An Edwards Wildman team led by Steve Prignano (Providence), Josh Broudy (Hartford) and David Sigmon (New York) obtained summary judgment for our client National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) in a case involving coverage claims brought by Payless Shoe Source, Inc. (“Payless”).  On January 4, 2013, a Kansas federal judge tossed out those claims against National Union, which stemmed from Telephone Consumer Protection Act (“TCPA”) class actions, stating that the policies contained clear and unambiguous exclusions that applied in the case.

The underlying class actions alleged that Payless violated the TCPA and related state statutes by making unsolicited phone calls to consumers, leaving them pre-recorded telephone messages and by sending thousands of unauthorized text message advertisements to consumers’ cell phones through third-party marketers and automatic dialing systems.  Payless was seeking approximately $10.8 million in coverage, which the Edwards Wildman team knocked out on the basis of a violation of communication statutes exclusion contained in the policies.

Among other points of contention in the case, the court rejected Payless’s argument that the exclusion should be narrowly construed to apply only when there is a finally-adjudicated violation or liability.  Since the underlying class actions settled without an admission of liability, Payless argued that the exclusion could not be triggered.  The court noted, however, that nothing in the exclusion required a formal adjudication and that it was sufficient if the liability arose from statutory violations.  The underlying plaintiffs “alleged precisely such statutory violations, and liability arose from those violations,” the court stated.  The court further rejected Payless’s attempt to contrast the subject exclusion with other exclusions in the National Union policies and underlying primary policy which excluded liability for actual or alleged claims, holding that, among other things, the language of unambiguous exclusions should be considered separately without resort to “broader principles of construction.”

The court also pointed out that under Kansas law there is a duty to defend only if there is a “potential for [insurer] liability under the policy.”  As the court noted, had the underlying plaintiffs secured a judgment against Payless for statutory violations of the TCPA, such judgments “would have necessarily brought the liability within [the] statutory communications exclusion.”  Likewise, the court rejected Payless’s reliance upon a provision that National Union would defend “groundless, false, or fraudulent” suits, finding that this promise only extended to coverage to which the National Union policies applied.

Lastly, the court rejected Payless’s arguments that National Union should defend it because the underlying class plaintiffs “might have” brought claims for common law invasion of privacy, which would not have implicated the violation of communication statutes exclusion.  Noting that the underlying plaintiffs never actually asserted any common law privacy claims, and their complaints presented no factual allegations supporting such claims, the court held that the claims were properly viewed as purely statutory in nature, thereby triggering the exclusion.

The Memorandum and Order from the District of Kansas can be found here.