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It means what it says: not all lawsuits for unsolicited faxes are covered by insurance.

Junk faxes--advertisements sent to fax machines--are one of the annoyances of the modern age. To stop this problem, Congress provided a private right of action giving legal relief to junk fax recipients, the Telephone Consumer Protection Act, 47 U.S.C. [section] 227 (2003). Recipients could sue senders and collect certain relief.

From the perspective of this column, the issue is not the offending junk fax, or the TCPA lawsuit concerning that fax. The real issue is whether TCPA lawsuits concerning junk faxes are covered under commercial general liability policies.

The United States Court of Appeals for the Fourth Circuit recently provided a thoughtful opinion on this issue, Resource Bankshores Corp. vs. St. Paul Mercury Ins. Co. The court concluded that a junk fax suit was not covered. While other courts have decided this issue differently, the reasoning in Resource Bankshores is very persuasive and certainly welcomed by insurers.

In considering coverage, the Resource Bankshores court addressed two possible coverage theories.

The first coverage theory concerned whether the unsolicited transmission of junk faxes fit within the policy coverage for "property damage" caused by an "accident." Thinking practically and simply, how can someone send a fax to a specific person and then claim that this person's receipt of the fax was an accident?

As discussed in earlier columns, policyholders often claim that consequences that are natural and probable (if not inevitable) are somehow accidental, and the policyholder asserted such a theory here. This policyholder did not deny that when a fax is transmitted, it is natural and probable that a fax would be received. Instead, the policyholder argued that it only intended to send its faxes to recipients who wanted them, and its transmission to unwelcoming recipients was an accident.

Although I am a lawyer for insurers, I respect creativity, and this policyholder's argument was certainly creative. The court, however, was unimpressed. Since there was no evidence that could have led someone to reasonably believe that its faxes were wanted, the court rejected the insured's argument that its belief of consent was a mistake. The court found that there was no "accident," therefore no coverage.

The policyholder's second theory for coverage was that the faxes fell within the advertising-injury provision of the policy. Here the issue centered on whether the faxes were "making known to any person or organizations written or spoken material that violates a person's right to privacy." When is a person's right to privacy violated? Examining this issue, the court cited earlier case law finding privacy has two principal meanings: secrecy and seclusion.

The court first noted that the recipient of the fax is not having any private material made known. The advertising-injury offense applied to harm caused by the sharing of the content of the ad, not the mere receipt of the ad. The TCPA's prohibition against the sending of junk faxes has nothing at all to do with the content of any ad, only its unsolicited transmission.

While the TCPA's unsolicited fax prohibition may afford fax-machine owners sufficient seclusion to do with their fax machine as they wish--without having to sift through unwanted faxes--it does not even hint at protecting anyone from the disclosure of private facts. Consequently, the court found that in that situation the advertising injury coverage did not apply.

This decision also suggests several general considerations on policy interpretation.

At the start of the its analysis, the court observed that the policies were "written in admirably plain English." The court then proceeded to enforce the policy limitations. The decision is another victory for clarity and "plain English."

The court also noted that "because insurance companies typically draft their policies without the input of the insured ... if an ambiguity exists, it must be construed against the insurer." But what about companies that draft their policies with the input of the insured? Arguably, in these instances, the policies should not be construed against the insurer.

The case teaches many lessons. Congress values our right to secrecy and seclusion. Courts interpreting contracts, however, value clarity above all. Clear policy restrictions are enforced. And while some courts have allowed policyholders to stretch the meaning of "accident," other courts enforce the plain meaning of insurance policies and refuse to allow intentional acts that cause the intended consequences to be treated as accidents.

The Resource Bankshores decision concerning junk faxes is a powerful precedent that will help insurers to enforce the limits of their policies.

Alan S. Rutkin, a Best's Review columnist, is a partner at Rivkin Radler LLP, Uniondale, N.Y. He may be reached at
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Article Details
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Title Annotation:Regulatory/Law: Legal Insight
Author:Rutkin, Alan S.
Publication:Best's Review
Geographic Code:1USA
Date:Jul 1, 2006
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