Does your company use telephone calls and email to solicit new customers? If so, you should be aware of two federal laws, the TCPA and the CAN-SPAM Act, which prohibit certain types of communication for advertising purposes. Violations of these laws can result in hefty fines, and in some cases, lawsuits. Such suits may not be covered by your general liability policy.

The TCPA

Enacted in 1991 and amended in 2013, the Telephone Consumer Protection Act is designed to protect consumers against unwanted "robo-calls" from telemarketers.


The law established a Do Not Call List. The list consists of consumers' phone numbers, which may include land lines, cell phones or both. When consumers add their phone numbers to the list, they indicate that they do not want to receive telemarketing calls. Political organizations, charities and telephone surveyors are exempt from the TCPA (consumers cannot opt out from calls by these organizations).

The TCPA prohibits businesses from phoning anyone on the Do Not Call List (DNCL) for advertising purposes without his or her permission. Companies are also barred from placing calls to any cell phone or land line on the DNCL using any automated dialing device or an artificial or prerecorded voice.

In the past, a telemarketer could telephone a consumer listed on the DNCL if the caller already had a business relationship with that consumer. This exception was eliminated in 2013. Currently, businesses are prohibited from calling any land line or cell phone on the DNCL without the consumer's prior permission.

Sending advertising text messages to cell phones without prior permission is also prohibited. Violators of the TCPA may be subject to a penalty (or damages) of $500 to $1500 per unsolicited phone call.

CAN-SPAM Act

CAN-SPAM is short for Controlling the Assault of Non-Solicited Pornography and Marketing Act. This act was passed in 2003. Critics call it the You Can Spam Act because the law does not prohibit the sending of bulk email. However, it does establish rules that must be followed by businesses that send commercial advertisements or promote a commercial product or service via email.

Essentially, the CAN-SPAM Act requires businesses to use email headers and subject lines that accurately portray the purpose of the message. Headers and subject lines cannot be deceptive. For instance, suppose you are sending bulk email to promote your company's new widget. Your subject line must clearly reflect that the purpose of the email is advertising. You cannot mislead recipients with a subject line such as "You Have Won $1 Million!" just to get their attention.

Emails used for marketing purposes must include a valid physical address for your business. It must also include a clear and easy opt-out mechanism. You must respond opt-out requests promptly (within 30 days of the date you sent your email). The penalty for violating the CAN-SPAM Act may be as high as $16,000. Criminal penalties and/or a prison sentence may apply if, say, you distribute emails with false headers or hijack someone else's computer to send email without that person's consent.

Violations Excluded Under Liability Policies

Claims against you for bodily injury, property damage or personal and advertising injury that arise from violations of the TCPA or the CAN-SPAM Act are excluded under most general liability policies. The exclusions apply to similar laws, such as a state law that prohibits unsolicited telemarketing calls.

Examples

Here are two examples of how a business might unknowingly violate the TCPA or CAN-SPAM Act.

Example 1: Ralph owns Ralph's Roofing. Ralph's customers currently consist of homeowners in his local community. Ralph wants to expand his business to other nearby cities so he hires a telemarketer to phone potential clients at home during the evening hours. He isn't aware that the TCPA prohibits calls to consumers on the Do Not Call List. The telemarketer uses an automated dialing system to call 4000 phone numbers, half of which are included on the DNCL.

Ninety-five consumers who were called by Ralph's telemarketer file complaints against Ralph's Roofing with the Federal Communication Commission. Ralph may be fined up to $1500 per unsolicited phone call.

Example 2: Beth Burns owns Burns Financial, a financial advisory business. Beth is seeking new clients so she sends a series of bulk emails to 5000 consumers in her area. Because the emails do not include an opt-out mechanism, they violate the CAN-SPAM Act. If the email recipients file complaints with the Federal Trade Commission, Beth may be subject to a fine of $300 per email (up to $16,000).

Protect Yourself

If you violate the TCPA or CAN-SPAM Act, you cannot rely on your liability policy to protect your firm against any resulting fines or lawsuits. Thus, it is important to know what the laws require so you that you don't inadvertently violate them. Read the guidelines (see links below) published by the Federal Trade Commission (CAN-SPAM Act) and the Federal Communication Commission (TCPA). If you need help clarifying your obligations under the laws, consult with your attorney.