In a precedential but split ruling, the Third Circuit recently held that diversity jurisdiction existed over a declaratory judgment action seeking insurance coverage for a classwide settlement of Telephone Consumer Protection Act (“TCPA”) claims even though no individual member of the underlying class had a claim in excess of the required $75,000 amount in controversy. See Auto-Owners Insurance Company v. Stevens & Ricci Inc., No. 15-2080, — F.3d — (3rd. Cir. 2016). The court also affirmed that the TCPA class settlement did not constitute covered “property damage” or “advertising injury” under the terms of the subject insurance policy.
The case arose when an insurance company sought a declaratory judgment that it had no obligation to defend or indemnify an insured law firm in connection with a class action lawsuit alleging TCPA violations. The named plaintiff in the underlying the class action lawsuit had alleged that the law firm violated the TCPA by sending unsolicited fax advertisements. The insurance company sought a declaratory judgment in the Eastern District of Pennsylvania against both the law firm and the named plaintiff in the underlying class action. At summary judgment, the district court concluded that the sending of unsolicited fax advertisements in violation of the TCPA did not fall within the terms of the applicable insurance policy.
On appeal, the plaintiff argued that the district court lacked subject matter jurisdiction because the $75,000 amount in controversy was not met under the rule that distinct claims of separate plaintiffs cannot be aggregated when determining the amount in controversy (the “anti-aggregation rule”). Werwinski v. Ford Motor Co., 286 F.3d 661, 666 (3d Cir. 2002). The majority opinion rejected the plaintiff’s argument, ruling that jurisdiction existed. The majority reasoned that its holding did not violate the anti-aggregation rule because the dispute arose between the insurer and the law firm, rather than between the insurer and each member of the underlying class. In a dissenting opinion, Judge Joseph A. Greenaway Jr. disagreed, stating that the analysis should focus on the actual parties in interest –– i.e., the class members –– none of whose “claim would exceed, or even come close to, the $75,000 threshold.”
The court went on to affirm the district court’s holding that the TCPA class settlement was not covered by the insurance agreement. The insurance agreement covered “property damage” and required that any “property damage” be caused by an “occurrence”, which was defined as an “accident.” Because the plaintiff’s injury was the use of ink, toner, and time caused by the receipt of junk faxes, and because those injuries were the natural and expected result of the sending of faxes, the court held that such damages did not constitute an “accident” and were therefore not covered “property damage” under the insurance agreement. The insurance agreement also covered “advertising injury”, which it defined as, among other things: “Oral or written publication of material that violates a person’s right of privacy”. The court held that the insurance agreement’s “right of privacy” covered only secrecy-based privacy interests whereas the TCPA only protects seclusion-based privacy interests. Because there were no allegations that the fax advertisements contained any confidential information that would violate any right to secrecy, the majority concluded that the alleged conduct was not covered as an “advertising injury” under the insurance agreement.