The Question of Insurance Coverage for Fax-Blasting Claims Surfaces

As with almost every facet of business, the advertising industry has significantly changed with the rapid advancement of technology.

Years ago, advertisers did not have the ability to target (or reach) individual consumers. With increased technology and market data, advertisers have sought to target market their goods and services by utilizing low cost options such as the telephone, computer and facsimile machine.

As has been well publicized, advertisers have fought very hard to maintain their right to reach out telephonically to individual consumers. However, the litigation concerning the ability to send unsolicited facsimile transmissions (“fax blasting”) has received less attention. Under the federal Telephone Consumer Protection Act, it is unlawful for any person within the United States … to use any telephone machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine. 47 U.S.C. Section 227.

In turn, those that run afoul of the Act’s provisions risk being found liable for the stated statutory damages or the prospect of facing a private cause of action in state court seeking unspecified damages. Despite the risks, an increasing number of either unknowing or risk-accepting advertisers have turned to the fax machine in an effort to mass market their products and have subsequently been sued.

As commonly occurs when there is developing litigation that addresses new issues, there is a concurrent debate in the courts as to whether there is insurance coverage for the developing claims under a standard CGL policy.

A recent opinion by a Texas Appellate Court highlights this increasing coverage debate for “fax-blasting” claims. TIG Ins. Co. v. Dallas Basketball, LTD., et al., 2004 WL 352079 (Tex.App. 2004).
In December of 2000, the Dallas Mavericks, a professional basketball team in the NBA, was named as a defendant in a class action, wherein the plaintiffs alleged the Mavericks violated the Telephone Consumer Protection Act by sending unsolicited advertisements for basketball tickets to their telephone facsimile machines.

Pursuant to the provisions of the Act, the plaintiffs sought damages in the amount of $500 per advertisement. The action was later amended to include claims for trespass and violations of the right to privacy.

A year later, the Dallas Mavericks organization was named as a defendant in a second-class action lawsuit that included nearly identical allegations. The Mavericks requested that TIG, its commercial general liability carrier, defend and indemnify it with respect to the class actions. TIG responded by denying that it had a duty to defend because the lawsuits did not allege an “occurrence” or “advertising injury” as defined in the TIG policies.

After the parties filed motions for summary judgment, the trial court concluded that the petitions in the underlying litigation set forth a cause of action potentially covered by the TIG policy, and TIG had breached its duty to defend.

On appeal, the Court was confronted with several issues raised by TIG. First, TIG contended the Mavericks failed to demonstrate that the underlying suits sufficiently alleged the plaintiffs’ right of privacy was violated by “written material,” so as to fall within the policy’s coverage for advertising injury. Relying upon the legislative history of the Telephone Consumer Protection Act, the Court concluded that Congress had specifically recognized an advertisement via the telephone was sufficiently offensive and unreasonable to amount to an invasion of privacy.

Second, TIG contended that the underlying actions failed to allege a “publication” of the material at issue, as required by the terms of the advertising injury coverage in the policy. Relying upon what the court determined to be the ordinary meaning of “publication,” the Court concluded that allegations of distributing written advertisements without the recipients approval was a “publication” of offending material. Thus, the Court affirmed the lower court’s ruling that the underlying class actions set forth allegations that, if proved, were covered by the TIG policies and TIG had wrongfully refused to provide a defense for those claims.

The TIG court addressed the narrow issues of “invasion of privacy,” “publication,” and “advertising injury.” Other courts have addressed these cases from a different perspective and analyzed the issues involving “occurrence” and “property damage.” Nonetheless, it becomes increasingly clear that there is substantial disagreement as to whether a CGL policy should provide coverage for fax-blasting claims.

The question of whether there is available insurance coverage is quite dependent on which state’s law applies to the insurance coverage question. It would also certainly appear fax-blasting claims will not be the only types of claims that insurers will be presented with concerning mass advertising. Insurers around the country are being presented with claims arising from unsolicited mass advertising campaigns (i.e. “fax blasting” involving facsimile machines, “SPAM” involving the internet, and “SPIM” involving instant messaging).

As advertisers attempt to gain a better market share by focusing on direct unsolicited efforts, there will certainly be additional insurance coverage disputes.

How far reaching these insurance coverage disputes become is unknown, but one has to wonder given the large number of unwanted solicitations people receive through their fax machines and personal computers.

Andrew S. Boris is a partner in the Chicago office of Tressler Soderstrom Maloney & Priess. His practice is focused on litigation and arbitration of insurance coverage and reinsurance matters throughout the country, including general coverage, directors and officers liability, professional liability, environmental, and asbestos cases. Questions and responses to this article are welcome at aboris@tsmp.com The Tip of the Month runs each month on claimsguides.com.