South Carolina Court Holds No Coverage for Blast Fax Case Under E&O Policy

In its recent decision in BCS Ins. Co. v. Big Thyme Enters., 2013 U.S. Dist. LEXIS 20051 (D.S.C. Feb. 14, 2013), the United States District Court for the District of South Carolina had occasion to consider whether an alleged violation of the Telephone Consumer Protection Act triggered coverage under a professional liability policy.

BSC Insurance Company insured agents of Blue Cross and Blue Shield of South Carolina under an agents and brokers professional liability policy.  One of these agents, and his insurance agency, were named as defendants in an underlying suit alleging violations of the Telephone Consumer Protection Act based on defendants’ action in sending unsolicited facsimiles.  Plaintiff also alleged a cause of action for conversion for having wrongfully misappropriating plaintiff’s paper, fax machines, toner, and employee time.  BSC provided its insureds with a defense under a reservation of rights, and later commenced a declaratory judgment action. 

BCS argued, among other things, that the insureds’ conduct in sending unsolicited facsimiles did not trigger the policy’s insuring agreement, which among other things required a wrongful act arising out of the insured’s “professional services.”  The policy defined “professional services” as “specialized services rendered to a Client as a licensed Life, Accident and Health Insurance Agent.”  BCS argued that sending unsolicited faxes to non-clients as part of an advertising campaign does not involve the insureds’ “specialized knowledge or training as an insurance agent or agency.” The insureds, on the other hand, argued that advertising was central to its business and as such should be considered a professional service.   The court found in BCS’s favor, concluding that sending advertising does not fall within the category of contemplated “special services,” and as such, the policy was not triggered in the first instance.

The court further noted that even if the insureds’ actions in sending facsimiles could be considered professional services, the policy also required that the insured’s professional services be rendered to or on behalf of a client.  Because the facsimiles were sent unsolicited to potential clients rather than actual clients, the court concluded that this requirement of the policy was not satisfied, thus serving as an additional ground for noncoverage.