The Central District of California Holds that an Invasion of Privacy Exclusion Found in a D&O Policy Barred Coverage for a Suit Alleging Violations of the Telephone Consumer Protection Act

LAC Basketball Club, Inc. v. Federal Insurance Co., 2014 U.S. Dist. Lexis 58836 (C.D. Cal. Feb. 14, 2014), [enhanced version available to lexis.com subscribers].

In LAC Basketball Club, the district court held that an exclusion for any claim based on or arising out of invasion of privacy applied to a suit alleging violations of the Telephone Consumer Protection Act (“TCPA”) because the TCPA was enacted in order to protect the privacy of telephone subscribers.

The claimant in this case alleged that, when attending a Los Angeles Clippers game, he participated in a promotion involving sending text messages to be shown on the arena scoreboard during the game. Following the game, the claimant allegedly received spam text messages. The claimant then filed a class action suit against LAC Basketball Club, Inc. (“LAC”), alleging that the spam texts were sent in violation of the TCPA, which makes it unlawful to “to initiate any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party . . . .” LAC’s D&O insurer denied coverage under a policy exclusion for any claim “based upon, arising from, or in consequence of . . . invasion of privacy” on the basis that a claim under the TCPA is necessarily based on an alleged invasion of privacy.

In the ensuing coverage litigation, the insurer moved to dismiss based on the exclusion discussed above. LAC opposed the motion arguing that the exclusion should not apply because the underlying complaint made no reference to any invasion of privacy and the elements of a claim under the TCPA did not include “invasion of privacy” as an element. The court rejected these arguments, stating that it must focus on the substance of the claims, not the labels and nominal elements. The court then explained that, in the case of Satterfield v. Simon & Schuster, Inc., 569 F.3d 946 (9th Cir. 2009), [enhanced version available to lexis.com subscribers], the Ninth Circuit analyzed the purpose and history of the TCPA and found that the statute was enacted to protect the privacy of telephone subscribers by curtailing unwanted calls, including texts. Because the activity prohibited under the TCPA implicates the invasion of privacy, the court agreed with the insurer that a claim under the TCPA must involve an invasion of privacy and that therefore the exclusion barred coverage for the underlying action.

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