In a sweeping opinion in Los Angeles Lakers v. Federal Insurance Co., the Ninth Circuit on Aug. 23, held the Lakers are not entitled to insurance coverage for a class action lawsuit alleging claims under the Telephone Consumer Protection Act (the “TCPA”). The denial of coverage was based on an invasion of privacy exclusion in the Lakers’ Directors & Officers policy. A divided panel held the exclusion permitted the insurer to not only deny coverage, but also to refuse to provide a defense in the class action lawsuit, which alleged intentional and negligent violations of the TCPA. 

This opinion clears the way for insurance companies to take a more aggressive approach to evaluating coverage in the context of TCPA class action lawsuits. Given the potential high cost of defending such lawsuits and the significant damages frequently claimed, any company at risk for a TCPA class action lawsuit should take notice and review its insurance policy for similar exclusions. 

Invasion of privacy exclusions are common in many insurance policies, including most significantly Directors & Officers and Errors & Omissions policies. 

In November 2012, a putative class action was filed against the Lakers after a fan received an alleged unwanted text message from the team during a game. The Lakers tendered the complaint to its insurer, Federal Insurance Company. Federal refused to provide coverage or to defend the suit under an exclusion in the policy for claims “arising from…invasion of privacy.” The Lakers filed a breach of contract action against Federal, which was dismissed for failure to state a claim. The Ninth Circuit upheld the dismissal of the Lakers’ suit against Federal on the grounds that TCPA claims are “inherently an invasion of privacy claim.” The Ninth Circuit’s decision is far-reaching not only in its holding that a TCPA claim is an invasion of privacy claim, but also in the conclusion that allegations of personal injury to the putative class members do not override the applicability of the invasion of privacy exclusion. 

Insurers will undoubtedly use this holding to refuse to defend TCPA class actions. The cost of defense of putative TCPA class actions can be particularly burdensome because unlike many class actions, TCPA claims have been held unsuitable for bifurcated class and substantive discovery. 

The number of TCPA class actions has dramatically increased in recent years as calling and texting customers has become easier. TCPA class actions are particularly attractive to plaintiffs because of the strict liability imposed by the TCPA. The Ninth Circuit’s recent decision gives insurers a new argument to deny coverage and the cost of defense of TCPA class actions based on common privacy-based exclusions that exist is many insurance policies. Companies at risk for TCPA claims should review their policies immediately and consult with counsel to determine the risk this new decision imposes on their business.