Opinion ID: 2798275
Heading Depth: 2
Heading Rank: 6

Heading: The Statutory-Violation Exclusion

Text: As an independent basis to defeat all three of CE Design’s claims, Emcasco relies on the policy exclusion for “VIOLATION OF STATUTES THAT GOVERN E- MAILS, FAX, PHONE CALLS OR OTHER METHODS OF SENDING MATERIAL OR INFORMATION.” Appellant’s App. vol. I at 189. Specifically, this exclusion provides that “[t]his insurance does not apply to: DISTRIBUTION OF MATERIAL IN VIOLATION OF STATUTES.” Appellant’s App. vol. I at 189. Under Coverages A and B, it excludes coverage for “property damage” and “personal and advertising injury” “arising directly or indirectly out of any action or omission that violates or is alleged to violate:” the Telephone Consumer Protection Act (TCPA), the CANSPAM Act, or any other “statute, ordinance or regulation . . . that prohibits or limits the sending, transmitting, communicating or distribution of material or information.” Appellant’s App. vol. I at 189. We agree with Emcasco that the statutory-violation exclusion defeats all three of CE Design’s claims. Under CE Design’s state-court complaint, it alleged that Custom had violated the TCPA by faxing unsolicited advertisements without prior express permission. Accordingly, CE Design alleged that Custom had distributed material in violation of the TCPA. The statutory-violation exclusion denies insurance for - 23 - “property damage” and “personal and advertising injury” that arise—even indirectly—out of any act or omission violating the TCPA. Without Custom’s having faxed the advertisement to CE Design, neither CE Design’s conversion claim nor its ICFA claim would exist. Thus, we hold that any property damage or personal and advertising injury arose directly from Custom’s actions in sending the faxed advertisements. In addition, we find persuasive G.M. Sign, Inc. v. State Farm Fire and Cas. Co., 18 N.E.3d 70, 78–83 (Ill. App. Ct. 2014).14 In that case, a class of claimants sued an insured party for faxing unsolicited advertisements and pleaded the same three claims under the TCPA, common-law conversion, and the ICFA. Id. at 72. Relying on a statutory-violation exclusion identical to Emcasco’s, the court held that the exclusion defeated all three claims. Id. at 80–81. In our case, CE Design makes some of the same arguments as did its counterparts in G.M. Sign. We reject them on the same bases. 14 See also Am. Cas. Co. of Reading, Pa. v. Superior Pharmacy, LLC, -- F. Supp. 3d --, 2015 WL 628382, at –7 (M.D. Fla. 2015) (concluding that a statutoryviolation exclusion removed a conversion claim from coverage because the act violating the TCPA (faxing of an advertisement) was also the act alleged to support plaintiff’s conversion claim); James River Ins. Co. v. Med Waste Mgmt., LLC, -- F. Supp. 3d --, 2014 WL 4749551, at –9 (S.D. Fla. 2014) (same); G.M. Sign, Inc. v. Auto-Owners Ins. Co., 2012 WL 4840592, at  (Mich. Ct. App. Oct. 11, 2012) (unpublished) (same). But see Nationwide Mut. Ins. Co. v. Harris Med. Assocs., LLC, 973 F. Supp. 2d 1045, 1055–56 (E.D. Mo. 2013) (concluding that the insurance company could not establish sufficient facts at that stage of the case to establish that the statutory violation exclusion removed the plaintiff’s conversion claim from coverage). - 24 - CE Design contends that the statutory-violation exclusion’s language “applies to damages that arise out of a violation of the TCPA.” Appellant’s Rep. Br. at 9. From this, it argues that “[t]he only damages that arise out of the TCPA are the damages provided for by that statute.” Id. We understand CE Design to be speaking of monetary damages as opposed to “property damage” or “personal and advertising injury.” See id. at 9-10 (“Counts II and III of the Complaint in the underlying action seek independent damages from those sought in Count I and would be cognizable even if the TCPA did not exist.”). This interpretation mischaracterizes the statutoryviolation exclusion’s language—it does not speak of “damages” in the monetary sense, it speaks of “property damage,” here, the loss of paper, toner, and use of the fax machine. CE Design also contends that the statutory-violation exclusion’s language does not apply because its “conversion and ICFA claims have different elements and arise out of actions