By Stacy Broman and Danielle Dobry on March 7, 2018

Posted in Duty to Defend, Liability Coverage, Recent Cases

The Tenth Circuit Court of Appeals recently decided ACE American Insurance Co. v. Dish Network, LLC, No. 17-1140, 2018 WL 988404 (10th Cir. Feb. 21, 2018), a case involving whether statutory damages and injunctive relief  under the Telephone Consumer Protection Act (“TCPA”) were insurable “damages” triggering a duty to defend or uninsurable “penalties.” The Tenth Circuit held that the insurer had no duty to defend or indemnify. The court reasoned that the statutory claim for damages under the TCPA was penal in nature. The Dish Network case serves as an example of the particularity in which alleged damages may be analyzed by the courts in order to determine the duty to defend.

In Dish Network, the federal government and state plaintiffs of California, Illinois, North Carolina, and Ohio sued DISH Network (“DISH”) for violations of the TCPA. The TCPA allows states to bring a civil action on behalf of its residents to enjoin calls, an action to recover for actual monetary loss or receive $500 in damages for each violation, or both. 47 U.S.C. § 227(g)(1). Further, each violation committed “willfully or knowingly” allows up to $1,500 in treble damages. Id.

In the complaint, plaintiffs alleged that DISH violated the TCPA and sought “a permanent injunction and other equitable relief.” Further, the complaint alleged that DISH’s TCPA violations were willful and knowing. The complaint further alleged that “[c]onsumers in the United States have suffered and will suffer injury as a result of [DISH’s] violations of the…TCPA… Absent injunctive relief by this Court, [DISH] is likely to continue to injure consumers and harm the public interest.” The complaint additionally requested in its prayer for relief to permanently enjoin DISH from violating the TCPA, and to award $1,500 for each willful and knowing violation and $500 for each violation of TCPA that was not willful or knowing.

ACE insured DISH from 2004 to 2012 under general liability policies. Coverage B of the CGL policy had a broadcaster exclusion for personal or advertising injury when committed by an insured whose business is “[a]dvertising, broadcasting, publishing or telecasting.” From 2006 to 2012, Coverage B also had a specific TCPA exclusion.

Following tender of the initial complaint, ACE denied coverage under Coverage A, and reserved rights as to potential coverage under Coverage B. After the second amended complaint was filed, ACE again reserved rights as to potential coverage under Coverage B. In December 2013, ACE, according to the opinion, determined that DISH was entitled to coverage and issued a check for $913,650.

Subsequently, ACE reversed its coverage determination and filed a declaratory judgment action. ACE sought a declaration that it had no duty to defend or indemnify DISH. The district court held there was no coverage and therefore no duty to defend or indemnify. The court reasoned the TCPA statutory damages were a penalty and uninsurable as to Coverages A and B under Colorado public policy. Further, the district court held that the injunctive relief did not constitute “damages” under the policies. The court additionally held that the broadcaster exception barred coverage. DISH appealed the district court’s ruling.

First, the court analyzed the statutory claim for damages under the TCPA. DISH asserted that the TCPA damages for non-willful violations were not penal because they were liquidated damages and not punitive damages. First, the court used the punitive damages test in Kruse v. McKenna, 178 P.3d 1198 (Colo. 2008). The three-part tests includes whether (1) the statute asserted a new and distinct cause of action; (2) the claim would allow recovery without proof of actual damages; and (3) the claim would allow an award in excess of actual damages. While the Kruse case dealt with the issue of assignability, the Dish Network court found that its test and holding applied to insurance coverage. The court held that under Colorado law the TCPA statutory damages were penalties. The court ultimately reasoned that Colorado courts focus on the particular TCPA remedy sought, and that when the claim is for statutory damages, the remedy is penal in nature.

Further, DISH maintained that the TCPA’s provision regarding actual monetary loss was an insurable remedial provision under Colorado law to trigger a duty to defend. The court first acknowledged Colorado law addressing the distinction between penal and remedial remedies when they arise from the same statutory section. Whereas penal damages are in excess of actual damages to deter certain conduct, remedial damages constitute the recovery of the actual amount of damages suffered. Further, the court relied on the Colorado Court of Appeals holding in U.S. Fax Law Ctr., Inc. v. T2 Techs, Inc., 183 P.3d 642 (Colo. Ct. App. 2007) which determined that alleged TCPA statutory damages are penal. The court determined that it must engage in a fact-specific inquiry to determine whether a plaintiff alleged remedial or penal damages. The court held that the plaintiffs explicitly alleged penal damages. The court reasoned the way in which plaintiffs pled their requested relief requested statutory damages.

DISH also argued that Colorado public policy did not apply to claims against DISH for unknowing violations of the TCPA. The court held that statutory damages were uninsurable under Colorado public policy and barred coverage. The court reasoned that Colorado law prohibits insuring against punitive damages and that the TCPA’s statutory damages are penal. Therefore, ACE had no duty to defend DISH.

Next, the court analyzed the equitable relief claim for damages under the TCPA. DISH claimed the term “damages” was broad enough to cover equitable relief. DISH also asserted costs associated with compliance with an injunction were insurable damages under its policies. The court held that damages for equitable relief were not covered by the policies because the equitable remedy requested was to prevent future damages. The court reasoned that the policies provided indemnification for past injuries, not the costs to prevent future injuries. Finally, DISH argued that its request for “other ancillary relief to remedy injuries caused by DISH Network’s violation of the TCPA” qualified as a request for compensation for past injuries. The court held that the “other ancillary relief” provision did not trigger the duty to defend. The court reasoned that it would not interpret the “other ancillary relief” provision to make it virtually impossible for insurers to avoid the duty to defend. The court ultimately concluded that because the equitable relief claims created no duty to indemnify, there was no duty to defend the equitable relief claims.

In light of Dish Network, the intersection of alleged statutory and equitable damages arising under statute creates compelling arguments for an insurer regarding non-covered “penalties” versus covered “damages.”