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Reed Smith LLP on Insurance Coverage for Violations of Statutory Privacy Rights

In an Emerging Issues Commentary, Reed Smith LLPs Timothy Law and Toki Rehder advocate that given that insurance policies definitions of personal and advertising injury explicitly include the publication or making known of material that violates a persons right of privacy, insurers should cover damages imposed under privacy statutes.
Various Insurance Policies Protect Against Liability for Privacy Violations: Different types of insurance policies may provide coverage for violations of statutory privacy rights. The most ubiquitous commercial insurance coverage is the Commercial or Comprehensive General Liability (CGL) insurance policy. Typically written on a standard form, most typically the one drafted the Insurance Services Office, CGL policies generally include Coverage A and Coverage B. Coverage A covers Bodily Injury and Property Damage Liability while Coverage B extends to Personal and Advertising Injury Liability. While violations of privacy statutes may result in bodily injury or property damage, alleged violations of privacy statutes are more often analyzed under Coverage B, which usually defines Personal and Advertising Injury to include: [o]ral or written publication, in any manner, of material that violates a persons right of privacy (the Publication Language). Other standard-form CGL policies define Personal and Advertising Injury to include making known to any person or organization covered material that violates a persons right to privacy (the Making Known Language).
Other types of insurance policies may provide coverage for privacy claims. Directors and officers (D&O) liability insurance may provide coverage not only for individual directors and officers, but also for the entity (although entity coverage is often limited to securities claims). Within the wide-ranging wrongful acts covered by D&O insurance may be employment practices such as employment-related libel, slander, humiliation, defamation, or invasion of privacy. Furthermore, if the claim of a violation of a privacy statute is made by an employee, Employment Practices Liability (EPL) coverage, or in rare instances the employers liability coverage in a workers compensation policy, can potentially provide coverage.[17] In addition to CGL, D&O and EPL insurance, many corporations purchase insurance policies covering professional errors and omissions (E&O) or technology-based risks. D&O, EPL, and E&O insurance policies are usually sold on a claims-made basis, requiring the claim to be made during the policy period and to be based on a wrongful act, which is often broadly defined. Coverage for TCPA Claims Heralds Coverage for Claims Under All Privacy Statutes: As it pertains to insurance coverage, the most litigated privacy statute has been the Telephone Consumer Protection Act, or TCPA, which protects peoples privacy from unwanted calls and faxes.[18] The TCPA makes it unlawful, subject to limited exceptions, to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.[19] The term unsolicited advertisement is defined as any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that persons prior express invitation or permission, in writing or otherwise.[20] Courts can award damages equal to actual monetary losses, statutory damages of up to $500 per fax, or triple damages of $1,500 if the infringement is intentional.[21] The total damages sought in TCPA cases are often large because the faxes are typically sent to thousands of recipients.
In seeking coverage from their CGL insurance companies, some policyholders have argued that alleged violations of the TCPA are covered under Coverage A, in that the fax recipient suffers a loss of use of their fax machine and a small amount of ink, paper and toner whenever a fax is received. The loss of use of property, even if it is not physically damaged, normally falls within the insurance policys definition of property damage, so there is a strong basis for this argument.[22] It is more common, however, for coverage to be analyzed under Coverage B for alleged violations of the right of privacy. This logically follows from Congress express purpose in enacting the TCPA, which was to protect the privacy interests of residential telephone subscribers by placing restrictions on unsolicited, automated telephone calls to the home and to facilitate interstate commerce by restricting certain uses of facsimile ([f]ax) machines and automatic dialers.[23]
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[17] Different types of insurance policies are written to be complementary and what is specifically included in one policy may be specifically excluded in another. Thus, the personal and advertising injury coverage provided in the CGL policy is often excluded from other policies.
[18] 47 U.S.C. § 227
[19] 47 U.S.C. § 227(b)(1)(C)
[20] 47 U.S.C. § 227(a)(5)
[21] 47 U.S.C. § 227(c)(5)
[22] See Park Univ. Enters., Inc. v. American Cas. Co. of Reading, Pa., 442 F.3d 1239, 1244-1247 (10th Cir. 2006).
[23] 47 U.S.C. § 227(b)(2)(B)(ii)(I)