What Happened:

The Tenth Circuit held that, under Colorado law, an insurer did not need to cover a satellite television provider under two commercial umbrella liability policies in connection with a lawsuit alleging the company’s telemarketing practices violated the Telephone Consumer Protection Act (TCPA), 47 U.S.C. §227 et seq.

The Bottom Line:

This decision is a reminder that policy wording, as well as state law governing the interpretation of insurance policies, varies greatly with respect to potential insurance coverage for alleged violations of the TCPA and similar statutes. While some states have characterized TCPA remedies as uninsurable penalties, it is not consistent across the country and policyholders, therefore, must review their policies carefully to determine the existence and scope of any TCPA coverage.

In addition, because the Tenth Circuit’s decision means that—in Colorado at least—claims for statutory damages under the TCPA may not be insurable, companies engaging in telephonic communications with consumers must ensure that they have robust TCPA compliant policies and procedures in place to further limit TCPA exposure.

The Full Story:

The United States and four states sued DISH Network, LLC alleging that DISH’s telemarketing practices violated the TCPA (“Telemarketing Complaint”). The Telemarketing Complaint sought statutory damages for each alleged TCPA violation and a permanent injunction to prevent future TCPA violations. DISH sought coverage from its insurer, National Union, under two commercial umbrella liability policies. National Union rejected DISH’s claim and sued in Colorado federal court seeking a declaration that it had no duty to indemnify DISH for the underlying lawsuit. The district court granted summary judgment to National Union.

In National Union Fire Insurance Co. of Pittsburgh v. DISH Network, LLC, No. 20-1215, 2021 WL 5066571 (10th Cir. Nov. 2, 2021), the Tenth Circuit affirmed the district court’s grant of summary judgment in favor of the insurer. Relying on its prior decision, ACE American Insurance Co. v. DISH Network, LLC, 883 F.3d 881 (10th Cir. 2018), the court affirmed the district court’s conclusions that: (i) TCPA statutory damages are “uninsurable penalties” as a matter of Colorado public policy; and (ii) the National Union policies did not cover claims for injunctive relief. Because the Policies did not cover any of the relief sought in the underlying TCPA action, the court held that National Union did not have a duty to defend.

In support of its ruling that TCPA penalties are uninsurable, the court relied on Colorado public policy outlined in the ACE decision prohibiting insurance for intentional and willful wrongful acts and for punitive damages. Even though the Colorado precedent relied upon in ACE interpreted TCPA statutory damages as a “penalty” used in Colorado’s survival statute outside the context of insurance coverage, the DISH court nonetheless followed the prediction from ACE that the Colorado Supreme Court would apply that same rationale in holding that TCPA damages are uninsurable penalties.

The Court also held that the policies did not cover the underlying suit’s request for a permanent injunction to prevent future TCPA violations because the policies did not protect DISH against the costs of preventing future harms. Finally, it held in the alternative that National Union had no duty to defend because the allegations in the underlying complaint, which lacked claims that unsolicited telemarketing calls physically injured consumers or caused sufficient “loss of use” of any property, did not potentially or arguably fall within the policies’ definition of “Bodily Injury” or “Property Damage.”

Implications for Insureds:

With retailers and other companies facing increased state and federal regulatory attention to telemarketing text messages—and with it a new wave of potential TCPA exposures—the Tenth Circuit’s decision is a reminder that the question of insurance coverage for alleged TCPA violations will vary based on the nature of the underlying allegations, the relevant policy language, and applicable state law (including any articulated public policy regarding insurability of certain conduct or damages) that govern whether statutory violations constitute uninsurable penalties. Policyholders must carefully review the scope of coverage and relevant exclusions under all potentially applicable policies – CGL, D&O, and E&O to name a few.

While many policies clearly limit coverage for TCPA claims, policyholders should not limit their review to exclusions that name the TCPA. For example, we have discussed prior instances of insurers relying on broad “invasion of privacy” exclusions to preclude coverage for D&O claims arising out of alleged TCPA violations. As increasing number of general liability policies contain problematic TCPA-specific exclusions, policyholders continue to seek coverage for TCPA exposures under other lines of coverage, which places even more importance on carefully reviewing all exclusions that could be implicated by TCPA claims.

At renewal, policyholders can try to limit or even eliminate overbroad exclusions that may bar coverage for TCPA claims. Renewals are also an opportunity to revisit a policy’s dispute resolution provisions, particularly those impacting choice of law or forum, given that coverage for TCPA claims greatly depends on state law. Engaging in a detailed choice-of-law analysis before a claim arises and, if needed, modifying key policy provisions governing which state’s law will apply to coverage disputes can help avoid surprises should a claim arise.

Ultimately, the TCPA is just one of many statutes that pose liability risks to businesses, and the DISH decision and others like it limiting coverage for TCPA claims does not mean that general liability, D&O, and similar policies will never respond to statutory damages arising from alleged statutory violations. Thus, policyholders should review all potentially applicable policies—ideally with the assistance of experienced brokers and outside counsel well-versed with common policy language and potential pitfalls—to determine the scope of available coverage for TCPA, or other statutory claims when each lawsuit, investigation, or regulatory action arises.

Implications for Companies Communicating with Consumers by Phone:

Under the Tenth Circuit’s ruling, in Colorado claims for statutory damages under the TCPA are uninsurable because, as “penalties,” they are against Colorado public policy. In other words, no matter how clear and unambiguous the insurance policy is—under the Tenth Circuit’s reasoning—an insured will not be able to rely on an insurance policy to provide coverage for TCPA claims seeking statutory damages. Accordingly, DISH serves as a good reminder to companies who communicate with consumers by telephone that it is essential to have robust TCPA policies and procedures in place to further limit TCPA exposure.

Specifically, all callers, whether communicating with consumers for informational or telemarketing purposes, must ensure that they are complying with the TCPA’s restrictions on making phone calls to phone numbers using an automatic telephone dialing system or prerecorded or artificial voice without the prior express consent of the called party. Further, callers engaging in telemarketing calls must ensure that they are also complying with the TCPA’s restrictions on placing phone calls to phone numbers that are listed on the Federal Do Not Call Registry.