Attorney Fees Awarded in TCPA Class Action Suit are not "Damages" nor "Costs" Payable Under the Supplementary Payment Provision of a CGL Policy.

Posted on August 18, 2011 by Shaun McParland Baldwin

 

Are attorney’s fees awarded in a class action settlement “damages” covered by a general liability policy?   Are they covered as “costs” under the “Supplementary Payments” Provision of a CGL policy?  Not according to the Eleventh Circuit in Alea London Limited v. American Home Services, Inc., 638 F.3d 768 (11th Cir. 2011). In that case, the Court of Appeals held that attorney fees awardable in a TCPA class action suit are not “damages” because of “personal and advertising injury” nor do they constitute costs payable under the Supplementary Payments provision of a CGL policy. Indeed, at the outset, the Court recognized that the ordinary and legal meaning of "costs" under Georgia law does not include attorneys' fees.   

 

 

The TCPA does not contain any provision that allows the court to award attorneys fees.   Most TCPA actions, however, are brought as class actions. Thus, Plaintiffs often invoke the provisions of FRCP Rule 23 to obtain attorney fees. That rule states, in pertinent part:

(h) Attorney Fees Awards. In an action certified as a class action, the court may award reasonable attorney fees and non-taxable costs authorized by law or by agreement of the parties.

 

That provision is different from other statutory bases for attorney fees where attorney fees are expressly referred to as “part of costs.”     For example, in federal civil rights suits,  plaintiffs request attorney fees pursuant to the Civil Rights Attorney's Fees Awards Act of 1976 (42 U.S.C. § 1988).   That statute permits the court, in its discretion, to award the prevailing party "a reasonable attorney's fee as part of the costs."   In Sullivan County, Tenn. v. Home Indem. Co., 925 F.2d 152 (6th Cir.1991), the court found such attorney fees were not "damages.” The Court viewed 42 USC § 1988 as reflecting an unambiguous intent to treat attorney fees as costs in order to ensure that the fees could be assessed against a state agency notwithstanding the bar to such awards presented by the Eleventh Amendment to the federal Constitution. The court found the supplementary payment provision of the policies, which made the insurer responsible for all costs taxed against the insured in a suit for damages, demonstrated "very persuasively" that the policy meant to refer to "damages" only in the conventional sense of the term, for if the word "had been used originally in a sense that already included costs, the quoted portion of the Supplementary Payments provision would have been totally unnecessary...."

In Alea, the Court held that under the insuring agreement, the insurer agreed only to: (1) pay damages the insured was legally obligated to pay; (2) defend lawsuits against the insured; and (3) investigate and settle claims. It observed that at the end of the insuring agreement, the policy expressly states: “No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments – Coverages A and B.”

The Court noted that the Supplemental Payment obligations are expressly limited to: (1) expenses incurred by the insurer in defending the insured; (2) cost of certain bonds; (3) reasonable expenses the insured incurs at the insurer’s request in investigating or defending the lawsuit; (4) all costs taxed against the insured in the law suit; (5) pre judgment interest and (6) post judgment interest. “Notably absent is any supplementary payment for attorneys' fees for claimants against the insured.”   The Court concluded that there was no language in the policy that leads to the conclusion that the insurance contract contemplated that the insurer would indemnify the insured for its opponents’ attorneys’ fees. Accordingly the 11th Circuit affirmed the District Court’s ruling that the fees awarded to the underlying plaintiffs in the TCPA class action suit and assessed against the insured were not covered by the policy. 

Notably, the typical “Supplementary Payments” provision in a CGL ISO policy form issued prior to 2006 states, in pertinent part:

We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend… (e) all court costs taxed against the insured in the “suit.”

In the CG 00 01 12 07 ISO form,  the following language was added to par. e: “However these payments do not include attorneys’ fees or attorneys’ expenses taxed against the insured.”  The addition of that language should remove any argument that an opponent’s attorney fees are covered as costs under the Supplemental Payments provision.

There may still be a debate as to whether an award of attorney fees constitute “damages” as there is some conflicting case law on that subject. For example, in Hyatt Corp. v. Occidental Fire & Cas. Co. of N.C., 801 S.W. 2d 382 (Mo. App. 1991), the Missouri Court of Appeals found that attorney fees paid as part of a settlement of a class action suit are covered as damages. Hyatt involved an underlying class action personal injury suit where multiple persons were killed or injured when two skywalks at the Kansas City Hyatt Regency collapsed. That suit settled. The underlying plaintiffs’ counsel was awarded attorney fees as part of the settlement. One of the insurers refused to pay the attorneys fees, arguing that they were not “damages” within the meaning of its general liability policy. The Missouri appellate court disagreed. The court held that the “principal amounts at issue with respect to the federal class action are not the settlements paid to plaintiffs but [the insurer’s] share of attorney’s fees awarded in the federal class action as part of the settlement of the case. Such an award of attorney’s fees is indistinguishable from a damages award for coverage purposes.” Id. at 393-394.  

