Just the Fax: New Jersey Rules that Actual Property Damage is Required for Violation of the Telephone Consumer Protection Act

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Proof of a violation of the Telephone Consumer Protection Act (TCPA), without corresponding evidence of either “physical injury to tangible property” or “loss of use of tangible property,” is not enough for an insured to establish that the claims against it alleged “property damage” under a CGL policy, according to the New Jersey Appellate Division’s recent decision in Penn National Insurance Company v. Group C Communications, Inc., 2018 WL 3625424 (N.J. App. Div. July 31, 2018).  In Group C Communications, the Appellate Division considered a number of important coverage issues relating to class action claims made against an insured for violating the TCPA by sending unsolicited facsimiles to prospective consumers.

There, the insured’s, Group C, right to indemnification under the CGL policy at issue required proof that the consumers who received the unsolicited faxes suffered “property damage,” which the policy defined as either “physical injury to tangible property” or “loss of use of tangible property.” In determining whether either prong of the definition was satisfied, the Appellate Division noted that “the TCPA does not specifically require proof of receipt of the fax,” even if the faxes were “successful” to establish a violation of the act. As a result, in the underlying class action lawsuit, it was never established that any of the class members actually lost the use of their phone lines or fax machines, or that any of the class members printed out the faxes, thereby wasting ink, toner, or paper, which would have qualified as “property damage”.  Therefore, the Appellate Division concluded that mere proof that Group C violated the TCPA and that the faxes were received was insufficient to constitute “property damage” under the policy issued to Group C.

The policies also contained an intentional conduct exclusion.  So, another issue was whether Group C had a “good faith belief” that the consumers were willing to receive its faxes. The Appellate Division held that it was not reversible error for the trial judge to deny Penn National’s request to define “good faith” with reference to the UCC’s “honesty in fact” standard. Although the Appellate Division acknowledged that an explanation of the concept of “good faith” would have helped the jury, it found that the jury had ample opportunity to consider the credibility of Group C co-president’s testimony that he had “honestly believed” the faxes were only sent to consenting consumers.

The Appellate Division also considered the issue of whether the “fairly debatable” standard articulated in Pickett v. Lloyd’s, 131 N.J. 457 (1993), used to evaluate “bad faith” claims against an insurer for failure to provide first-party benefits or for unreasonably delaying in providing those benefits, was properly applied to Group C’s bad faith claim against its insurer for failing to settle the underlying TCPA class action. The trial judge dismissed that claim because it found that it was “fairly debatable” whether coverage existed for the claims against Group C.  While not deciding the issue, (as the Court reversed the failure to settle claim on different grounds) the Appellate Division signaled its approval of the Third Circuit’s rationale on the issue.  The Third Circuit held the “fairly debatable” standard did not apply to a bad faith failure to settle claim, because the risk of an excess judgment – a significant issue presented by a failure to settle a third-party claim – was not present in the context of a failure to pay benefits claim actionable under Pickett.