Opinion ID: 3049019
Heading Depth: 2
Heading Rank: 4

Heading: punitive damages exclusion

Text: As noted earlier, the TCPA makes it “unlawful for any person . . . to use any telephone facsimile machine, computer, or other device to send an unsolicited 9 The insured AHS also contends that Alea should be equitably estopped from asserting non-coverage defenses in this declaratory judgment action because the attorneys Alea hired to represent AHS in the state lawsuit allegedly failed to notify AHS of a $1,000,000 settlement offer by FastSigns. We reject AHS’s equitable estoppel argument. Nothing herein, however, rules on whether this affects the monetary limits of liability under Alea’s Policy. 10 On appeal, FastSigns contends that several of these issues decided by the district court, such as applicability of the deductible, were not ripe for adjudication, and that the district court therefore rendered an advisory opinion. Each of FastSigns’s contentions lacks merit. See, e.g., Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 271-74, 61 S. Ct. 510, 511-13 (1941) (finding justiciable controversy in declaratory judgment action seeking interpretation of auto insurance contract). This appeal is not similar to American Fidelity & Casualty Co. v. Pennsylvania Threshermen and Farmers’ Mutual Casualty Insurance Co., 280 F.2d 453 (5th Cir. 1960), which involved how liability for unresolved claims should be apportioned between several insurance companies. See Edwards v. Sharkey, 747 F.2d 684, 686-87 (11th Cir. 1984) (discussing and distinguishing American Fidelity). 13 advertisement to a telephone facsimile machine.” 47 U.S.C. § 227(b)(1)(C). The TCPA creates a private right of action under which a party can bring “an action to recover for actual monetary loss from such a violation, or to receive $500 in damages for each such violation, whichever is greater.” Id. § 227(b)(3)(B). The TCPA is essentially a strict liability statute which imposes liability for erroneous unsolicited faxes. Penzer v. Transp. Ins. Co., 545 F.3d 1303, 1311 (11th Cir. 2008). However, if the court determines that “the defendant willfully or knowingly violated” the TCPA, “the court may, in its discretion, increase the amount of the award to an amount equal to not more than 3 times the amount available under subparagraph (B) of this paragraph.” 47 U.S.C. § 227(b)(3) (emphasis added). The TCPA does not require any intent for liability except when awarding treble damages. Penzer, 545 F.3d at 1311. Importantly though, the intent for treble damages does not require any malicious or wanton conduct, but rather is satisfied by merely “knowing” conduct. Although the Policy easily could have excluded treble damages by name, it does not do so. Rather, the Policy only has an exclusion for “damages attributable to punitive or exemplary damages,” as follows: Exclusion–Punitive or Exemplary Damage 14 The following exclusion is added to Coverages A, B, and C (Section I): This insurance does not apply to a claim of or indemnification for punitive or exemplary damages. If a suit shall have been brought against you for a claim within the coverage provided under the policy, seeking both compensatory and punitive or exemplary damages, then we will afford a defence for such action. We shall not have an obligation to pay for any costs, interest, or damages attributable to punitive or exemplary damages. (Emphasis added).11 The Policy does not define punitive damages. Here, the disputed issue is whether the trebling of the statutory compensatory damages in 47 U.S.C. § 227(b)(3) constitutes punitive damages for purposes of the punitive damages exclusion in the Policy. The district court determined that treble damages under the TCPA are punitive in nature, concluding that they are “closer to punishment than to payback.” Accordingly, the district court held that any treble damages awarded against AHS in the state lawsuit fell under the punitive damages exclusion in the Policy, and Alea is not obligated to indemnify AHS for those treble damages. Before interpreting the TCPA and the punitive damages exclusion in the Policy, we examine relevant Supreme Court cases about the nature of statutory treble damages. 11 Exemplary damages is a synonym for punitive damages. See, e.g., O.C.G.A § 51-12- 5.1(a) (stating that, for purposes of Georgia’s punitive damages statute, “punitive damages” is synonymous with “exemplary damages”). Thus, we refer simply to punitive damages throughout this opinion. 