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Los Angeles Lakers Shoot Air Ball in TCPA Insurer Coverage Case

It’s halftime at a Los Angeles Lakers basketball game, and scrolling along the bottom of the Jumbotron suspended high above center court at Staples Center are messages from fans, sent to the Lakers via text for display: “Happy Birthday, Mike”; “It’s My First Lakers Game”; “Come on Lonzo, Hit a Three!” Not to be excluded, you pull out your iPhone and tap in a text message of your own. In an instant, you receive an automated text message back from the Lakers which contained a solicitation. Which begs and interesting question: by receiving this reply text, has your privacy has been intruded upon?

This very circumstance was the underlying issue in L.A. Lakers, Inc. v. Fed. Ins. Co., 860 F.3d 795 (9th Cir. 2017), which involved a fan who, while attending a Lakers game, sent a text message to a designated number attempting to get his message shown on the scoreboard. In an immediate reply text, the fan was asked if he wanted to get Lakers-related updates (notably, he was also provided an option to stop receiving text messages). Nevertheless, the automated response prompted the fan to bring an action against the Lakers claiming the organization violated the Telephone Consumer Protection Act (“TCPA”). Not surprisingly, the fan’s case was promptly dismissed because he initiated the communication, and therefore consented to a one-time text message from the Lakers. But that’s not where the story ends.

The more interesting litigation occurred between the team and its insurance provider, Federal Insurance Company (“Federal”), which issued a policy of insurance that included directors and officers liability and corporate liability coverage. It was pursuant to this policy that the Lakers sought protection against the fan’s TCPA action. Yet citing an exclusion for claims “based upon, arising from, or in consequence of . . . invasion of privacy,” Federal denied the claim. This didn't sit well with the team at all, and it subsequently sued Federal alleging breach of contract and breach of the implied covenant of good faith and fair dealing. To the Lakers dismay, the district court sided with Federal, agreeing that the TCPA claim was, indeed, inherently an invasion of privacy action. The Lakers appealed (if only they could appeal losses to the Celtics!).

In a split decision, the Ninth Circuit upheld the district court’s dismissal of the Laker’s case against Federal. The Court held that a TCPA claim is, by its nature, an invasion of privacy claim, and that when a policy excludes coverage based upon an invasion of privacy, it also excludes TCPA actions. More particularly, the majority – ostensibly relying on the legislative intent behind the TCPA – reasoned that when a plaintiff pleads the elements of a TCPA claim, by definition it also pleads an invasion of privacy claim. A rational position, to be sure, though the dissent in the appellate case presented (in this writer’s view) an even more persuasive analysis.

A TCPA claim necessitates three distinct elements: (1) that a defendant call a telephone number; (2) that the call be made using an automatic telephone dialing system; and (3) that no prior express consent for the call was given by the recipient. Noticeably missing from these required elements is any reference to privacy. Accordingly, a TCPA action can be alleged without a consumer’s privacy being violated.

This wasn’t lost on the dissent in the Lakers case against Federal. In explaining that a privacy element would, in fact, be detrimental to the goals of the TCPA, the dissent made clear that Congress, in enacting the legislation, wasn’t only worried about intrusive calls to individual consumers, but also sought to (1) limit the dangers of robocalls tying up emergency lines and (2) curb the huge cost businesses incur when fax machines receive frequent unsolicited advertisements – both of which don’t involve any privacy issues. Consequently, the dissent determined that a TCPA claim wasn’t inherently a privacy claim, and therefore Federal had a duty under its insurance contract to defend the Lakers against that fan’s TCPA claim.

Nevertheless, the majority ruled otherwise, and the law – as it currently stands – allows an insurance provider to deny coverage for TCPA claims under an invasion of privacy exclusion. The takeaway for insurers similarly situated to Federal: because the reasoning behind the Ninth Circuit’s decision isn’t particularly strong, such companies might consider policy language explicitly excluding TCPA actions.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.