The Hyatt court relied on City of Ypsilanti v. Appalachian Ins. Co., 547 F. Supp. 823 (E.D. Mich. 1982) aff’d. mem. 725 F.2d 682 (6th Cir. 1983), a civil rights case. In that case, the district court held that attorney fees do not constitute "costs" under the insurance policy because the definition of "costs" refers only to the expense of carrying on the defense of a lawsuit. It does not refer to sums for which the insured is found liable, such as an award of attorney fees.  Id. at 827.  It found, however, “that a reasonable person in the position of the insured would believe that the words ‘all sums which the Insured shall become legally obligated to pay as damages would provide coverage for all forms of civil liability, including attorneys’ fees.”  Contra, Cutler-Orosi Unified School Dist. v. Tulare County School Districts Liability/Property Self-Insurance Authortiy, 31 Cal. App. 4th 617 (5th Dist. 1994)(“We agree with the Sullivan County court that to treat attorney fees as damages in such circumstances would ignore the evident intent of the policies to differentiate between costs and damages and would render the supplementary payment provisions superfluous).
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Insurers win big time in TCPA Suit: Business entities have no privacy interests; any property damage from a TCPA violation is expected.

Posted on June 14, 2011 by Shaun McParland Baldwin

 

Judge Lefkow  from the federal district court, Northern District of Illinois, held in Maxum Indemnity Co. v. Eclipse Manufacturing Co., No. 06 C 4946 (June 13, 2011) (Dkt. # 367), that business entities have no right of privacy.   Thus any TCPA claims asserted by business entities, as the class members, against a defendant will not implicate the “personal and advertising injury” coverage of the defendant’s CGL policy.   When a business entity receives an unwanted advertisement via fax, only its property interests (in the paper, ink and fax machine) are affected.    However, the sender of the faxes anticipates that the recipient’s paper and toner will be used.  Thus any property damage to the plaintiff class is expected.   Accordingly, coverage is also foreclosed under the property damage liability coverage. 

 

The implications of Judge Lefkow’s decision could be far reaching for those insurers whose policies do not contain TCPA exclusions.  Fax advertisements are often directed to business entities, rather than individuals.  If the plaintiff class members are not clearly identified as business entities, Judge Lefkow’s ruling will likely impact only the duty to indemnify not the duty to defend. Indeed Judge Lefkow allowed discovery to proceed on the issue of how many fax numbers on the leads list belonged to individuals not associated with a business entity so as to assess if any indemnity sums might be owed by the insurers.  

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A Supreme Interpretation of Coverage B

Posted on May 18, 2011 by Mike Aylward

It's not every day that you get a peek at how a U.S. Supreme Court justice would have ruled in an insurance coverage dispute.  And it's certainly not an everyday occurrence for an ex-SCOTUS justice to declare that your client "got it right" when he wrote a letter to the insured denying coverage.   So you'll forgive us if we have a little fun with Cynosure, Inc. v. St. Paul Fire & Marine Ins. Co., No. 10-1119 (1st Cir. May 12, 2011), a case in which we were local counsel where the First Circuit refused to find coverage for junk fax claims. 

As Coverage B mavens will recall, the issue with junk fax claims is whether the invasion of privacy language in CGL policies refers to the private content of the material that the insured publishes or communicates, as insurers contend, or can also extend to the manner of communication, without regard to whether the content of the communication is secret or private.  A number of courts, notably the Supreme Courts of Illinois and Massachusetts, have declined to consider the nuances of different privacy interests and have ruled that because either interpretation is plausible, the language in question must be ambiguous.  See, e.g. Terra Nova Ins. Co. v. Evan Fray-Witzer, 869 N.E.2d 565 (Mass. 2007).  At the same time, these cases have tended to distinguish cases that have adopted the insurer's position, such as Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631 (4th Cir. 2005), as involving non-standard language that lacks the ambiguity of the ISO CGL form.

As a result, there has evolved in recent years a dichotomy in which courts have tended to find coverage for junk fax claims under standard CGL forms but have refused to find coverage under policies issued by the St. Paul that contain slightly different wordings limiting coverage to the offense of “making known to any person or organization covered material that violates a person’s right of privacy”

This dichotomy was disrupted in 2010 when a federal district court in Massachusetts (Saris, J.) ruled that St. Paul had a duty to defend a TCPA case.  Despite footnotes in Terra Nova that seemed to distinguish cases such as Resources Bankshares, Judge Saris read the footnote and Terra Nova as compelling coverage for TCPA claims, even under policies with "making known" language.  St. Paul appealed. 

As Justice Souter posed it, the question for the First Circuit was "whether liability for violating privacy by advertising activity mean privacy understood as repose undisturbed by commercial intrusion (and thus liability for violating the TCPA), or privacy as freedom from disclosure to a third-party recipient of information that the subject of the disclosure claims an interest in not having divulged."

In this case, the court took note of the context in which this language occurred, observing that all of the other "publication" offenses focused on the content of the published material, not the manner of publication.  In any event "[w]hat logic and definition require, syntax confirms." 

