It may have seemed like déjà vu for the Eleventh Circuit to get another coverage dispute over junk faxes. But that is just what happened in Interline Brands, Inc. v. Chartis Specialty Insurance Co., No. 13-10025 (11th Cir. Apr. 15, 2014). The Eleventh Circuit had previously certified to the Florida Supreme Court a question regarding whether commercial liability policies covering “advertising injuries” also cover liability arising from illegal junk faxes. The Florida Supreme Court in Penzer v. Transportation Ins. Co., 29 So. 3d 1000 (Fla. 2010) answered the question in the affirmative. Four years later, facing nearly an identical underlying fact pattern, the Eleventh Circuit did not certify the case, nor did it even cite the Penzer decision. Rather, it held that there was no coverage.
How could this be? Well, a lot has changed since 2010. The policy at issue in Interline Brands had a broad statutory exclusion that was put in place, in part, in response to the Penzer decision. The statutory exclusion stated that Chartis did not have to cover advertising injury arising out of “any act that violates any statute” that “applies to the sending, transmitting or communicating of any material or information, by any means whatsoever.” Since the policyholder’s junk faxes violated the Telephone Consumer Protection Act, the court held that the exclusion applied.
The policyholder argued that the exclusion was so broad that, if read literally, it would eliminate nearly all advertising injury coverage, which made the coverage illusory. The argument paralleled arguments made in the pollution exclusion context. And the result was the same. The court held that the exclusion was unambiguous and was not so broad as to make the coverage illusory or violate public policy. Therefore, the court held the claims were excluded from coverage.
The Interline Brands decision is yet another reminder that Florida courts do not follow the reasonable expectations doctrine, and have little use for the doctrine of illusory coverage. Unlike many other jurisdictions, where the outcome of this case may well have been different, Florida courts take a strict constructionalist approach to insurance policy interpretation, and have no problem applying broad exclusions, even if those exclusions remove most of the coverage the policyholder thought it had paid to secure.
The Interline Brands decision is also a reminder that comprehensive general liability policies are not as comprehensive as they used to be. Many new exclusions have been added to these policies to remove coverage for a variety of claims, including claims alleging statutory violations in the advertising and communications areas (such as TCPA, FCRA, FACTA, and the CAN-SPAM Act of 2003). In addition, the Insurance Services Office this month put out a new data breach claim exclusion that excludes coverage for “[a]ny access to or disclosure of any person’s or organization’s confidential or personal information.”
The end result is that it has become increasingly important for companies to buy technology liability or data breach insurance (often referred to by the mis-named term of “cyberliability insurance”) to protect against claims related to data breaches and privacy violations that were previously covered by general liability policies. This coverage is important for all companies, not just high-tech companies, or companies with an e-commerce website. The Interline Brands case is a good example of that. There are few office technologies still in use that are more antiquated than the fax machine. Yet Interline Brands faced a serious lawsuit, and a serious uncovered liability, due to this antiquated technology. Similarly, many breach of privacy claims involve the use of a telephone or printed store receipts. It does not take a sophisticated hacking, or on-line data breach, to lead to a major headache that is likely uncovered in the absence of specialized insurance.
Interline Brands hopefully will act as the last wake-up call needed before companies in all industries realize that comprehensive general liability insurance is not so comprehensive anymore, particularly when it comes to twenty-first century liabilities.