It is pretty much a given that anywhere you go, everyone is always on their phones. At sports stadiums, teams encourage fan interaction with fan social media posts.  Stores send text message alerts of special promotions, and doctors’ offices and salons now confirm appointments by text.  But all of these new uses for phone communication carry potential implications for insurers and their insureds under the Telephone Consumer Protection Act (TCPA) which is meant to prevent unsolicited telephone communication with consumers. In fact, many insurance policies now carry specific TCPA exclusion endorsements or exclusions otherwise relating to privacy invasion.

The 9th Circuit recently had to grapple with determining whether an invasion-of privacy exclusion applied to exclude coverage for TCPA claims in the case of L.A. Lakers v. Federal Ins. Co.  In November 2012, Lakers fan David Emanuel sued the Lakers, alleging that he used his phone to put a personal message on the scoreboard during a game at Staples Center, but subsequently began receiving texts from an autodialer. Emanuel’s case was dismissed with prejudice on the grounds that he implicitly consented to receiving a confirmation text from the Lakers when he submitted his original message. The Lakers then settled with Emanuel after he appealed to the Ninth Circuit.

The Lakers then sued its insurer, Federal, for refusing in bad faith to defend or indemnify the Lakers in the Emanuel litigation.  The insurer moved to dismiss, arguing that the policy’s invasion-of-privacy exclusion precluded coverage because a TCPA violation allegation is, in effect, a claim for a privacy breach. The trial court agreed with the insurer and dismissed the Laker’s complaint, holding that TCPA claims fall within the directors-and-officers policy’s invasion-of-privacy exclusion, and that the team was therefore not entitled to coverage.

The Lakers appealed to the 9th Circuit, and a 2-1 circuit panel upheld the trial court judge’s decision for Federal, finding that because a TCPA claim is “inherently an invasion of privacy claim,” the lower court properly concluded that the underlying suit against the Lakers was excluded from coverage. Thus, the Court held, the insurer did not breach the policy, or the implied covenant of good faith and fair dealing, in declining to defend against or cover the underlying lawsuit.

Thanks to Jorgelina Foglietta for her contribution to this post and please write to Mike Bono for more information.