Telephone Act Claim Not Covered Under Policy’s Cyberclaims Endorsement

The 1st District Appellate Court recently held that a cyberclaims endorsement to a medical professional liability policy provided no coverage for a Telephone Consumer Protection Act claim.

The insurer in Doctors Direct Insurance Inc. v. Bochenek, 2015 IL App (1st) 142919 (Aug. 3), was represented by Krasnow, Saunders, Kaplan & Beninati LLP. Edelman, Combs, Latturner & Goodwin LLC represented the claimant, David Bochenek.

Bochenek filed a federal class action against McAdoo Cosmetic Surgery alleging he had received unsolicited text messages advertising McAdoo’s services. The original and amended complaints contended that the messages violated the TCPA, 47 U.S.C. Section 227, as well as the Illinois Consumer Fraud Act, 815 ILCS 505/2. In addition, the amended complaint alleged that McAdoo obtained the telephone numbers for the text messages, along with financial, credit or medical information, from a spa.

McAdoo tendered to Doctors Direct seeking coverage under a cyberclaims endorsement that was part of a professional liability policy Doctors Direct issued to McAdoo. That endorsement included coverage for “privacy wrongful acts,” which were defined to include violation of “U.S. federal, state or local statutes and regulations associated with the control and use of personally identifiable financial, credit or medical information.”

McAdoo subsequently went into bankruptcy, and the bankruptcy court allowed Bochenek to proceed with the lawsuit but only to the extent of the proceeds of Doctors Direct’s insurance policy. Meantime, Doctors Direct filed this declaratory action seeking a determination of no coverage based on the ground that the federal complaint failed to allege a “privacy wrongful act” under the policy.

In early 2014, Doctors Direct moved for judgment on the pleadings, which the trial court allowed. Bochenek took this appeal.

In an opinion by Justice Maureen E. Connors, the 1st District affirmed. She initially addressed the meaning of “a privacy wrongful act” and what the phrase “associated with” modified. Applying the last antecedent rule, she found that the phrase modified the types of statutes – “U.S. federal, state or local statutes or regulations” – referred to in the definition.

With that understanding she observed that the statute alleged to have been violated must be associated with “personally identifiable financial, credit or medical information” for coverage to apply.

She then analyzed the purpose of the TCPA and noted that it prohibited the making of certain kinds of calls, including making a call with an automated dialing system, calls involving the use of fax machines, and so forth, and that “calls” included both voice calls and text messages. According to her, however, the TCPA is not connected with the use of “personally identifiable financial, credit or medical information.” Rather, it focuses on the calls themselves, not the information to make the calls.

Connors therefore concluded that the TCPA allegations were not covered by the Doctors Direct policy.

She reached the same conclusion with respect to the Consumer Fraud Act. She noted that, in determining the scope of that act, courts are required to give consideration to interpretations by the Federal Trade Commission of the Federal Trade Commission Act. The FTC’s interpretations take into account such factors as the existence of an offense to public policy and substantial injury to consumers. But none of those factors, Connors said, suggests that the Consumer Fraud Act is associated with “personally identifiable financial, credit or medical information.”

Finally, Connors addressed Bochenek’s challenge to the trial court’s further finding that the collection of names and telephone numbers implicated the control and use of personally identifiable financial, credit or medical information. His main argument seemed to be that the fact that the list of names that were solicited came from a spa qualified the list as “personally identifiable medical information.”

Connors disagreed, observing a lack of any evidence that the spa was a medical provider or released medical information about its customers to McAdoo.

Rather, Bochenek’s argument hinged on the notion that McAdoo’s status as a doctor made the list personally identifiable medical information, which was insufficient.

In sum, Connors found that Bochenek’s federal complaints did not even potentially fall within the coverage of the Doctors Direct policy, and that Doctors Direct therefore had no duty to defend McAdoo in the federal lawsuit.

The court therefore affirmed.

Key point

Where coverage is provided for violation of a statute “associated with” specific criteria, no coverage exists for a claim under a generalized statute such as the TCPA, which is not joined, combined, united or connected in any way to those criteria.