Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—MichCtApp: Insurance Policy Requires Insurer to Defend and Indemnify Insured Against TCPA Claims, (Dec 6, 2012)

By Tobias J. Gillett, J.D., LLM.

An insurance company must defend and indemnify a small business and its principal under their insurance policy against allegations that the business sent unsolicited facsimile advertising in violation of the Telephone Consumer Protection Act (TCPA), a Michigan Court of Appeals has ruled in an unpublished decision (Auto-Owners Insurance Co. v. Tax Connection Worldwide, LLC, December 4, 2012, per curiam). The court interpreted the policy as covering a TCPA claim, and determined that the principal’s initial claim that the company did not send the facsimile advertising did not constitute a misrepresentation that would void the policy.

The insurance company, Auto-Owners Insurance Company, insured the small business, Tax Connection Worldwide, LLC, under a general business owner’s liability policy. On January 4, 2010, a catering company filed suit in federal district court claiming that the small business had sent an unsolicited facsimile advertisement to it and at least 39 other recipients. The small business tendered the complaint to the insurance company, while asserting that it did not advertise by facsimile. However, during discovery the small business’s principal learned that an employee had sent the facsimiles at issue.

The insurance company initially agreed to defend, but then brought suit against the small business seeking a declaratory judgment that it had no duty to defend or indemnify the small business. The catering company filed a counterclaim seeking a declaratory judgment of coverage. The trial court concluded that the insurance company must defend and indemnify the small business, and the insurance company appealed.

Interpretation of the Insurance Policy

The court initially noted that an insurer’s duty to defend is broader than its duty to indemnify, and “arises in instances in which coverage is even arguable.” The duty to indemnify arises only after liability is found and it is determined that the loss is covered by the terms of the policy.

The policy at issue provided that it would insure the small business for claims based on “advertising injury,” defined as, among other things, “[o]ral or written publication of material that violates a person’s right of privacy.” The court first determined that the facsimile advertising constituted “written publication of material.” The court also concluded that a claim under the TCPA “involves an interest in and protection of some sort of privacy right.”

However, the insurance company contended that the inclusion of the phrase “person or organization” in a previous subsection of the policy indicated that the use of just the term “person” here only referred to individuals and not corporations like the catering company. The court disagreed, noting that dictionaries and case precedent demonstrated that “corporations come within the generally understood meaning of the word ‘person.’”

The court also observed that the catering company had brought suit on behalf of all recipients of the small business’s facsimile advertising, and therefore the catering company’s complaint could cover individuals as well. Moreover, “any ambiguity in a policy that cannot otherwise be resolved” must “be construed against the insurer.”

Furthermore, the court observed that the unsolicited facsimile advertising fell “within the coverage language of an ‘advertising injury’ as broadly defined in the policy at issue.” The court cited the decisions of other state courts holding that similar language covered claims concerning the sending of unsolicited facsimile advertising in violation of the TCPA.

Misrepresentation as a Ground to Void the Policy

The insurance company also contended that the small business principal’s initial letter stating that the company did not send the facsimile advertising voided the policy under a provision declaring the policy void if the insured “intentionally conceal[ed] or misrepresent[ed] a material fact concerning …[a] claim under this policy.” The court noted that the catering company did not dispute that the statement was both “false” and “material.” The insurance company did not challenge the trial court’s decision that the principal did not know the statement was false when he made it.

However, the insurance company argued that knowledge of the employee’s actions in sending the facsimiles could be imputed to the principal through the principle that “a corporation may be held to have the sum total of all knowledge possessed by those persons representing the corporation and performing corporate responsibilities. The court found that this principle did not change the fact that the principal “did not actually know that his statement was false when he made it,” and thus did not intentionally make the misrepresentation.

The insurance company also argued that a statement made recklessly can constitute an intentional misrepresentation to void an insurance policy under Michigan Court of Appeals precedent. The court observed that although the principal failed to investigate before sending the letter, such a failure did not “indicate actual malice” under that same precedent, which also required the insured to have “in fact entertained serious doubts concerning the truth of the statement.”

The court also noted that the Michigan Supreme Court had instructed that an insured “must have actually intended to defraud the insurer” for the misrepresentation to void the policy, an intent that did not appear in the present case. To the extent that such intent could be inferred from the principal’s actions, that issue would be one for a jury, not summary judgment.

Moreover, the insurance company had not shown it would have acted any differently had the principal not made any statement regarding the sending of the facsimiles. Therefore, it had not demonstrated that the principal had intended the insurer to rely on the statement to its detriment. Accordingly, the court affirmed the trial court’s decision.

The case is No. 306860.

Kimberlee A. Hillock (Willingham & Coté, P.C.) for Auto-Owners Insurance Company. David M. Pierangeli (Worsfold Macfarlane McDonald) for Tax Connection Worldwide LLC.

Cases: ConsumerProtection Privacy MichiganNews