather, “an unsolicited fax intrudes upon the right to be free from nuisance.  Accordingly, the TCPA seeks to protect privacy interests in seclusion, not secrecy.”

Id. at *49 (internal citations omitted).  In contrast to the protection afforded under the TCPA, the Third Circuit noted:

[T]he Policy provides coverage only for violations of the privacy interest in secrecy, and thus does not cover violations of a right to seclusion. This is amply demonstrated by the other three offenses that the Policy includes within the definition of “advertising injury”: “Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services”; “Misappropriation of advertising ideas or style of doing business”; and “Infringement of copyright, title or slogan.” All three of those offenses — slander, misappropriation, and infringement — “focus on harm arising from the content of an advertisement rather than harm arising from mere receipt of an advertisement.” That content-dependent coverage clarifies the scope of the Policy's “advertising injury” provision: it protects against injuries caused by the improper content of a published advertisement. The Policy's protection of the “right of privacy” is thus logically limited to a privacy interest the infringement of which depends upon the content of the advertisements: in other words, the privacy right to secrecy.

Id. at 50-51 (internal citations omitted).

Noting that none of the allegations in the underlying lawsuit related to the content of the unsolicited faxes, “the injury alleged in the Underlying Action falls outside of the scope of that protection.” Id. at *51-52.  The Court noted that although the Supreme Court of Pennsylvania has not addressed whether or not such TCPA violations qualify as “advertising injury,” the conclusions of Brethren were indicative of how the Supreme Court of Pennsylvania would decide the issue.  Id. at *53-54. 


Auto-Owners Ins. Co. v. Stevens & Ricci, Inc. brings Pennsylvania one step closer to the majority of courts throughout the country in concluding that TCPA violations are typically uncovered intentional acts.  Although TCPA violations may cause property damage in the form of wasted ink and paper, they are not the result of an “accident” and therefore, not an “occurrence” under most definitions in Business Owners and CGL policies.  Similarly, although such policies may cover injuries to the right to privacy in the form of a right to secrecy, they will not cover injuries to privacy in the form of nuisance.


1 The TCPA prohibits the “use [of] any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement. . . .” 47 U.S.C. § 227(b)(1)(C).  The TCPA provides penalties in the form of statutory damages in the amount of $500 per fax.  47 U.S.C. § 227(b)(3)(B).  Additionally, if it can be proven the defendant violated the TCPA “willfully or knowingly,” treble damages are permitted.  47 U.S.C. § 227(b)(3).  In this particular instance, damages could have amounted to $9,439,500, before trebling.  Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., 2016 U.S. App. LEXIS 16182 at *4.

2 As a preliminary matter, the Court also addressed its subject matter jurisdiction relating to the amount-in-controversy requirement for diversity jurisdiction.  In particular, the Court concluded that the District Court had proper diversity jurisdiction under 28 U.S.C. § 1332 and that the satisfaction of the amount-in-controversy requirement did not violate the anti-aggregation rule.  Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., 2016 U.S. App. LEXIS 16182 at *8-30.  The court also addressed several choice of law issues beyond the scope of this article and concluded that either no conflict existed or the same results would be reached under either Arizona or Pennsylvania law.  Id. at *32-39.

3  In Baumhammers the son of the insured went on a killing spree and the estates of several of the victims sued both the son and his parents alleging negligence on the part of the parents “in failing to take possession of [his] gun and/or alert law enforcement authorities or mental health care providers about [their son's] dangerous propensities.”  938 A.2d at 288-291.  The parents’ insurance policy covered claims for bodily injury caused by an “accident.”  Id. at 288. The Baumhammers Court held that, with respect to the parents, the shootings qualified as an “accident” due to the “extraordinary shooting spree . . . [which] cannot be said to be the natural and expected result of [his parent's] alleged acts of negligence,” and that the event was “so unexpected, undesigned and fortuitous as to qualify as accidental within the terms of the policy.” Id. at 293.

Disclaimer: This post does not offer specific legal advice, nor does it create an attorney-client relationship. You should not reach any legal conclusions based on the information contained in this post without first seeking the advice of counsel.

About the Author

Jeffrey M. Brenner is an Associate In the Firm's Insurance Law Department and represents national and regional insurers in life and disability insurance in the ERISA context as well as novel annuity and structured settlement disputes. Mr. Brenner has extensive experience in the areas of annuities and structured settlement litigation. This experience includes representing national insurers in litigation where “factoring companies” attempt to purchase or transfer structured settlement payment rights stemming from annuities or reinsurance agreements.

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