The 10th Circuit recently affirmed a lower court's ruling on summary judgment that Ace had no duty to defend and/or indemnify Dish in a lawsuit that DISH used telemarketing phone calls in violation of state and federal law.

The Colorado District Court, and the 10th Circuit looked to whether the statutory damages and injunctive relief requested in the underlying TCPA claim constituted "damages" under the insurance policy at issue and were insurable under Colorado law, or were uninsurable "penalties".  In reliance upon applicable Colorado state law, the 10th Circuit affirmed the holding of the District Court and found that statutory damages and injunction relief were penalties under Colorado law, and found that Ace was not obligated to indemnify or defend Dish.

In the underlying lawsuit, the federal government, and several states, sued Dish, based upon alleged violations of the TCPA (and a variety of state laws).  Arising out of the underlying lawsuit, Ace filed a declaratory action seeking a declaration that Ace did not have a duty to defend or indemnify Dish under the policy at issue.  In exercising diversity jurisdiction over the declaratory action, and in applying existing Colorado state law (Kruse v. McKenna, 178 P.3d 1198 (Colo. 2008)), the district court found that the TCPA statutory damages (and injunctive relief) were a penalty and uninsurable under Colorado public policy, and because there was no duty to defend, there was also no duty to indemnify. 

Under the particular policy at issue, Ace had an obligation to indemnify and defend for two types of liability insurance: 

  1. Coverage A - Ace had a duty to defend and indemnify Dish for "those sums that [Dish] becomes legally obligated to pay as damages because of 'bodily injury' or 'property damages'" that "is caused by an 'occurrence'".
  2. Coverage B - Ace had a duty to defend and indemnify Dish for "those sums that [Dish] becomes legally obligated to pay as damages because of 'personal and advertising injury."

The district court determined that none of the damages sought were insurable under Coverage A or Coverage B, because the term "damages" within the policies constituted "actual damages" i.e. "compensatory damages for injury", and the underlying complaint merely sought statutory damages.  In affirming the district court's ruling, the 10th Circuit concluded that the TCPA's statutory damages are penal under Colorado law, and that even if the statutory damages were covered under the policies Colorado's public policy prohibits the insurability of such penalties and bars coverage.

The 10th Circuit noted that courts are split as to whether the TCPA is penal or remedial.  Hannabury v. Hilton Grand Vacations Co., LLC, 174 F. Supp. 3d 768, 774 (W.D.N.Y. 2016) (remedial).  Travelers Prop. Cas. Co. of Am. v. Dish Network, LLC (Travelers), 2014 WL 1217668 (C.D. Ill. Mar. 24, 2014) (reviewing IL and CO law (Kruse), and finding statutory damages remedial).  However, the 10th Circuit relied upon Kruse in determining that statutory damages under Colorado state law are penal and not remedial.  Dish also argued that the TCPA's provision for actual monetary loss is a remedial provision insurable under Colorado public policy and sufficient to trigger the duty to defend.  However, the 10th Circuit determined that the actual relief sought in the underlying complaint reflected that only statutory relief was sought.   Finally, the 10th Circuit held that Colorado state law prohibits insuring against punitive damages.   

While this holding can certainly be limited based upon Colorado law, the insurance contract at issue, and the underlying complaint, other insurance carriers may try to use this case as reason to deny TCPA defense and indemnification.

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