On our reading, the content of the material communicated (revealing something about a third party) is necessary for a covered violation of a right of privacy. Under Cynosure’s argument, on the contrary, making known alone (to the recipient) would violate privacy without regard to content. That is, the modifying phrase “that violates a person’s right of privacy” would refer to “making known,” not to “material.” But to do that, the modifier would have to jump back over the words “to any person or organization covered material,” and that would be not only a broad jump, but an unlikely one at all, since the phrase “that violates . . .” has an obvious antecedent in its contiguous neighbor, “covered material.” While not every commercial contract term may intend to respect this convention of looking to the most direct antecedent as the subject of a modifier, the more complex a sentence is, the more likely it is that the most direct antecedent is the one that commercial contracting parties understood.

As a result, the First Circuit reversed the District Court and entered judgment for St. Paul.

St. Paul was likely fortunate in having Souter on the panel that heard its appeal.  There is always a certain tension between state and federal courts of appeal with respect to issues of insurance law (witness the conflicting views of the 7th Circuit and the Illinois Supreme Court on this issue alone).  Whereas another federal jurist might have felt more compelled to defer to as recent a precedent as Terra Nova, a former U.S. Supreme Court justice (who had himself once sat on a state Supreme Court) likely felt fewer compunctions).

The junk fax wars seem to be cooling down, as the ISO exclusion has for the most part cut off coverage under policies issued after 2004.  Efforts to compel the application of Coverage B to privacy claims proceed unabated, however, as witnessed by the recent claims arising out of the California Supreme Court's Pineda ruling last February holding that merchants can be sued for disclosing customers' zip codes without their authorization. 

Even so, it's nice to read an opinion where a court takes the time to really read an insurance policy and interpret it in accordance with plain rules of English grammar and usage.  But maybe I'm just biased, since this was our case...
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Write Good, Pay Less

Posted on February 5, 2010 by Mike Aylward

Just as truth is often said to be the first casualty of war, bad grammar is often the first victor in coverage battles. Such has recently been the fate of the quaint but venerable doctrine of the last antecedent, whereby clauses in a contract are interpreted in accordance with the words or phrases that immediately precede them rather than words that are more remote.

Two courts have considered this doctrine in reaching opposite conclusions with respect to whether standard CGL “personal and advertising injury” coverage for “publication of material that invades a person’s right of privacy” extends coverage to junk fax claims. The issue in these cases was whether it is the “publication” that is invasive or the “material.” Junk faxes, while annoying, rarely contain secret or confidential information such that their content could be said to invade a privacy interest. On the other hand, the legislative history of the TCPA suggests that Congress was concerned about protecting the seclusion interest of private citizens in banning such communications.

 


In State Farm General Ins. Co. v. JT’s Frames, Inc., B215457 (Cal. App. January 27, 2010), the Second District Court of the California Court of Appeal rejected the insured’s argument that the annoying receipt of telefaxed communications constituted a “publication” invading the recipient’s privacy. Rather, the court ruled that the “last antecedent rule,” as well as the context of the coverage itself, made clear that it was the “material” that the insured published that must invade the insured’s privacy rather than the manner of communication.

A contrary view was taken by the Florida Supreme Court in Penzer v. Transportation Ins. Co., No. SC08-20608 (Fla. January 28, 2010). On a certified question from the Eleventh Circuit, the court concluded that sending 24,000 unsolicited blast fax advertisements fell within the common dictionary meaning of “publication” as involving the distribution of material to the public. Further, the court ruled that the faxes themselves were “material,” noting that “material” may mean both solid objects as well as the content of said objects. Finally, the court found that the unhappy recipients of these faxes had suffered an invasion of privacy, rejecting any suggestion that the policy’s reference to “right of privacy” created any material distinction. Accordingly, piecing these conclusions together, the Florida Supreme Court found that the insured’s conduct involved the publication of material that violated a person’s right of privacy.

Transportation  argued that the doctrine of the last antecedent required a contrary conclusion. Relying on this doctrine, Transportation had argued that the phrase “that violates a person’s right of privacy” modified the term “material” as opposed to “publication” and thus coverage should only arise when it is the content of the material that violates a person’s right of privacy. The Florida Supreme Court disagreed. First, it ruled that this doctrine was not an absolute rule of contract interpretation and that, in this case, the clause “that violates a person’s right of privacy” is applicable as much to “publication” as to “material.” Furthermore, the court found that even if the phrase only modified the term “material,” the receipt of an unsolicited blast fax could still invade a homeowner’s privacy interest in seclusion without regard to whether the content of the material had also violated the privacy interest in secrecy.

As the Tenth Circuit recently cheerfully observed in Payless Shoesource v. Travelers Co., Inc., 482 F.3d 976 (10th Cir. 2009, “we know that grammatical rules are bent and broken all the time and we will not enforce the more grammatical interpretation of a contract when evident sense and meaning require that a different construction.” In rejecting a Kansas policyholder’s reliance on the last antecedent rule, the Tenth Circuit declared in Payless that “while misplaced modifiers are syntactical sins righteously condemned by English teachers everywhere, our job is not to critique the parties’ grammar, but only, if possible, to adduce and enforce their contract’s meaning. Here, a punctuation peccadillo notwithstanding, the meaning of the parties’ contract is unambiguous.”
 
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