9th Cir. Holds TCPA Claim Not Covered Due to ‘Invasion of Privacy’ Exclusion

The U.S. Court of Appeals for the Ninth Circuit recently held that a liability insurance policy that broadly excluded coverage for invasion of privacy claims also excluded coverage for claims for violations of the federal Telephone Consumer Protection Act.

A copy of the opinion in L.A. Lakers v. Federal Ins. Co. is available at:  Link to Opinion.

In 2012, a class action complaint was filed against the Los Angeles Lakers for allegedly sending text messages using an automatic telephone dialing system in violation of the TCPA, 47 U.S.C. § 227, et seq.  The Lakers asked their insurer to defend them against the lawsuit.

The insurance policy required the insurer to pay for losses (with some restrictions) suffered by the Lakers “resulting from any Insured Organization Claim … for Wrongful Acts.”  The policy defined “Wrongful Acts” as “any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted by” the Lakers.

The policy also contained an exclusion for claims “based upon, arising from, or in consequence of libel, slander, oral or written publication of defamatory or disparaging material, invasion of privacy, wrongful entry, eviction, false arrest, false imprisonment, malicious prosecution, malicious use or abuse of process, assault, battery or loss of consortium.”

The insurer determined that the plaintiff had brought an invasion of privacy suit, which was specifically excluded from coverage, and therefore denied coverage and declined to defend the Lakers.

After the insurer’s denial of coverage, the Lakers filed a complaint asserting claims for breach of contract and tortious breach of the implied covenant of good faith and fair dealing.

The trial court granted the insurer’s motion to dismiss.  In so ruling, the trial court held that the TCPA claims were “implicit invasion-of-privacy claims” that fell squarely within the policy’s “broad exclusionary clause.”

On appeal, the Ninth Circuit began its analysis by examining the terms of the policy under California law.

As you may recall, California courts must “’give[] effect to the mutual intention of the parties as it existed’ at the time the contract was executed.”  Wolf v. Walt Disney Pictures & Television, 76 Cal. Rptr. 3d 585, 601 (Cal. Ct. App. 2008) (quoting Cal. Civ. Code § 1636).  In addition, courts must give a contract’s terms their “ordinary and popular” meaning, “unless used by the parties in a technical sense or a special meaning is given to them by usage.”  Palmer v. Truck Ins. Exch., 988 P.2d 568, 652 (Cal. 1999).

Additionally, California courts interpret coverage clauses in insurance contracts “broadly so as to afford the greatest possible protection to the insured.”  Aroa Mktg., Inc. v. Hartford Ins. Of the Midwest, 130 Cal. Rptr. 3d 466, 470 (Cal. Ct. App. 2011).  However, courts should interpret “exclusionary clauses … narrowly against the insurer.”  Id.

The Laker’s insurance policy did not explicitly exclude coverage of TCPA claims.  As a result,  the Ninth Circuit had to determine whether the TCPA claims fell within the exclusion for claims “based upon, arising from, or in consequence of … invasion of privacy.”

Under the text of the TCPA, it is unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States:

to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice … to any telephone number assigned to a … cellular telephone service … or any service for which the called party is charged for the call …. 47 U.S.C. § 227(b)(1)(A)(iii).

In addition, the Ninth Circuit noted that the TCPA twice explicitly states that it is intended to protect privacy rights.  47 U.S.C. § 227(b)(2)(B)(ii)(I) (“will not adversely affect the privacy rights that this section is intended to protect…”); 227(b)(2)(C) (“the Commission may prescribe as necessary in the interest of the privacy rights this section is intended to protect.”).

Based on the lack of any other statements expressing an alternative intent, and focusing on the rulemaking sections of the TCPA, the Ninth Circuit concluded that the purpose of the TCPA was to protect privacy rights and privacy rights alone.

Next, the Ninth Circuit analyzed the complaint based on its interpretation on the TCPA’s goal of protecting privacy.

The complaint asserted causes of action for negligent violation of the TCPA and knowing/willful violation of the TCPA.  In the Ninth Circuit’s view, these two causes of action were unquestionably two invasion of privacy claims, and were excluded under the plain language of the insurance policy.

Therefore, the Ninth Circuit held that the trial court properly concluded that the claims asserted in the complaint were excluded from coverage under the policy.

Finally, the Lakers argued that the insurer had a duty to defend, even if the policy did not require the insurer to indemnify costs incurred from the lawsuit, because the plaintiff asserted that he suffered multiple harms, not just an invasion of privacy.  The Lakers also argued that the complaint sought “recovery of economic injury” and explicitly swore off “any recovery for personal injury,” and therefore the plaintiff did not seek relief for invasion of his privacy, which is generally a form of “personal injury.”

Essentially, the Lakers argued that the insurer had a duty to defend because the policy potentially entitled them to indemnity for other claims.

The Ninth Circuit rejected this argument and held that “a TCPA claim is an invasion of privacy claim, regardless of the type of relief sought.”  As such, these claims were excluded under the terms of the policy.  Moreover, the Lakers did not identify what other claims this set of facts could support.

Accordingly, the Ninth Circuit affirmed the dismissal of the complaint.

The dissent disagreed with the majority opinion, pointing out that “[w]hen Congress defines a cause of action based on specific and unambiguous statutory elements, what matters is what the statute says – not what motivated enactment of the statute.”

Under the plain terms of the TCPA, statutory damages may be recovered when a plaintiff can prove: “(1) the defendant called a cellular telephone number; (2) using an [ATDS]; (3) without the recipient’s prior express consent.”  Mayer v. Portfolio Recovery Assocs., LLC, 707 F.3d 1036, 1043 (9th Cir. 2012) (citing 47 U.S.C. § 227(b)(1)).

The dissent accused the majority of ignoring the elements of the claim, focusing instead on the misconception that Congress only enacted the TCPA to prevent invasion of privacy, yet nothing in the elements of a TCPA claim says anything about “privacy.”

The dissent further disagreed with the majority’s interpretation of the TCPA, pointing out that “[t]he TCPA specifically addresses public safety concerns, provides redress for economic injury, and protects businesses from ATDS calls.”  Thus, in the dissent’s view, not all TCPA claims are privacy claims.

The dissent concluded that because the plaintiff only sought recovery based on an alleged violation of the TCPA, and expressly disavowed claims based on invasion of privacy, the insurer had a duty to defend the Lakers.

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Eric Tsai practices in Maurice Wutscher’s Commercial Litigation and Consumer Credit Litigation groups, and in its Regulatory Compliance group. He concentrates his practice primarily on the defense of consumer and commercial financial services companies, including mortgage lenders and servicers, mortgage loan investors, third party debt collectors, and other financial services providers. He also counsels clients on regulatory compliance, licensing, and other consumer protection matters. Eric earned his undergraduate degree from the University of California, Irvine. Prior to attending law school, he worked as a loan officer for national direct lenders. He earned his Juris Doctor from California Western School of Law and thereafter obtained a Master of Laws (LLM) in Taxation from the University of San Diego School of Law. Eric publishes extensively on various issues affecting consumer lending and litigation, including both federal and California-specific developments. He is licensed to practice law in California, Nevada, and Oregon, and is admitted in all United States District Courts in the State of California, the United States District Court for the District of Oregon, the United States District Court for the District of Nevada, the U.S. Tax Court, and the Ninth Circuit Court of Appeals. He is also a licensed real estate broker in the State of California.