15 A. Supreme Court Cases Examining Statutory Treble Damages The Supreme Court has addressed the issue of whether treble damages should be considered compensatory or punitive in the context of several different statutes. Generally, Supreme Court “cases have placed different statutory trebledamages provisions on different points along the spectrum between purely compensatory and strictly punitive awards.” PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 405, 123 S. Ct. 1531, 1535 (2003). The Supreme Court has found that “the tipping point between payback and punishment defies general formulation, being dependent on the workings of a particular statute and the course of particular litigation.” Cook Cnty., Ill. v. United States ex rel. Chandler, 538 U.S. 119, 130, 123 S. Ct. 1239, 1246 (2003). In fact, treble damages statutes defy easy categorization as compensatory or punitive in nature. Whether treble damages under a given statute are considered compensatory or punitive is an intensely fact-based inquiry that may vary statuteto-statute. Compare Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 151, 107 S. Ct. 2759, 2764 (1987) (“Both RICO and the Clayton Act are designed to remedy economic injury by providing for the recovery of treble damages, costs, and attorney’s fees.”), Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 240, 107 S. Ct. 2332, 2345 (1987) (discussing the “remedial role of 16 the treble-damages provision” in RICO), Am. Soc’y of Mech. Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 575, 102 S. Ct. 1935, 1947 (1982) (noting antitrust private action, which allows for treble damages, “was created primarily as a remedy for the victims of antitrust violations,” and stating that “[t]reble damages make the remedy meaningful by counter-balancing the difficulty of maintaining a private suit under the antitrust laws” (quotation marks omitted)), Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 485-86, 97 S. Ct. 690, 696 (1977) (characterizing § 4 of the Clayton Act, 15 U.S.C. § 15, which permits recovery of treble damages, as “in essence a remedial provision”), Chandler, 538 U.S. at 13034, 123 S. Ct at 1246-49 (stating, in a lawsuit against a municipal corporation, that “it is important to realize that treble damages have a compensatory side, serving remedial purposes in addition to punitive objectives,” and concluding a municipal corporation is a “person” subject to treble damages under the False Claims Act),12 PacifiCare Health Sys., 538 U.S. at 405-07, 123 S. Ct. at 1535-36 (discussing the Supreme Court’s prior conclusions that RICO’s treble-damages provision is remedial, construing an arbitration clause prohibiting punitive damages, finding 12 The False Claims Act makes treble damages available against any person who, inter alia, “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1) (emphasis added). Both Chandler and Stevens construed the same FCA but appear to have reached opposite conclusions based on whether a state entity or a municipal corporation was the defendant. 17 the application of that clause to statutory treble damages under RICO “is, to say the least, in doubt,” and leaving it to arbitrator to determine meaning of punitive damages exclusion in arbitration agreement), with Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 784-88, 120 S. Ct. 1858, 1869-71 (2000) (stating, in context of a lawsuit against a state, that the state is immune from punitive damages, that the False Claims Act “imposes damages that are essentially punitive in nature,” and thus that the state is not a “person” who can be liable under False Claims Act), Tex. Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 639, 101 S. Ct. 2061, 2066 (1981) (indicating that treble damages under the antitrust laws can be considered punitive in nature and stating “[t]he very idea of treble damages reveals an intent to punish past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers”). In short, there is no rigid rule on characterizing treble damages statutes as either compensatory or punitive. With this background, we turn to the TCPA. B. Nature of TCPA’s Treble Damages Here, the structure and language of the TCPA are significant. Section 227(b)(3) provides: (3) Private right of action 18 A person or entity may, if otherwise permitted by the laws or rules of court of a State, bring in an appropriate court of that State- - (A) an action based on a violation of this subsection or the regulations prescribed under this subsection to enjoin such violation, (B) an action to recover for actual monetary loss from such a violation, or to receive $500 in damages for each such violation, whichever is greater, or (C) both such actions. If the court finds that the defendant willfully or knowingly violated this subsection or the regulations prescribed under this subsection, the court may, in its discretion, increase the amount of the award to an amount equal to not more than 3 times the amount available under subparagraph (B) of this paragraph. 