Violation of Statutes Exclusion Bars Coverage for Ancillary TCPA Claims
In Emcasco Insurance Co. v. CE Design, Ltd., the U.S. Court of Appeals for the Tenth Circuit Court granted summary judgment to Emcasco, finding it had no duty to defend the insured against a junk fax suit. In doing so, the court joined a number of jurisdictions holding that an ISO exclusion in a commercial general liability policy applies to all claims that arise, even indirectly, from violations of the Telephone Consumer Protection Act (47 U.S.C. § 227).
As background, CE Design brought a putative class action suit against the insured, a manufacturer of custom heating and air conditioning equipment, after having received an unsolicited fax advertisement. The suit included causes of action for violations of the TCPA, as well as common law conversion and statutory consumer fraud. The insured sought coverage under the insurance policy provided by Emcasco. Emcasco disclaimed coverage. CE Design and the insured subsequently entered into a consent judgment with a covenant not to execute.
The district court granted summary judgment in favor of Emcasco, finding it had no duty to defend. The district court based its ruling mainly on the policy’s Distribution of Material in Violation of Statutes Exclusion. On appeal, the Tenth Circuit affirmed, reasoning that all of the claims fell within the Violation of Statutes Exclusion. The court found compelling that these ancillary causes of action would not exist but for the insured having faxed the advertisement to CE Design. The court also found persuasive the decision by the Illinois Appellate Court in G.M. Sign, Inc. v. State Farm Fire & Casualty Co., 2014 IL App (2d) 130593, 18 N.E.3d 70. Finally, the court noted that CE Design incorporated the allegations giving rise to the TCPA violations into the conversion and consumer fraud claims and that the consent judgment represented a $500 payment for each fax sent, which is the statutory penalty under the TCPA.
This case represents yet another broad construction of the Violation of Statutes Exclusion and more importantly, reaffirmation of the insurance industry’s intent to eliminate its risk to TCPA class action lawsuits, which plagued it for more than a decade.