It’s a No Go for Vendor “Doe” in Seeking Insurance Coverage for a TCPA Claim

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 unnamed vendor contributed to the settlement, can the unnamed 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 sought coverage from its Directors and Officers policy (the “D&O policy”) after the pharmaceutical company was hit with a TCPA action.  The vendor was not named in the TCPA action, although there were several “Doe” defendants and the vendor claimed it was one of them. But the vendor was not served with the action and the complaint was never amended to include the actual name of the vendor even after the vendor was served with a third-party document subpoena.

The vendor notified its D&O insurer about the TCPA action, but the insurance company denied coverage. Ultimately, the vendor paid into the settlement of the TCPA action.

The vendor sued the insurance company seeking a declaratory judgment that it was entitled to coverage under the D&O policy. The vendor also added claims 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.

It was a no-go for vendor “Doe” in court. The district court granted the insurance company’s motion to dismiss all the claims. In granting the motion, the court rejected the vendor’s arguments that the TCPA action came within coverage of the D&O policy. 

The court noted 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 policy also had exclusions for contractual liability and errors and omissions. As the court explained, each of these policy exclusions precluded coverage. The pharmaceutical company sought indemnification from the vendor under a master services agreement, therefore the claim against the vendor was for liability under a contract. Also, the vendor performed skilled design and marketing services for the drug campaign, which brought the claim against it under the errors and omissions exclusion, which bars coverage for claims that skilled services were performed negligently.

Because there was no viable claim under the D&O policy for declaratory relief or breach of contract, the claim for breach of the covenant of good faith and fair dealing also failed. Accordingly, the vendor’s complaint was dismissed.

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