ACS Systems, Inc. v. St. Paul Fire and Marine Insurance Company
(2007) __ Cal.App.4th __ C.D.O.S. 1049

"Advertising Injury" and "Property Damage" Coverage Not Applicable To Violations Of The Telephone Consumer Protection Act Of 1991 (TCPA) (42 U.S.C. §227)

The California Court of Appeal, Second Appellate District, held that advertising injury and property damage provisions of general liability policies do not provide coverage or require a defense for violations of the Telephone Consumer Protection Act of 1991 ("TCPA").

St. Paul Fire and Marine Insurance Company and St. Paul Mercury Insurance Company (collectively "St. Paul") issued primary Commercial General Liability and Umbrella Liability policies to Fidelity National Title Insurance Company, ACS Systems, Inc. ("ACS"), and others. A class action was brought against ACS (the Kaufman action) for violations of the TCPA, California's unfair competition laws, negligence, and invasion of privacy for sending thousands of unsolicited faxes.

St. Paul refused to defend and ACS sued St. Paul. ACS alleged the Kaufman suit sought "property damage," based on actual losses recipients incurred for unwanted faxes, including loss of paper and loss of use of fax machines. ACS also alleged the action raised a potential for "advertising injury" for invasion of privacy.

St. Paul demurred contending sending faxes is not an accident and the policies' invasion of privacy coverage applies only to disclosure of private information. St. Paul also argued ACS had no objectively reasonable expectation of coverage for TCPA violations.

The court sustained the demurrer without leave to amend and ACS appealed. The Court of Appeal affirmed.

The Court of Appeal recognized two goals for "the right of privacy;" "secrecy" and "seclusion." On the former, "material" violates someone's right of privacy when the material is "made known." "'[M]aking known' implies telling, sharing or otherwise divulging, such that the injured party is the one whose private material is made known, not the one to whom the material is made known." St. Paul's policy covered this "secrecy" invasion, not the "seclusion" interest a party has to be left alone.

Because nothing in the content of the "written or spoken material" in unsolicited faxed advertisements violated the recipient's secrecy right of privacy, there was no "advertising injury offense." The Court distinguished the various cases relied upon by ACS, which had found coverage for TCPA claims, because they had different definitions of advertising injury offenses.

The Court of Appeal also analyzed whether violations of the TCPA raised the potential for covered "property damage." ACS contended that faxing unsolicited advertisements consumes ink and paper, constituting "physical damage to tangible property of others." ACS also contended that there was a "loss of use of tangible property of others," while the fax machine receives the unsolicited advertisement. However, the Court found no coverage for two reasons; (1) property damage was not caused by an "event," defined as an "accident," and (2) the Policy excluded intentional property damage.

ACS intended the fax transmissions to occur, and thus, there was no unintentional act or conduct, and no "accident." The Court states: "Because every junk fax invades the recipient's property interest in consumables" and results in the loss of use of the fax machine, there is no event, as the sender of a fax anticipates and intends this consequence. The exclusion for intentional property damage forecloses coverage, because the fax recipient's loss is "expected or intended from the standpoint of the insured."

This opinion is not final. Though it has been certified for publication, it may be withdrawn from publication, modified on rehearing, or granted review by the California Supreme Court. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.

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