Costly litigation alleging violations of the Telephone Consumer Protection Act (TCPA) has made coverage hard to get for businesses that contact customers and prospects by phone or text. CRC Group explains why markets for TPCA risks are scarce and how to work with a knowledgeable wholesale broker to help insureds.
Tired of answering your phone and hearing either dead air or a recorded voice soliciting your business? So are federal regulators and plaintiffs, who have brought numerous lawsuits alleging violations of the Telephone Consumer Protection Act (TCPA). Some judgments and settlements are in the tens of millions of dollars. The frequency and severity of such litigation – against businesses large and small – has made it difficult to obtain insurance coverage for TCPA exposures.
A U.S. Supreme Court ruling in April 2021 may reduce the frequency of TCPA litigation, however. In Facebook v. Duguid et al., the court narrowed the scope of TCPA liability by declaring that the law's definition of an automatic telephone dialing system (ADTS) requires the capacity to use of a random or sequential number generator.1 Years earlier, the Federal Communications Commission (FCC) had interpreted the definition broadly, such that it could include many more kinds of systems that can store numbers and generate calls and text messages, including the average mobile phone – which opened the door to a flood of litigation.
The FCC broadened the scope of the law in response to a rise in the number of "robocalls," creating compliance exposures for many different kinds of businesses, including debt collectors that use phones to communicate with customers, prospects, and the indebted.2
The TCPA is expansive. It applies broadly to telephone solicitations, autodialed calls, text messages, and unsolicited faxes. Thirty years ago, in 1991, Congress enacted the TCPA to enable private citizens to reduce the number of unsolicited telemarketing calls and/or faxes they receive. Advances in telephone technology since that time have enabled businesses of all kinds to contact consumers through sophisticated automated systems, which generate robocalls. The TCPA prohibits making non-emergency calls using an ADTS and without a recipient’s prior written consent or an established business relationship. But the TCPA is fuzzy on “prior written consent.”
One element of the TCPA was the creation of a national Do-Not-Call Registry, which the Federal Trade Commission administers. Consumers and businesses can add mobile or land-line numbers to the registry. While the registry lists which numbers telemarketers should not call, the FTC notes it can’t block calls or stop callers who ignore the registry.3 That’s where the TCPA and litigation comes into play.
The TCPA provides for individuals or organizations to bring a civil complaint and to recover damages for actual loss or $500, whichever is greater, for each violation of the law. In addition, the TCPA permits courts to award three times that amount for cases involving willful or knowing violations. Notably, the TCPA does not pre-empt state laws on telephone solicitations that may be even more restrictive. Whether the recent Supreme Court ruling significantly reduces TCPA litigation remains to be seen. History shows that plaintiffs’ attorneys have found creative ways to bring lawsuits.
By the Numbers
Insurance Scarce for TCPA Risks
Only a handful of E&O insurance markets are willing to offer express coverage for TCPA claims with full policy limits. Typically, coverage is limited to $1 million or less for defense costs only, and requires a high self-insured retention. Some markets may be willing to include coverage for settlements, but that will come at a price.
Advances in telecommunications have reduced businesses’ need to use outside telemarketing specialists, and even though more businesses are bringing this function in-house, many still use third-party firms. Under the TCPA, vicarious liability for the acts of third parties is a serious risk.
Types of insurance that could respond to TCPA exposures include:
Errors and omissions (E&O) liability. For professional services firms, such as debt collectors and telemarketing specialists, E&O is the likeliest place to find coverage. This is especially true if a TCPA exposure is intrinsic to the professional services provided, though some policies may exclude TCPA claims.
Commercial general liability (CGL). For non-professional services businesses, CGL is a logical place to seek coverage for TCPA exposures. Courts are divided on how the advertising injury portion of an insurance policy apply to TCPA claims. Barring TCPA exclusions, courts nationwide have typically found coverage for TCPA claims where a case involves publication of advertising as an invasion of privacy. The U.S. Circuit Court of Appeals for the 7th Circuit, however, has ruled differently, narrowing the conditions in which a CGL policy would cover TCPA claims.7
Directors and officers (D&O) liability. D&O policies could be the best option for non-professional services businesses to obtain coverage for TCPA claims. A challenge, however, is that a typical D&O policy form has personal injury exclusions that deny coverage for claims arising from invasion of privacy. A knowledgeable insurance broker often can negotiate with insurers to soften or remove the exclusion, depending on the level of TCPA risk the insured has. Further, there are very few D&O insurance carriers willing to provide explicit coverage for a TCPA wrongful act. The coverage is generally sub-limited and will typically only be offered to firms with low exposure to TCPA. A wholesale specialist will know which carriers can do this and which risks would fit into underwriting parameters.
Retailers can take several steps to help their insureds mitigate TCPA liability exposures. These include:
- Inform insureds of their exposure and help them develop strategies to minimize it.
- Encourage clients to implement practices and procedures that ensure compliance with the Telephone Consumer Protection Act. If an insured is relying on a third party to contact customers and prospects by phone, text or fax, make sure that third party complies with the TCPA and all other relevant laws.
- As a safety net, work with an experienced wholesale specialist to navigate the insurance marketplace and address coverage issues, to obtain a product that will maximize insureds’ chances of getting coverage when facing a TCPA suit.
Contact your CRC Group producer for more information.
- Harold Field is Office President of CRC New York and a member of the ExecPro practice group.
- Facebook, Inc. v. Duguid et al., Supreme Court of the United States, No. 19-511; decided April 1, 2021; https://www.supremecourt.gov/opinions/20pdf/19-511_p86b.pdf
- "FCC Actions on Robocalls, Telemarketing,” Federal Communications Commission; https://www.fcc.gov/general/telemarketing-and-robocalls
- “National Do-Not-Call Registry,” Federal Trade Commission; https://www.donotcall.gov/faq.html
- “TCPA Lawsuits Are How Expensive?” U.S. Chamber Institute for Legal Reform, November 30, 2018; https://instituteforlegalreform.com/tcpa-lawsuits-are-how-expensive/
- “DISH Network to Pay $210 Million for Telemarketing Violations,” U.S. Department of Justice, December 7, 2020; https://www.justice.gov/opa/pr/dish-network-pay-210-million-telemarketing-violations
- King v. Time Warner Cable Inc., U.S. Circuit Court of Appeals for the 2nd Circuit, June 29, 2018; Docket No. 15-2474-CV; https://casetext.com/case/king-v-time-warner-cable-inc-1
- “The Seventh Circuit’s TCPA Insurance Quandary,” Illinois Law Review, February 19, 2020; https://illinoislawreview.org/online/the-seventh-circuits-tcpa-insurance-quandary/