Getting into a Fickle Fax Pickle

It is illegal to send unwanted and unrequested “junk faxes” to recipients under the Telephone Consumer Protection Act (TCPA). The question in several recent cases was whether the sender’s Advertising Injury Liability coverage in a Commercial General Liability policy applies to the awards, fines or penalties assessed against the sender by a court. Not all courts agree on whether or not there is coverage.

In one Georgia case, an advertising firm was retained to send faxed advertisements to potential clients. Perhaps the advertiser should have used a carrier pigeon instead. One recipient was upset that the ad tied up its fax machine, used its paper, etc., and filed suit against the advertiser. Under the TCPA a $500 penalty is chargeable, but the statute also allows for treble damages. When the statutory damages were awarded against the insured, it sought coverage for the tripled penalty, but the insurer argued that these constituted punitive damages, excluded under the policy.

The insured brought suit in federal district court. The insurer alleged that even if the penalties were covered damages, which it argued they were not, there was a $500 per individual claimant deductible. The district court found that the insured’s $500 per claimant deductible did apply, and that the rest of the treble damages were punitive in nature, and therefore excluded. Upon appeal, the Eleventh Circuit Court affirmed as to the $500 deductible, but found that the rest of the penalty award was not punitive damages, and thus remanded. It also concurred that the insurer owed the insured’s attorney fees.

In another case, the Second Circuit Court of Appeals found that Advertising Injury Liability coverage did not apply to violations of the TCPA, finding wording that such an injury included “making known to any person or organization covered material that violates a person’s right of privacy” was not ambiguous. Therefore, it reversed the district court’s finding of coverage for the insured. The wording, said the appellate court, could not be construed as a basis for coverage for sending faxes in violation of the Act.

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