A New York federal district court recently held that US Coachways, a bus charter broker, was entitled to coverage under its professional liability policy for the costs paid to settle a TCPA class action arising from the broker’s advertising of its bus charters. In the underlying class action, plaintiffs sued US Coachways for sending them text messages advertising US Coachways’ bus charters, allegedly without their consent, in violation of the TCPA. US Coachways sought coverage from its professional liability insurer, Illinois Union Insurance Co., which declined coverage. US Coachways then settled with the class plaintiffs for just under $50 million, subject to the condition that the class plaintiffs could only seek to collect the settlement from Illinois Union, and not from US Coachways, with the exception of a $50,000 payment from US Coachways for class notification costs. The settlement included an assignment of US Coachways’ coverage claims against Illinois Union to the class plaintiffs.
Illinois Union then sought declaratory judgment in the U.S. District Court for the Eastern District of New York affirming that it had no obligation to cover US Coachways’ settlement with the class plaintiffs, and then filed a summary judgment motion seeking that same relief on several grounds. The class plaintiffs, as assignees, filed their own summary judgment motion, arguing that the settlement was covered by Illinois Union’s policy. Applying New York law, the court granted the class plaintiffs’ motion and denied Illinois Union’s motion.
In holding that the settlement was covered, the court first examined the policy’s definition of covered “professional services,” which Illinois Union contended did not apply because US Coachways, in sending the text messages at issue, was advertising for itself, not “for others” and “for a fee,” as required by the language of its policy. The court disagreed, holding that “it was sufficient for coverage that US Coachways was using those advertisements to bring its e-services as a ‘bus charter broker’ and a ‘travel agency business’ to others—members of the general public who saw it as potential customers.” Likewise, the court held, because US Coachways’ services were being offered to the general public for a fee, it was “irrelevant that US Coachways apparently did not collect a fee for the advertising itself.”
The court also rejected Illinois Union’s argument that, because US Coachways agreed to pay only $50,000 to the class plaintiffs itself, the exclusion in its policy applicable to “amount[s] for which the insured is not financially liable or legally obligated to pay” precluded coverage for the amounts of the settlement in excess of $50,000. In particular, the court predicted that the New York Court of Appeals would adopt the majority position nationwide that “an insured remains ‘legally obligated to pay’ despite an assignment of indemnification rights to a third party and the third party's covenant not to execute against the insured.”
Why it matters: This case serves as a reminder that insurance can be an important and effective tool in managing potential liability arising from the TCPA, and can be a critical backstop for resolving TCPA class actions where the insured might not otherwise have the financial wherewithal to resolve the class action on its own—although the insured will need to be prepared to pursue coverage aggressively where, in a case like this one, the insurer improperly fails to honor its coverage obligations. Notably, the policy at issue in this case was issued in the 2013–14 time frame, before TCPA-specific (and so-called unsolicited communications) exclusions became the norm in most liability policies. That said, TCPA-specific insurance coverage remains available through some insurers as an add-on to their professional liability policies. To obtain such coverage, the prospective insured should consult with an experienced insurance broker that has obtained similar coverage for other clients, and should also consider consulting with experienced policyholder-side coverage counsel to ensure that specimen policy language provided by the prospective insurer actually provides the full scope of TCPA coverage that the insured is anticipating.