Fax Fight

DOES YOUR COMPANY send advertising faxes? Make one small mistake and your firm could be sued under the Telephone Consumer Protection Act (TCPA).

Most marketers know this. But did you know you could wrongfully be denied insurance coverage for your claim?

That's right. Insurers have tried to avoid paying in several cases.

And crazy as it sounds, the only way around it may be to assert that the alleged offense was a privacy violation.

Most firms have standard business liability insurance. Marketed as part of these policies is “advertising injury” coverage.

This usually covers copyright violations, trademark and patent infringement, antitrust, defamation and slander. And these policies also cover injury from “[o]ral and written publication of material that violates a person's right of privacy.” This would include blast-fax violations.

But insurers have tried to deny coverage for fax claims. And one gambit, although it's been rejected many times by the courts, is to deny that unsolicited faxes are a privacy violation.

Take the recently decided case of Valley Forge Insurance Co. vs. Swiderski Electronics Inc.

Swiderski was sued for sending faxes in Illinois without obtaining prior consent, and for unlawfully converting the recipients' toner and paper for its own use. The firm filed a claim with its insurer, Valley Forge. But Valley Forge refused to pay, and asked the court for a declaratory judgment that the “personal and advertising injury” provision of the policy did not apply.

Swiderski won both in the trial court and at the appeal level. The policy clearly stated that it provided coverage for “[o]ral or written publication of material that violates a person's right of privacy.”

The trouble was in defining privacy. The appeals judges noted that the term is ambiguous, and that the court would need to apply “a broader interpretation that encompasses violation of privacy rights established by federal statutes such as the TCPA.” Indeed, the judges found that “because transmitting an unwanted facsimile constitutes an intrusion on seclusion, it violates one's right of privacy.” As a result, they wrote, the insurer had a duty to defend the policy in court.

In general, courts have held the “right to be left alone” implicit. While Congress did not specifically use the words “right to privacy” in the TCPA, judges have written that the act fundamentally involves such a right.

And courts in Georgia, Kansas, North Carolina, Missouri, Texas and Virginia have ruled that privacy violations are indeed triggered by unsolicited faxes. They also have held that by enacting the TCPA, Congress clearly intended to protect the privacy interests of residential telephone subscribers.

The Swiderski ruling is in line with several cases recently decided by other circuit courts. For instance, the Eighth Circuit recently held that a Missouri insurance policy, which covered “private nuisance” and “invasion of rights of privacy,” provided coverage for unsolicited faxes in violation of the TCPA (Universal Underwriters Insurance Co. vs. Lou Fusz Auto Network Inc.).

Similarly, the Fifth Circuit found coverage under a commercial liability policy for unsolicited faxes, which were a “publication of material that violates a person's right of privacy” (W. Rim. Inv. Advisors Inc. vs. Gulf Insurance Co.).

For the record, here's what the TCPA says: “It shall be unlawful for any person within the United States…to use any telephone facsimile machine, computer or other device to send, to a telephone facsimile machine, an unsolicited advertisement.”

And how does it define an unsolicited advertisement? “Any material advertising the commercial availability or quality of any property, goods or services which is transmitted to any person without that person's prior express invitation or permission.”

Another argument used by insurers is that sending an unsolicited fax does not constitute “publication.” Under this theory, the fax must be transmitted to a third party to be considered published.

But the courts have rejected this. The dictionary defines publication as “communication of information to the public.” There is no requirement that it be sent to a third party.

The courts upheld this principle both in the Swiderski case and one involving Hooters. The restaurant chain was sued by consumers for sending unsolicited faxes. Hooters settled the case, but the insurer, American Global Insurance Co., refused to pay.

However, Hooters won in court, which held that advertising faxes constitute publication, and that “the act of transmitting an unsolicited [fax] involves a public act by the sender.”

Of course, these are not the only arguments employed by insurers. To their chagrin, some courts have found that TCPA violations also are covered under the “property damage” provisions of a liability insurance policy.

What's the damage? That the recipients temporarily lost use of their fax machines, and also had to pay the costs of paper and ink.

There's no question that these claims must be covered. To obtain approval for the current version of the advertising injury provision, ISO submitted an explanatory memorandum assuring regulators that this provision covers a wide variety of offenses, including the types alleged in blast-fax cases.

What should you do if your company is sued? First, examine your firm's policy — specifically, the advertising injury provision. Risk managers or corporate counsel should check whether the policy was in effect during the time period of the alleged offense.

They also should look at the language. While many insurance companies use standard form insurance policy language, that wording may be altered or modified in a specific policy. Even ISO policies vary according to the coverage period; the advertising injury provision has been altered several times since 1973.

If it appears that a claim falls within the advertising injury coverage provision, a notice of claim should be sent immediately to your company's insurer. This usually is done through the insurance broker or agent.

The advertising injury coverage provisions provide valuable coverage for the defense and indemnification of blast-fax actions, and for many other business-related tort claims. Policyholders should check their insurance for coverage when faced with judgments or settlements paid in, or attorney's fees incurred in defending, actions alleging blast-fax claims under the TCPA, copyright violations, trademark infringement, patent infringement or “piracy,” antitrust violations, defamation, slander, privacy violations or unfair competition.

Does your company's policy include advertising injury? Then you should aggressively pursue the insurance coverage you paid hard-earned dollars in premiums to secure. When your insurance company denies a claim, don't take no for an answer.

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WILLIAM G. PASSANNANTE is a partner in the New York law office of Anderson Kill & Olick P.C. SLOAN J. ZARKIN is an associate with the firm. The company regularly represents policyholders in insurance coverage matters.

DMA Fax Guidelines

DMers who want to avoid fax troubles should follow these guidelines from the Direct Marketing Association. The DMA issued them last month, following the Federal Communications Commission's release of regulations to implement the Junk Fax Prevention Act of 2005.

Here's part of what fax marketers must know to comply with the law that takes effect later this year:

• Faxes containing unsolicited advertisements are subject to notice and opt-out requirements. An unsolicited advertisement is “any material advertising the commercial availability or quality of any property, goods or services.”

• All faxes must include the date and time sent and the sender's name, telephone and fax numbers.

• All faxes, whether unsolicited or solicited and whether sent by fax machine or computer, must include the date and time sent, registered name, and phone and fax numbers of the company sending the fax.

• Faxes that contain an unsolicited advertisement must include an opt-out notice.

• Opt-out notices must appear on the first page of the fax, be clear and conspicuous and be separate from the advertising copy.

• Opt-out notices should clearly state that the recipient may opt out of any future faxes, provide clear instructions for doing so and list one cost-free domestic telephone and separate fax number for transmitting the request.