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Third Circuit Holds that Claims Stemming from Unsolicited Fax Advertisements that Allegedly Violated the Telephone Consumer Protection Act Are Not Covered Under a Commercial General Liability Policy

In Nationwide Mut. Ins. Co. v. David Randall Assocs., Inc., No. 13-1515, 2014 U.S. App. LEXIS 433 (3d Cir. Jan. 9, 2014), the United States Court of Appeals for the Third Circuit held that an insured was not covered under its commercial general liability ("CGL") policy for a putative class action asserted against it alleging that the insured had violated the Telephone Consumer Protection Action ("TCPA") by sending unsolicited facsimile advertisements.BrandonMcCullough--Insurance Blog Photo 2.jpg

Nationwide Mutual Insurance Company ("Nationwide") insured David Randall Associates, Inc. ("Randall") and its director, Raymond Miley, III ("Miley") under a CGL policy. The Policy provided coverage for "bodily injury" and "property damage" caused by an "occurrence." An "occurrence" was defined in the Policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The Policy excluded coverage for "'bodily injury' or 'property damage' expected or intended from the standpoint of the insured."

In 2011, a putative class action was filed against Randall and Miley in the United States District Court for the District of New Jersey alleging that they had violated the TCPA by sending unsolicited fax advertisements. In July 2012, Nationwide filed a declaratory judgment action in the United States District Court for the Eastern District of Pennsylvania seeking a declaration that it was not obligated to defend or indemnify Randall and Miley in the class action because the transmission of the unsolicited faxes was intentional and, thus, not covered by the Policy. The district court granted summary judgment in favor of Nationwide finding that the claims were "squarely outside the Policy's coverage for an 'accident' and within the Policy's exclusion for coverage which is 'expected or intended.'"

On appeal, Randall and Miley argued that the court should follow the Pennsylvania trial court decision in Telecommunications Network Design, Inc. v. Brethren Mut. Ins. Co., 83 Pa. D. & C. 4th 265 (Pa. Com. Pl. 2007), which held that an insurer had a duty to defend a company in a suit alleging violations of the TCPA by sending unauthorized faxes because, without more knowledge of the relationship between the insured and its third-party vendor hired to send the faxes, the court could not find that the insured "intentionally transmitted its advertisements to the plaintiff class." The Third Circuit rejected that argument and, instead, followed the decision in Melrose Hotel Co. v. St. Paul Fire and Marine Ins. Co., 432 F. Supp. 2d 488 (E.D. Pa. 2006), aff'd, 503 F.3d 339 (3d Cir. 2007). In Melrose, the insured hired a third party to send fax advertisements. The insured was sued for alleged violations of the TCPA and sought coverage from its insurer. The insured argued that a duty to defend existed because the underlying complaint alleged that the insured "should have known" that the faxes were unauthorized and that such language equates to unintentional conduct covered under the policy. The Melrose court rejected that contention and instead found that the underlying complaint--which contained no factual allegations of negligence, that the faxes were sent by mistake or that the faxes were sent with the receiver's permission--unequivocally asserted that the insured intended to fax its advertisements.

The Third Circuit found that, like Melrose, the class action against Randall and Miley contained no factual allegations that Randall acted negligently, that faxes were sent by accident, or that it mistakenly believed the faxes were sent with permission. The court also found that, unlike Brethren, the relationship between Randall and its third-party vendor was well defined. The court concluded that damages caused by Randall's transmission of faxes were a reasonably foreseeable result of its and Miley's conduct and not sufficiently "fortuitous" to constitute an "accident." The court found that while Randall and Miley may not have intended to violate the TCPA, they did intend to send the faxes and knew that sending them would use the recipients' paper, toner and time. Accordingly, the Third Circuit affirmed the trial court's finding that Nationwide had no duty to defend Randall and Miley in the class action. The court also found that because there was no duty to defend, Nationwide also had no duty to indemnify.

The full decision can be found here: http://www2.ca3.uscourts.gov/opinarch/131515np.pdf

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