Source: http://www.postschell.com/publications/1272-auto-owners-ins-co-v-stevens-ricci-inc
Timestamp: 2019-04-19 00:18:46+00:00

Document:
Stevens & Ricci, Inc. had permitted an advertiser to send thousands of fax advertisements to potential clients based upon a representation by the advertiser that they had a TCPA-compliant fax program. Id. at 3. Hymed, whom had received faxes, filed a class action lawsuit against Stevens & Ricci alleging the faxes violated the TCPA. Id. Hymed, on behalf of the class, alleged permission was not given to Stevens & Ricci to send the faxes and that the unsolicited faxes had damaged the recipients by causing them to waste paper and ink in the printing process. Id. Additionally, the complaint alleged the faxes had violated the plaintiffs’ privacy interest in being left alone. Id. at *4-5.
At the time of the alleged violations, Stevens & Ricci was insured under a Businessowners Insurance Policy issued by Auto-Owners. Id. The Policy covered “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’, ‘property damage’, ‘personal injury’ or ‘advertising injury’” which were the result of an “occurrence.” Id. at *5.
d. Infringement of copyright, title or slogan.
Auto-Owners agreed to defend Stevens & Ricci under a reservation of rights in the underlying action. Id. at *6. The parties ultimately agreed upon a settlement for the class in the amount of $2,000,000. However, Hymed and the class also agreed to seek recovery to satisfy the judgment only from Auto-Owners under the policy. Id. The court in the underlying action approved the settlement, and in its order approving the settlement noted that Stevens & Ricci did not “willfully or knowingly” violate the TCPA. Id. at *7.
After settlement, Auto-Owners then filed a declaratory judgment action against Stevens & Ricci and Hymed, seeking a declaration that the policy did not provide coverage for the TCPA violations in the underlying action, and thus, owed no duty to defend or indemnify them. Id. Auto-Owners and Hymed filed cross-motions for summary judgment. The District Court granted Auto-Owners’ motion for summary judgment and concluded that the sending of unsolicited faxes to Hymed and other class members did not cause “property damage” or “advertising injury” as defined by the policy. Id. Hymed appealed. Id. at *8. Upon review, the Third Circuit framed the central issue before them as “whether the sending of unsolicited faxes inflicted . . . property damage and advertising injury.”2 Id. at *5.
refer[ing] to an unexpected and undesirable event occurring unintentionally. . . . [T]he key term in the definition of the “accident” is “unexpected” which implies a degree of fortuity. An injury therefore is not "accidental" if the injury was the natural and expected result of the insured's actions. . . .
[T]he sending of faxes necessarily results in the receipt of faxes, and any sender of a fax knows that its recipient will need to consume paper and toner and will temporarily lose the use of its fax line. That does not happen by accident. While the Supreme Court of Pennsylvania has not addressed whether unintended damages from faxes sent in violation of the TCPA constitute an “accident,” we predict that the court would reject coverage under the “property damage” provision of the [p]olicy.
Id. at *43. Thus, even though Stevens & Ricci did not intend the injury, it intended for the third-party advertiser to send the faxes to the recipients. Therefore, the Court concluded that although the Pennsylvania Supreme Court had not yet addressed “whether unintended damages from faxes sent in violation of the TCPA constitute an ‘accident,’” the Court believed the Pennsylvania Supreme Court “would reject coverage under the ‘property damage’ provision of the Policy. . . because the alleged injury was not the result of an ‘accident.’ It was, instead, the foreseeable result of the intentional sending of faxes to the class recipients.” Id. at *43-45.
[T]he Policy provides coverage only for violations of the privacy interest in secrecy, and thus does not cover violations of a right to seclusion. This is amply demonstrated by the other three offenses that the Policy includes within the definition of “advertising injury”: “Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services”; “Misappropriation of advertising ideas or style of doing business”; and “Infringement of copyright, title or slogan.” All three of those offenses — slander, misappropriation, and infringement — “focus on harm arising from the content of an advertisement rather than harm arising from mere receipt of an advertisement.” That content-dependent coverage clarifies the scope of the Policy's “advertising injury” provision: it protects against injuries caused by the improper content of a published advertisement. The Policy's protection of the “right of privacy” is thus logically limited to a privacy interest the infringement of which depends upon the content of the advertisements: in other words, the privacy right to secrecy.
Id. at 50-51 (internal citations omitted).
Noting that none of the allegations in the underlying lawsuit related to the content of the unsolicited faxes, “the injury alleged in the Underlying Action falls outside of the scope of that protection.” Id. at *51-52. The Court noted that although the Supreme Court of Pennsylvania has not addressed whether or not such TCPA violations qualify as “advertising injury,” the conclusions of Brethren were indicative of how the Supreme Court of Pennsylvania would decide the issue. Id. at *53-54.
Auto-Owners Ins. Co. v. Stevens & Ricci, Inc. brings Pennsylvania one step closer to the majority of courts throughout the country in concluding that TCPA violations are typically uncovered intentional acts. Although TCPA violations may cause property damage in the form of wasted ink and paper, they are not the result of an “accident” and therefore, not an “occurrence” under most definitions in Business Owners and CGL policies. Similarly, although such policies may cover injuries to the right to privacy in the form of a right to secrecy, they will not cover injuries to privacy in the form of nuisance.
1 The TCPA prohibits the “use [of] any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement. . . .” 47 U.S.C. § 227(b)(1)(C). The TCPA provides penalties in the form of statutory damages in the amount of $500 per fax. 47 U.S.C. § 227(b)(3)(B). Additionally, if it can be proven the defendant violated the TCPA “willfully or knowingly,” treble damages are permitted. 47 U.S.C. § 227(b)(3). In this particular instance, damages could have amounted to $9,439,500, before trebling. Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., 2016 U.S. App. LEXIS 16182 at *4.
2 As a preliminary matter, the Court also addressed its subject matter jurisdiction relating to the amount-in-controversy requirement for diversity jurisdiction. In particular, the Court concluded that the District Court had proper diversity jurisdiction under 28 U.S.C. § 1332 and that the satisfaction of the amount-in-controversy requirement did not violate the anti-aggregation rule. Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., 2016 U.S. App. LEXIS 16182 at *8-30. The court also addressed several choice of law issues beyond the scope of this article and concluded that either no conflict existed or the same results would be reached under either Arizona or Pennsylvania law. Id. at *32-39.
3 In Baumhammers the son of the insured went on a killing spree and the estates of several of the victims sued both the son and his parents alleging negligence on the part of the parents “in failing to take possession of [his] gun and/or alert law enforcement authorities or mental health care providers about [their son's] dangerous propensities.” 938 A.2d at 288-291. The parents’ insurance policy covered claims for bodily injury caused by an “accident.” Id. at 288. The Baumhammers Court held that, with respect to the parents, the shootings qualified as an “accident” due to the “extraordinary shooting spree . . . [which] cannot be said to be the natural and expected result of [his parent's] alleged acts of negligence,” and that the event was “so unexpected, undesigned and fortuitous as to qualify as accidental within the terms of the policy.” Id. at 293.

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