Papa John’s and AIG Affiliates Settle Dispute Over Insurance Coverage for Text Spamming

Published: Oct. 23, 2014

Updated: Oct. 05, 2020

Earlier this week, Papa John’s dropped its appeal of a lower court decision finding that AIG Affiliates, National Union Fire Insurance Co. and American Home Insurance Co., did not have a duty to defend or indemnify the pizza chain against two underlying privacy suits. The dispute concerned Papa John’s demand for coverage for two lawsuits challenging the chain’s practice of sending spam text messages to consumers, allegedly in violation of the TCPA. Papa John’s settled the underlying TCPA suits in 2013: one for an undisclosed amount, and the other for $167,000 plus $2.45 million in attorneys’ fees.

In October 2012, the two AIG affiliates (who each issued policies covering different time periods) filed a separate declaratory relief action in the Western District of Kentucky, claiming that the underlying suits alleged a statutory violation, which would fall outside their policies’ coverage. Ruling on cross-motions for summary judgment, the district court agreed.

While both policies provided coverage for “personal and advertising injury,” they also both included an express exclusion for “Violation of Statutes in Connection with Sending, Transmitting, or Communicating Any Material or Information,” which provided:

This insurance does not apply to any loss, injury, damage, claim, suit, cost or expense arising out of or resulting from, caused directly or indirectly, in whole or in part by, any act that violates any statute, ordinance or regulation of any federal, state or local government, including any amendment of or addition to such laws, that includes, addresses or applies to the sending, transmitting or communicating of any material or information, by any means whatsoever.

In considering the issue, the lower court first reasoned that the policies, absent the above exclusion, would cover the underlying TCPA claim. Specifically, the claims would be covered as “personal and advertising injury,” defined as “injury, including consequential ‘bodily injury,’ humiliation, mental anguish, or shock, arising out of . . . oral or written publication in any manner, of material that violates a person’s right of privacy.” The court considered the plain meaning of the “right to privacy” language and found that it would encompass claims regarding unsolicited text messages under the TCPA. But the court went on to find that the above exclusion effectively negated any coverage that would otherwise exist.

Papa John’s raised several challenges to the application of the exclusion, which were addressed and dismissed by the court. First, the court found that the exclusion did not render the coverage illusory, because it allowed for coverage of injuries caused by a violation of the right to privacy so long as they did not arise from a statutory violation. Second, the exclusion did not frustrate the reasonable expectations of coverage because its language was unambiguous (noting that “only actual ambiguities in the policy language will trigger the doctrine of reasonable expectations”). Finally, the court quickly dismissed Papa John’s argument that the exclusion rendered the policy self-contradictory by cross-referencing its finding on illusory coverage. The policy exclusion was therefore found valid and enforceable.

Papa John’s appealed the decision to the Sixth Circuit, but dropped its appeal following its settlement with the AIG Affiliates.

Photo by Janine from Flickr