Text Messages Sent in Violation of TCPA Held to Implicate Professional Services Coverage

A New York federal district court, applying New York law, has held that the sending of unsolicited text message advertisements in violation of the Telephone Consumer Protection Act (TCPA) triggered professional services coverage under a Miscellaneous Professional Liability (MPL) policy.  Illinois Union Ins. Co. v. US Bus Charter & Limo, Inc., 2018 WL 1193464 (E.D.N.Y. Mar. 8, 2018).

The insured, a bus charter broker, was sued in a putative class action for allegedly sending unsolicited text messages advertising bus charters.  It sought coverage under an MPL policy, which afforded coverage for a “Wrongful Act … committed … in the performance of … Professional Services.”  “Professional Services,” in turn, included “professional services as a bus charter broker for others for a fee” as well as “services necessary or incidental to the conduct of travel agency business including the procurement or attempted procurement for a fee or commission of travel, lodging, or guided tour accommodations.”  The insurer declined coverage, and the insured ultimately settled with the class for nearly $50 million.  Coverage litigation ensued between the class (as assignee of the insured) and the insurer.

In ruling on cross-motions for partial summary judgment, the court agreed with the class that the alleged TCPA violations involved “professional services” and thus triggered coverage under the MPL policy.

First, the court analyzed the dictionary definitions of “charter” and “broker” and a federal statute and found “no difficulty concluding that the services provided by a bus charter broker include advertising bus transportation to specific groups of people,” which the court determined was “exactly what [the insured] was doing when it committed the alleged TCPA violations at issue.”

Second, and in the alternative, the court held that the text advertisements were “necessary or incidental to the conduct of travel agency business” as “attempted procurement for a fee or commission of travel, lodging, or guided tour accommodations.”  The court rejected the insurer’s argument that the insured was advertising for itself (and not “for others” and “for a fee”), concluding that such an “interpretation would allow [the insurer] to arbitrarily separate activities that are essential parts of [the insured’s] services and withhold coverage if those activities were not specifically directed and paid for by someone else.”  The court found the insurer’s position to be “at odds with how the modern business world operates,” and it deemed it irrelevant that the insured “did not collect a fee for the advertising itself” given that the advertisements sought to solicit customers who would ultimately pay a fee.

Finally, the court rejected the insurer’s argument that the activities were not covered because they were not “unique to a bus charter broker or a travel agency.”  In distinguishing Albert J. Schiff Assocs., Inc. v. Flack, 51 N.Y.2d 692, 700 (1980), the court concluded that the advertising at issue in this case was more “essential” than the conduct at issue in Schiff, and it determined in any event that the advertising at issue was “inherent in the practice” of the insured’s services as a bus charter broker and travel agency business.

For those reasons, the court found there to be coverage under the MPL policy.  The court also rejected the insurer’s argument that the insured was not legally obligated to pay the settlement in light of a covenant not to execute contained in the settlement agreement, and on that basis held that the insurer’s liability was not limited to amounts paid directly by the insured.