Insurers beware! In Valley Forge Insurance Company v. Swiderski, 2006 Ill. LEXIS 1655, the Illinois Supreme Court recently held that an insured’s act of sending unsolicited commercial facsimile transmissions (junk faxes) to third-party recipients constituted a violation of the recipients’ privacy rights that triggered coverage under the “advertising injury” provisions of two commercial general liability policies. In light of the quick growth of TCPA “junk fax” class action litigation nationwide, carriers should carefully consider this decision and the added risk of potentially very expensive claims added to typical CGL policies.
The policies at issue in Valley Forge (one a primary policy and the other an excess insurance policy) afforded coverage for, among other things, liability resulting from “advertising injury,” which included an insured's "oral or written publication, in any manner, of material that violates a person's right of privacy."
Notably, neither policy defined the terms “publication,” “material” or “privacy.” The insurers in Valley Forge contended that coverage under that “advertising injury” provision applied only when the content of the published material revealed personal or injurious information about an individual that violates the right of privacy. The underlying complaint that prompted the Valley Forge litigation alleged only the mere sending of unsolicited faxes containing no private information about any recipient. Significantly, the Illinois Supreme Court rejected the insurers’ contentions, interpreting the “advertising injury” provision much more broadly.
Specifically, the Illinois Supreme Court held that actions for unsolicited fax advertising under the Telephone Consumer Protection Act, 47 U.S.C. § 227 (2000) (“TCPA”), can be reasonably viewed as embodying a claim for invasion of one's right to be left alone (i.e., the right of seclusion) that implicates privacy rights. By way of background, the TCPA makes it “unlawful for any person within the United States . . . to use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine.” 47 U.S.C. § 227(b)(1)(C) (2000). An “unsolicited advertisement” includes “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without the person’s prior express invitation or permission.” 47 U.S.C. § 227(a)(4) (2000). The TCPA creates a private right of action that permits recipients of unwanted facsimile advertisements to seek injunctive relief and damages. Further, treble damages may be awarded in the event a court finds that the sender of the fax acted “willfully and knowingly.” 47 U.S.C. § 227(b)(3) (2000).
Comparing the allegations of the underlying complaint to the language of the policy’s “advertising injury” provisions, the Court determined that an average insured would reasonably interpret such a provision as affording coverage for claims alleging TCPA violations. The Court saw no basis to distinguish intrusions upon seclusion from the communication of injurious or confidential information where privacy interests are concerned, as urged by the insurers. That is, the “right to privacy,” as that phrase was used in the general commercial liability policies at issue, encompassed both concepts in the Court’s view. As such, the Court found that the carriers, at a minimum, had a duty to defend the alleged TCPA violator-insured in the underlying lawsuit.
Notably, the Illinois Supreme Court’s decision in Valley Forge is in direct conflict with the conclusion reached by U.S. Court of Appeals for the Seventh Circuit on this same issue in American States Insurance Company v. Capital Associates of Jackson County, Inc., 392 F. 3d 939 (7th Cir. 2004). In American States, the Seventh Circuit considered the applicability of "advertising injury" coverage to TCPA fax-advertisement claims and reached the opposite result.
In American States, the Seventh Circuit held that no duty to defend or indemnify was owed to an insured embroiled in a TCPA junk fax lawsuit pursuant to an “advertising injury” provision in a commercial general liability policy, noting that the subject provision could only be reasonably read to provide coverage for the tort of "invasion of privacy" – that is, where an oral or written statement reveals an embarrassing fact, brings public attention to a private figure, or casts someone in a false light through publication of true but misleading facts.
The TCPA, in the Seventh Circuit’s view, promoted only a slight interest in seclusion, which was distinguishable from an interest in not having confidential information communicated to others. Because the recipient of the facsimile advertisement in American States did not expressly allege in the underlying complaint that the insured published any private or misleading information about it, the Seventh Circuit contrarily determined that coverage for the lawsuit under the “advertising injury” provision of the subject commercial general liability policy had not been triggered.
As a result of the Illinois Supreme Court’s recent decision in Valley Forge, insurers seeking declarations of no coverage as to insureds involved in TCPA junk fax class action lawsuits will no longer find refuge even by litigating their declaratory judgment actions in federal court, a forum where the Seventh Circuit’s American States decision previously controlled. Valley Forge invalidates American States, as a federal court sitting in diversity jurisdiction must apply state law to matters of substantive law. When the Seventh Circuit decided American States, the Illinois Supreme Court had not yet spoken on this issue. Now, it has, and unfortunately not to the insurance carriers’ benefit. American States is not representative of the Illinois substantive law. Further, in light of the Valley Forge decision, insurers may want to consider revising their “advertising injury” provisions to explicitly exclude coverage for TCPA claims. One way to do that would be to narrowly define the term “privacy” as used in an “advertising injury” provision.
* * *
Jennifer Medenwald is an associate in Querrey & Harrow’s Chicago office practicing in all aspects of insurance coverage and appellate litigation. If you have any questions regarding this article, please contact Jennifer at jmedenwald@querrey.com, or via 312-540-7588.
