Trends in liability insurance often are a direct result of whatis happening within the tort system. The law is changing constantlyin response to society's needs and its discernment of what is fairand just. For adjusters, this means that being informed about newtrends is crucial to understanding and handling claims that mightbe unfamiliar.

In the last few years, surges have occurred in particularcoverage areas in response to new laws. One of the biggest trendsthat has occurred is the rise in advertising injury claims, whichis combined with personal injury in Coverage B of most StandardCommercial General Liability policies. Part of the increase can beattributed to the success of the Telephone Consumer Protection Actof 1991, which was created in response to consumer concerns aboutthe growing number of unsolicited marketing calls and the use ofautomated and prerecorded messages. Now, the FCC has rules to aidconsumers who wish to limit these uninvited calls.

An extension of unsolicited phone calls by advertisers is themass faxing of advertisements to homes and businesses, which alsofalls subject to the TCPA. At this time, companies accused ofviolating the TCPA through blast faxing are facing lawsuits by faxrecipients, many of which are class actions. In turn, the companieswho advertised through blast faxing are looking toward their CGLcarriers for defense and indemnity under Coverage B for advertisinginjury.

The definitions of what offenses constitute advertising injuryare defined specifically in the CGL policy. The provision that mostblast-fax companies have looked to for coverage is the advertisinginjury definition of an “oral or written publication of materialthat violates a person's right to privacy.”

The key coverage dispute is what is meant by the term “aperson's right to privacy.” Insureds have been fairly successful atthe district court level, contending that the actual fax itself isan invasion of privacy (see Park University Enterprises, Inc. v.American Cas. Co., 414 F. Supp. 2d 1094 [D. Kan. 2004]). Otherinsureds have argued successfully that a fax is an invasion ofprivacy because it takes control over the fax machine, paper, andink (see Universal Underwriters Ins. Co. v. Lou Fusz Auto. Network,Inc., 300 F. Supp. 2d 888 [E.D. Mo. 2004]). These courts have founda duty to defend on behalf of the insurers.

In American States Ins. Co. v. Capital Assoc. of Jackson County,Inc., however, the Seventh Circuit looked at advertising injurypolicy language differently and found that the insurer did not havea duty to defend (392 F.3d 939 [7th Cir. 2004]). The court notedthat the right to privacy involves two types of interests: secrecyand seclusion. It further noted that the advertising injurycoverage only covered a person's interest in secrecy. The courtthen looked to the content of the faxes and found that it did notviolate an interest in secrecy and, thus, no duty to defendexisted.

Canned Ham

The exposure to insurance companies of allegations of mass faxescould be large, because many of these lawsuits involve classactions. The enactment of another new and similar law coveringunsolicited e-mail also may increase claims by insureds' seekingcoverage under advertising injury. The CAN-SPAM Act of 2003(Controlling the Assault of Non-Solicited Pornography and MarketingAct) establishes requirements for those who send commercial e-mail,spells out penalties for spammers and companies whose products areadvertised in spam if they violate the law, and gives consumers theright to ask e-mail senders to stop spamming them, according to theFederal Trade Commission.

Effective Jan. 1, 2004, the law began covering e-mail whoseprimary purpose is advertising or promoting commercial products orservices, including content on web sites. A “transactional orrelationship message,” which facilitates agreed-upon transactionsor updates customers in existing business relationships, may notcontain false or misleading routing information but, otherwise, isexempt from most provisions of the CAN-SPAM Act.

According to its site, the FTC is authorized to enforce theCAN-SPAM Act. CAN-SPAM also gives the Department of Justice theauthority to enforce criminal sanctions. Other federal and stateagencies can enforce the law against organizations under theirjurisdictions, and companies that provide Internet access may sueviolators, as well.

The FTC outlines the main provisions of the CAN-SPAM Act toinclude:

Banning false or misleading header information.The e-mail's From, To, and routing information – including theoriginating domain name and e-mail address – must be accurate andidentify the person who initiated the e-mail.

Prohibiting deceptive subject lines. Thesubject line cannot mislead the recipient about the contents orsubject matter of the message.

Provision of an opt-out method. The sender mustprovide a return e-mail address or other Internet-based responsemechanism that allows a recipient to ask that future e-mailmessages not be sent to that e-mail address, and the sender musthonor the requests. The sender may create a menu of choices toallow a recipient to decline certain types of messages, but he mustinclude the option to end any commercial messages from thesender.

Any opt-out mechanism offered must be able to process requestsfor at least 30 days after the commercial e-mail has been sent.When the sender receives an opt-out request, the law gives 10business days to stop sending e-mail to the requestor's e-mailaddress. The sender cannot help another entity send e-mail to thataddress, or have another entity send e-mail on its behalf to thataddress. Finally, it's illegal for to sell or transfer the e-mailaddresses of people who have chosen not to receive e-mail, even inthe form of mailing lists, unless the addresses are transferred sothat another entity can comply with the law.

Requiring that commercial e-mail be identified as advertisementsand that it include senders' postal addresses. The actual messagemust contain clear and conspicuous notice that the message is anadvertisement or solicitation and that the recipient can opt out ofreceiving more commercial e-mail. It also must include the sender'svalid physical postal address.

It is important to note that each violation of the aboveprovisions is subject to fines of up to $11,000. Deceptivecommercial e-mail also is subject to laws banning false ormisleading advertising.

Claims made under Advertising Injury Coverage B may rise as moreclaims are made under the TCPA and the new CAN-SPAM Acts. Policyendorsements that exclude coverage for claims made under the TCPAand the CAN-SPAM Acts have been developed and likely will becomepart of future policies. In the meantime, however, many policies ineffect do not contain exclusions for TCPA and CAN-SPAM Act claims,and only time will tell if courts will follow the direction of theSeventh Circuit or several district court cases in interpretingwhat is meant by the term “privacy” in Advertising Injury CoverageB.

John J. McDonald is a partner and Sarah Frisque is anassociate with the law firm, Meagher & Geer, in Minneapolis,Minn.