On March 30, 2020, the District Court for the Eastern District of Pennsylvania in Selective Ins. Co. of Am. v. J. Reckner Assocs., No. 2:18-cv-04450-JDW, 2020 U.S. Dist. LEXIS 55622 (E.D. Penn. March 30, 2020) granted an insurer’s motion for summary judgment, holding that it did not have a duty to defend its insured in an underlying Telephone Consumer Protection Act ("TCPA") class action litigation alleging the insured intentionally sent unsolicited fax advertisements. The decision marks a win for insurance companies by establishing the limits of their duty to defend when TCPA complaints allege the intentional transmission of a facsimile and the insurance policies exclude intentional harms.
Selective Insurance Company brought this action on October 16, 2018 seeking a declaratory judgment that its policy, including both Businessowners and Commercial Umbrella coverage, did not require it to defend Reckner Associates in the underlying TCPA class action. The policy covered property damage caused by an occurrence, which was defined as “an accident, including continuous or related exposure to substantially the same general harmful conditions.” The policy excluded coverage for “property damage” expected or intended from the standpoint of the insured.” In the 2011-2012 policy period (Selective insured Reckner since 2001), Selective added a provision excluding coverage for property damage arising directly or indirectly out of an action or omission that violates or is alleged to violate the TCPA. The TCPA exclusion has been in every policy since 2011, including the subject 2017 policy, though Reckner alleged that Selective never notified it that the TCPA exclusion was inserted in the 2017 policy or any preceding policy period. Reckner filed a counterclaim alleging breach of contract and seeking a declaration of coverage.
The underlying TCPA class action litigation stemmed from a lawsuit in the Eastern District of Michigan where the plaintiff accused Reckner of sending unsolicited fax advertisements, with the assistance of a third party fax broadcaster, in violation of the TCPA. The complaint also contained a claim for conversion and requested treble damages for a knowing and willful violation of the TCPA.
Property Damage & Advertising Injury
The Court explained that the TCPA complaint alleged intentional as opposed to accidental conduct, and therefore did not allege an “occurrence” under the policy. The Court rejected Reckner’s argument that it is unclear whether the complaint alleged intentional conduct because it referred to the TCPA as a strict liability statute, noting that this “abstract possibility” does not mean the complaint alleged anything other than intentional conduct. No count charged Reckner with negligence or implied the fax was sent by accident. On the contrary, the TCPA complaint asserts a claim for conversion and sought treble damages, both of which require a willful or knowing violation.
The court went on to explain that even if it agreed that the TCPA complaint alleged that Reckner acted negligently, it still would not mean the resulting damages constituted an accident. The key inquiry in determining whether damages resulted from an accident is whether it was “caused by an event so unexpected, undersigned and fortuitous as to qualify as accidental.” The Court reasoned that Reckner may not have intended to violate the TCPA, but it did intend to send the faxes and knew that they would be delivered through the recipients’ fax machines resulting in gradual wear and tear in much the same way that they deplete paper and toner.
The Court also foreclosed Reckner’s argument that the definition of occurrence does not exclude wear and tear, explaining that the argument “misses the point” as the issue is that wear and tear in this particular case was obviously foreseeable, not that it could never amount to an occurrence. The Court found that it would also be unreasonable to expect Selective to list every possible type of damage that could result from intentional or foreseeable conduct. Since the Court determined there was no “property damage” claim, it did not need to consider Reckner’s argument that it was not given notice of the TCPA exclusion, but the Court nonetheless noted its general skepticism toward that argument, particularly since the TCPA exclusion was in every policy between 2011 and 2017.
Selective also argued in its motion for summary judgment that none of the claims in the TCPA complaint were personal and advertising injuries. Reckner did not respond to this argument so the Court treated it as conceded. The Court further explained that coverage for personal and advertising injury did not extend to sending unsolicited faxes as the policy’s definition of personal and advertising injury protects the right to secrecy and not seclusion.
Significance for TCPA Defendants and Insurers
This decision is significant in that it establishes the scope of an insurer’s duty to defend TCPA actions as well as provides a framework for assessing when an injury is accidental. TCPA defendants and insurers should take note of the fact that an insured’s conduct may still be intentional, and therefore excluded under the policy, even if the insured did not necessarily intend to violate the TCPA.