Commercial General Liability Policies Do Not Cover Unwanted Faxes

Commercial General Liability Policies Do Not Cover Unwanted Faxes


In ACS Systems, Inc. v. St. Paul Fire and Marine Ins. Co., 147 Cal.App.4th 137 (2007), involved the question of whether a commercial general liability insurer was required to defend an insured software company that was sued for sending unsolicited advertisements to fax machines in violation of the federal Telephone Consumer Protection Act of 1991 ("TCPA"), 47 U.S.C. § 227(b)(1)(C).

The trial court concluded there was no coverage under the policies. On appeal, the Court examined the question under the "advertising injury" and "property damage" coverages of the policies and affirmed the trial court's ruling.

First, the Court of Appeal rejected the insured's contention that the claim of sending unsolicited faxes constituted the offense of "[m]aking known to any person or organization written or spoken material that violates an individual's right of privacy" under the definition of "advertising injury." The Court reasoned that "[t]he coverage does not apply to injury caused by receipt of an unauthorized advertising fax, because in that case no disclosure of private facts to a third party has occurred: the recipient of an unauthorized advertising fax has not claim that `material that violates an individual's right of privacy' has been `made known' to a third party."

The Court construed the four advertising injury offenses together and concluded they all shared the assumption that the advertising injury offense harms the victim by sharing the content of the advertisement, not from the mere receipt of the advertisement. In reaching its decision, the Court distinguished federal cases holding that TCPA violations were covered advertising injury based on different policy language defining advertising injury to include the offenses of the "invasion of rights of privacy" or "publication of material that violates a person's right of privacy."

Next, the Court of Appeal addressed the question of "property damage" coverage. The insured argued that the underlying complaint alleged that the unsolicited faxes consumed the recipients' ink and paper and therefore constituted "property damage." The Court rejected the argument on two separate grounds: (1) the property damage, if any, was not caused by an "accident"; and (2) any property damage was "expected and intended" by the insured and therefore excluded because the use of the recipient's ink and paper was a natural consequence of the sending the fax.

This decision may have limited application to other cases involving unwanted telephone calls, faxes, mail, or emails because of the specialized definitions contained in the policies in this case. However, the decision's application of the "expected and intended" exclusion to a situation where the consequences of an insured's conduct are objectively foreseeable may be useful in other cases.