47 U.S.C. § 227(b)(3) (emphasis added). The statute itself does not say whether these treble damages are considered compensatory or punitive. While this Court has not ruled on the nature of treble damages in the TCPA, we have held that the TCPA’s $500 statutory damages provision is not punitive. Penzer, 545 F.3d at 1311.13 13 In making its determination about the $500 statutory damages, the Penzer Court reasoned: “The TCPA provides for $500 statutory damages and for treble damages for willful or knowing conduct, 47 U.S.C. § 227(b)(3), which is an indication that the statutory damages were not designed to be punitive damages.” Penzer, 545 F.3d at 1311. However, the Penzer Court followed that analysis by pointing out that “punitive damages under Florida law must be based on behavior which indicates a wanton disregard for the rights of others.” Id. (quotation marks omitted). Given, in part, the nature of the conduct triggering punitive damages under Florida law, the Penzer Court concluded that Florida’s public policy–prohibiting insuring against punitive damages liability–did not apply to the $500 statutory damages under the TCPA. Id. In Penzer, the insured had settled a class action claim arising from its 24,000 unsolicited 19 Further, the TCPA’s statutory language directly links the base compensatory damages in subparagraph B (either actual monetary loss or $500, whichever is greater) to the treble damages when it says that “the court may . . . increase the amount . . . to not more than 3 times the amount available under subparagraph (B).” 47 U.S.C. § 227(b)(3). In other words, the statute allows the court to “increase” the compensatory award by up to three times. Id. The statute does not require a trebling, but permits an increase up to three times. The statute also caps damages at up to three times the § 227(b)(3)(B) compensatory amount. “[C]lassic punitive damages . . . leave the jury with open-ended discretion over the amount” of the damage award; treble damages under the TCPA limit the court to trebling the amount of the compensatory award. Chandler, 538 U.S. at 132, 123 S. Ct. at 1247. And given the relatively small amount of statutory damages available under the TCPA, trebling these damages appears to be a mechanism to encourage victims of unsolicited “junk” faxes to file suit. Cf. Chandler, 538 U.S. at 131, 123 S. Ct. at 1247 (stating that difference between double and treble damages in qui faxes for $12 million based on $500 in statutory damages per fax. Id. at 1304 n.1. No treble damages were part of the settlement and thus the issue in Penzer involved only the TCPA’s $500 in statutory damages. 20 tam cases may serve not to punish, but instead to encourage private plaintiffs to litigate). Finally, the TCPA, which allows treble damages for either willful or knowing conduct, does not match up with Georgia’s conduct requirements for punitive damages. See O.C.G.A. § 51-12-5.1(b) (stating that Georgia law requires “clear and convincing evidence that the defendant’s actions showed willful misconduct, malice, fraud, wantonness, oppression, or that entire want of care which would raise the presumption of conscious indifference to consequences” before a jury may award punitive damages).14 To the extent we apply Georgia law in construing the Policy, Georgia’s conduct requirement for statutory punitive damages is materially different from the TCPA conduct requirement of knowingly sending an unsolicited fax. Further, the Georgia courts have rejected the claim that treble damages are in every case the substantial equivalent of punitive damages. Williams Gen. Corp. v. Stone, 279 Ga. 428, 429-30 (2005); Colonial Lincoln-Mercury Sales, Inc. v. Molina, 152 Ga. App. 379, 382 (1979).15 14 The Georgia punitive damages statute also requires clear and convincing evidence to impose punitive damages; the TCPA includes no such restriction. 15 In Williams, the Georgia Supreme Court stated: Punitive damages . . . serve the legislative purpose of imposing sanctions, whereas treble damages, which are authorized by the statute without reservation in every civil RICO action, further RICO’s goal of compensating victims and providing incentive for “private attorney generals” [sic] to initiate actions against those in violation of the Act. . . . We thus reject the 21 For all of these reasons, we conclude that, for the purposes of interpreting the coverage provided by an insurance contract governed by Georgia law, the TCPA’s treble damages provision falls more on the compensatory than the punitive side. Alea could have drafted the Policy’s punitive damages exclusion to expressly bar coverage for “treble damages,” or all damages that were “in any way non-compensatory,” or damages that were “in part in the nature of punitive damages.” But it did not. And arguably even if the Policy’s punitive damages exclusion could reasonably be interpreted to extend to treble damages under the TCPA, it also can reasonably be interpreted, for the above-discussed reasons, not to extend to TCPA treble damages. Therefore, the punitive damages exclusion is at a minimum ambiguous, and under Georgia law must be construed against Alea and in favor of coverage. See O.C.G.A. § 13-2-2(5) (“If the construction is doubtful, that which goes most strongly against the party executing the instrument or undertaking the obligation is generally to be preferred.”); York Ins. Co., 273 Ga. at 712 (stating that, in construing insurance contracts, “exclusions will be strictly construed against the insurer and in favor of coverage”). Thus, the district court erred in concluding the Policy excluded coverage for TCPA treble damages. Court of Appeals’ premise that clear and convincing evidence is required because treble damages are the substantial equivalent of punitive damages. 279 Ga. at 429-30. 22