separate from the TCPA claim.”15 Appellant’s Rep. Br. at 10. Although CE Design agrees that the TCPA claim “shares some of the factual predicates” as the other two claims, CE Design contends that those claims “would be cognizable even if 15 We note that CE Design incorporated the following TCPA allegations into its conversion and ICFA claims: (1) that Custom faxed its recipients unsolicited faxes that it had no invitation or express permission to send; (2) that it sent Custom Design a faxed advertisement and sent the same or similar faxes to the other class members; and (3) that Custom’s faxes did not display an opt-out as required by 47 C.F.R. § 64.1200, a regulation implementing the TCPA. See 47 U.S.C. § 227. And we also note that CE Design’s judgment for $1,276,000 is calculated exclusively under the TCPA: $500 for each of the 2,552 advertisements faxed in violation of the TCPA. - 25 - the TCPA did not exist.” Id. Again, this misses the mark. The statutory-violation exclusion applies not when claims share the same elements,16 but instead when the property damage (paper, toner, and use of the fax machine) arises out of the same actions (the sending of the faxes) violating or allegedly violating the TCPA. See G.M. Sign, 18 N.E.3d at 78 (“[W]e disagree that . . . the pertinent analysis requires comparing the elements of the alternative counts to the elements of the TCPA count.”). Next, CE Design contends that its conversion and ICFA claims do not arise out of a TCPA violation. Appellant’s Reply Br. at 11. Again, this ignores the exclusion’s language, which looks to whether the property damage and personal and advertising injury “arise directly or indirectly out of any action or omission that violates or is alleged to violate” the TCPA. Appellant’s App. vol. I at 189 (emphasis added). CE Design seeks to propel itself through this language by arguing that its conversion claim “does not rely on the TCPA as the source of [CE Design’s] right, and seeks separate damages.” Appellant’s Rep. Br. at 11. In this regard, it notes that some of 16 By requiring the same elements as a TCPA claim, CE Design would limit the statutory exclusion’s first paragraph to TCPA claims. That ignores key language in the exclusion—“‘[p]roperty damage’ arising directly or indirectly out of any action or omission, that violates or is alleged to violate[.]” Appellant’s App. vol. I at 189 (emphasis added). If the statutory exclusion meant what CE Design says it means— that only violations of the listed statutes qualified for the exclusion—this “action” language would be unneeded and have no place. With this in mind, we have no difficulty concluding that Emcasco did not create a reasonable expectation of coverage that was unsupported by policy language. Max True Plastering, Co. v. U.S. Fid. & Guar. Co., 912 P.2d 861, 863 (Okla. 1996). - 26 - Custom’s faxes might support a claim for conversion but not a TCPA claim. Specifically, it notes that a conversion claim would avoid any need to prove that the fax was an advertisement or that the fax recipient had no business relationship with Custom. Appellant’s Rep. Br. at 11. For its ICFA claim, CE Design says that it “also did not arise out of any violation of the TCPA.” Id. Here, CE Design overlooks two problems. First, as mentioned, its $1,276,000 judgment reflects 2,552 faxes multiplied by $500 (the TCPA penalty for each fax), the basis on which it recommended settlement to the class members. Second, as noted above, its conversion and ICFA claims pleaded the necessary facts to establish a TCPA violation. Ultimately, we conclude that the policy does not provide coverage for Custom’s junk faxes to CE Design and the class members. We have liberally construed the policy to give reasonable effect to its provisions. See Dodson, 812 P.2d at 376 (Okla. 1991). We are also mindful that, where a genuine ambiguity exists in an insurance policy, Oklahoma courts will interpret the contract most favorably to the insured. See Houston Gen. Ins. Co. v. Am. Fence Co., Inc., 115 F.3d 805, 806 (10th Cir. 1997). But we find no ambiguity in the policy, and we conclude that the policy excludes Custom’s fax from coverage. We also reject CE Design’s further argument that Emcasco breached its duty to defend Custom and is now required to indemnify the judgment.