Exclusions

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Can You Hear Me Now? Tenth Circuit Rejects Coverage for Telephone Consumer Protection Act ClaimsA recent Tenth Circuit decision undercut policyholder arguments that Telephone Consumer Protection Act (TCPA) claims are insurable under a standard CGL policy. Policyholders should take note of this decision but should not assume that all TCPA claims are necessarily uncovered.

On February 21, the Tenth Circuit affirmed a finding of no coverage on appeal from the District of Colorado. In Ace American Insurance Company v. Dish Network, LLC, the Tenth Circuit held there was no duty to defend Dish in a lawsuit alleging various violations of state and federal laws relating to telemarketing phone calls. The court held that statutory damages and injunctive relief sought under the TCPA were uninsurable penalties instead of insurable “damages” under the relevant liabilities policies. The court also rejected Dish’s argument that the TCPA’s provisions governing actual monetary loss qualified as a remedial provision that could be insured under Colorado law. Finally, the court rejected Dish’s argument that the underlying claims for equitable relief could constitute insurable damages.

Policyholders should take note of this case for several reasons:

  1. Rising TCPA Claims. TCPA claims continue to gain popularity on court dockets across the country. Insurers will undoubtedly lean on this case as a basis for denial of coverage in similar cases. That said, TCPA policyholders should not simply assume that all hope is lost. For example, the Tenth Circuit’s decision relies heavily on aspects of Colorado law that may not be controlling in other jurisdictions.
  2. Claims for Equitable Relief May Still Trigger Duty To Defend. This case is a good reminder of the importance of a detailed analysis relating to the particular damage allegations in an underlying lawsuit when considering the duty to defend. The Tenth Circuit did not shut the door on the possibility of a duty to defend claim seeking equitable relief. Instead, the decision is limited to the particular allegations in the underlying complaint.
  3. TCPA Exclusions Becoming More Common. The court noted that several later policies contained specific exclusion endorsements for TCPA claims. Policyholders that may face TCPA allegations should consider whether their current liability policies contain such exclusions and, if so, whether additional coverage may be necessary to protect against such future allegations.
  4. Some Coverage Arguments Not Fully Addressed. Unfortunately, the Tenth Circuit did not reach some of the other interesting coverage questions that could have played a role. For example, I would have been interested to see the court’s analysis of whether “bodily injury” or “property damage” was alleged in the underlying litigation.

This case is not the death knell for coverage for TCPA defendants, but it may prove a hurdle even in jurisdictions beyond Colorado. Companies that face this risk should consider their current coverage portfolio, particularly with respect to any exclusions that may expressly or implicitly apply to TCPA claims. In the event of a claim, companies should analyze each case independently, including consideration of choice of law and the particular policy provisions and allegations at issue.

The Professional Services Exclusion: You May Not Have the Coverage You ThinkCould you be providing “professional services” that might lead to liability excluded by your commercial general liability policy? The answer may be different than you think.

A recent unpublished Eleventh Circuit opinion provides a reminder that it is important to review your CGL policy and understand whether you are covered. The facts upon which the court relied in Witkin Design Group, Inc. v. Travelers Property Casualty Co. of America appear simple enough. An intersection traffic accident resulted in the death of a young boy. The resulting lawsuit included a negligence claim against the landscape architect who designed and constructed the intersection. The landscape company called on its CGL insurer to defend and indemnify it from the claim. You can imagine the company doing so with the thought that a liability claim had been brought and its general liability policy would provide coverage for that claim.

Like most CGL policies, however, this CGL policy contained a professional services exclusion that excluded coverage for claims “arising out of the rendering of or failure to render any ‘professional service’.” Professional services were defined by the policy as “any service requiring specialized skill or training.” The CGL policy said that professional services included:

a. Preparation, approval, provision of or failure to prepare, approve, or provide any map, shop drawing, opinion, report, survey, field order, change order, design, drawing, specification, recommendation, warning, permit application, payment request, manual or inspection;

b. Supervision, inspection, quality control, architectural, engineering or surveying activity or service, job site safety, construction contracting, construction administration, construction management, computer consulting or design, software development or programming service, or a selection of a contractor or subcontractor; or

c. Monitoring, testing, or sampling service necessary to perform any of the services included in a. or b. above.

But, these are merely non-exhaustive examples. The Eleventh Circuit was clear: “the professional service exclusion applies to any service requiring specialized skill or training.” Because the claim for which the landscape company sought coverage arose out of its design and construction of the intersection, which required specialized skill or training, the court found the professional liability exclusion applied, resulting in no coverage under the CGL policy.

The Eleventh Circuit’s opinion is not ground-breaking. Whether an insured’s conduct constitutes excluded “professional services” is a frequently litigated coverage question, which turns on policy language, the insured’s specific conduct, and applicable state law’s definition of professional services. Other recent examples of cases in which courts have found no coverage because of professional services exclusions include a claim against a home inspector alleging failure to discover insect and water damage; a claim against a real estate broker who failed to disclose an adverse property condition; a claim against a property manager for failing to properly supervise construction; and a claim against an insurance company for misrepresenting insurance policies.

Simply because a professional services claim is excluded by the CGL policy, however, does not always mean that the insured is left holding the bag without insurance coverage. Many companies purchase professional liability policies, which are errors and omissions policies intended to provide coverage for claims arising from the specific professional services in which the insured is engaged. It is critical to understand, however, that these policies may define “professional services” differently than the insured’s CGL policy, and care should be taken to ensure that your professional liability policy covers what your CGL policy may exclude.

So, while the Eleventh Circuit’s recent decision is not ground-breaking, it does provide a useful reminder to think about whether you have the liability coverage that you think you have.  We suggest that you consider the following questions, and discuss them with your broker or attorney if necessary:

  • Does my CGL policy have a “professional services” exclusion?
  • Am I engaged in conduct that could expose me to liability claims and that could be construed as a “professional service” as defined and excluded by the policy?
  • Do I need to purchase a professional liability policy to protect from those claims, and does that professional liability policy cover what the CGL policy excludes?

It is better to know the answers to these questions now, rather than find out after a claim has been filed that you don’t have the coverage you thought. After all, It Pays to be Covered.™