No Coverage Under Directors and Officers Policy For TCPA Law Suit Settlement

Companies that bring marketing campaigns using unsolicited faxes tend to end up in putative class actions under the Telephone Consumer Protection Act (“TCPA”).  Many companies use vendors to design and implement those campaigns.  Those vendors are not always named in the TCPA action.  What happens when the TCPA action settles and the vendor contributed to the settlement, can the vendor obtain insurance coverage for the TCPA case?

In Trialcard In Corp. v. Travelers Casualty and Surety Company of America, No  5:19-CV-368-BO, 2020 U.S. Dist. LEXIS 57060 (E.D. N.C. Apr. 1, 2020), a vendor who designed and implemented a zero co-pay drug campaign for a pharmaceutical company that was hit with a TCPA action, sought coverage from its Directors and Officers policy (the “D&O policy”) for the underlying TCPA action.  The vendor was not named in the TCPA action (there were several “Doe” defendants and the vendor claimed it was one of them) and was not served with the action, although it did receive a third-party document subpoena.  The vendor also paid into the settlement of the TCPA action.

The insurance company denied coverage.  The vendor brought suit for a declaratory judgment and also for breach of contract and breach of the implied duty of good faith and fair dealing.  The insurance company moved to dismiss each claim for failure to state a cause of action.  The district court granted the insurance company’s motion.

In granting the motion and dismissing the claims, the court rejected the vendor’s arguments that the TCPA action came within coverage of the D&O policy.  The court pointed out that the D&O policy extended coverage to claims against insureds from wrongful acts, which the policy defined in relevant part as a civil proceeding commenced by service.  The court found that the vendor was not named or served in the TCPA action and that its self-identifying as a “Doe” defendant was not sufficient.  Neither did the subpoena suffice because, according to the court, the subpoena was not complaint or similar pleading, and under the policy only a subpoena issued to an insured person (not an entity) in a formal administrative or regulatory proceeding triggered coverage.

The court also held that the policy’s contractual liability and errors and omissions exclusions precluded coverage.  The pharmaceutical company sought indemnification from the vendor under a master services agreement and the vendor performed skilled design and marketing services for the drug campaign. Because there was no viable claim for declaratory relief under the policy or breach of contract, the claim for breach of the covenant of good faith and fair dealing also failed.  Accordingly, the complaint was dismissed.



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