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ACE American Insurance Co. v. Dish Network, LLC

United States Court of Appeals, Tenth Circuit

February 21, 2018

ACE AMERICAN INSURANCE COMPANY, Plaintiff/Counter Defendant-Appellee,
DISH NETWORK, LLC, Defendant/Counterclaimant - Appellant.

          Appeal from the United States District Court for the District of Colorado D.C. No. 1:13-CV-00560-REB-MEH.

          Eric A. Shumsky, Orrick, Herrington & Sutcliffe, Washington, D.C. (Lee M. Epstein, Emily B. Markos, Weisbrod Matteis & Copley PLLC, Philadelphia, Pennsylvania, on the briefs) for Appellant.

          Jonathan D. Hacker, O'Melveny & Myers LLP, Washington, D.C. (Thomas M. Jones, Terri A. Sutton, Cozen O'Connor, Seattle, Washington, and Christopher S. Clemenson, Cozen O'Connor, Denver, Colorado, with him on the brief) for Appellee.

          Before LUCERO, McKAY, and McHUGH, Circuit Judges.

          McHUGH, Circuit Judge.

         In this appeal we must decide whether the district court correctly held that ACE American Insurance Company (ACE) has no duty to defend and indemnify DISH Network (DISH) in a lawsuit alleging that DISH's use of telemarketing phone calls violated various federal and state laws. The primary question is whether statutory damages and injunctive relief under the Telephone Consumer Protection Act are "damages" under the insurance policies at issue and insurable under Colorado law, or are uninsurable "penalties." We conclude they are penalties under controlling Colorado law, and we affirm the district court's grant of summary judgment in favor of ACE.

         I. BACKGROUND

         A. Underlying Lawsuit

         In April 2009, the federal government and the "State Plaintiffs" (the States of California, Illinois, North Carolina, and Ohio) sued DISH, alleging violations of the Telemarketing Sales Rule (TSR), the Telephone Consumer Protection Act (TCPA), and a variety of state laws ("Underlying Lawsuit"). Relevant here are the alleged violations of the TCPA, [1] which makes it "unlawful for any person [subject to a limited list of exceptions] . . . to initiate any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party." 47 U.S.C. § 227(b)(1)(B). The TCPA also permits states to "bring a civil action on behalf of its residents to enjoin such calls, an action to recover for actual monetary loss or receive $500 in damages for each violation, or both such actions." Id. § 227(g)(1). For each violation that is committed "willfully or knowingly, " the statute allows for treble damages up to $1, 500. Id.

         In counts V and VI of the complaint in the Underlying Lawsuit ("Underlying Complaint"), State Plaintiffs assert violations of the TCPA, "seek a permanent injunction and other equitable relief, " and allege "DISH Network's violations are willful and knowing." Underlying Complaint ¶¶ 71, 73, 75, 77, Aplt. App'x at 2042, 2043. The Underlying Complaint characterizes the injury by asserting "[c]onsumers in the United States have suffered and will suffer injury as a result of [DISH's] violations of the TSR, the TCPA, [and various state laws]. Absent injunctive relief by this Court, [DISH] is likely to continue to injure consumers and harm the public interest." Id. ¶ 97, Aplt. App'x at 2049. The prayer for relief requests the court to "[p]ermanently enjoin [DISH] from violating the TCPA, both generally, and specifically" and asks the court to award "damages of $1, 500 for each violation of the TCPA found by the Court to have been committed by [DISH] willfully and knowingly . . . [and] damages of $500 for each violation of the TCPA" the court finds was not willful and knowing. Prayer for Relief ¶¶ 4-5, Aplt. App'x at 2051. Finally, they request the court to "[o]rder [DISH] to pay the costs of this action, including costs of investigation incurred by State Plaintiffs, " id. ¶ 16, Aplt. App'x at 2053, and to "[a]ward Plaintiffs such other and additional relief as the Court may determine to be just and proper, " id. ¶ 17, Aplt. App'x at 2054.[2]

         B. Current Lawsuit

         From 2004 through 2012, DISH contracted with ACE to provide two types of liability insurance: Coverage A and Coverage B. Under Coverage A, ACE has 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 damage'" that "is caused by an 'occurrence.'" Aplt. App'x at 164, 226. Under Coverage B, ACE has 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.'" Id. at 168, 230. Additionally, Coverage B has an exclusion from coverage for "'[p]ersonal and advertising injury' committed by an insured whose business is . . . [a]dvertising, broadcasting, publishing or telecasting[.]" Aplt. App'x at 169, 231. Beginning in 2006, both ACE policies incorporated a specific exclusion for violations of the TCPA that was not included in the 2004 and 2005 policies.

         Upon receiving the initial complaint in the Underlying Lawsuit, DISH sought a defense and indemnification from ACE. ACE responded with a letter noting that there was no coverage for any of the asserted counts under Coverage A, but that there might be potential coverage under Coverage B for the counts alleging violations of the TCPA. The letter listed the possible exclusions that could result in a lack of coverage and "reserve[d] the right to deny or limit coverage on th[ose] bas[es]." Aplt. App'x at 2142. Following the filing of the second amended complaint, ACE again indicated potential coverage existed under Coverage B, but reserved its right to "address additional coverage issues as they may arise [during ACE's investigation of the claim] and/or decline coverage" if a determination of no coverage was made. Id. at 2164. In December 2013, ACE determined that DISH was entitled to coverage and issued a check for $913, 650.

         ACE later reversed its decision and filed a Complaint for Declaratory Judgment, seeking a declaration that ACE did not have a duty to defend or indemnify DISH in the Underlying Lawsuit. In response to the parties' cross-motions for summary judgment, the district court ruled ACE had no duty to defend under either Coverage A or Coverage B because "the ACE policies do not provide coverage for any of the claims asserted in the underlying suit." ACE Am. Ins. Co. v. DISH Network (DISH I), 173 F.Supp.3d 1128, 1139 (D. Colo. 2016). Relying on the Colorado Supreme Court's decision in Kruse v. McKenna, 178 P.3d 1198 (Colo. 2008), the district court concluded that the TCPA statutory damages were a penalty and therefore uninsurable under Colorado public policy. Id. at 1133-36. The district court also determined that the associated injunctive relief did not qualify as "damages" under the policies' definition. Id. at 1136-37. As an additional ground to support its decision, the district court held that DISH was in the business of broadcasting and thus precluded from coverage under Coverage B's broadcaster exception. Id. at 1137-38. Finally, the district court reasoned that, because ACE did not have a duty to defend DISH, it also did not have a duty to indemnify DISH. Id. at 1139.


         "We review the district court's grant of summary judgment de novo, applying the same legal standards used by that court." Blackhawk-Cent. City Sanitation Dist. v. Am. Guar. & Liab. Ins. Co., 214 F.3d 1183, 1187-88 (10th Cir. 2000). "Summary judgment should not be granted unless the evidence, viewed in the light most favorable to the party opposing the motion, shows there are no genuine issues of material fact and the moving party is due judgment as a matter of law." Id. at 1188. "Furthermore, the proper interpretation and construction of an insurance policy is a matter of law, ...

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