Last year, the Illinois Supreme Court held statutory damages of $500 per occurrence for violations of the Telephone Consumer Protection Act (TCPA) were not punitive in nature and reversed an Illinois appellate court decision precluding insurance coverage for TCPA class actions on that basis. Standard Mutual Ins. Co. v. Lay, 2013 IL 114617 (2013). The court remanded to the appellate court for consideration of the insurer's remaining arguments against coverage. On January 23, 2014, that court rejected those remaining arguments and concluded that the insurer was obligated to cover the settlement in the underlying TCPA class action. Standard Mutual Ins. Co. v. Lay 2014 IL App (4th) 110527-B (Ill. App. 2014).
The events giving rise to the case began in 2006, when Lay, a real estate agency, sent out a blast fax advertisement in violation of the TCPA. A class action ensued against Lay in 2009, and Lay tendered the claim to its insurer, Standard Mutual Insurance Company. Standard undertook the defense under a reservation of rights. Standard also filed a declaratory judgment action to determine whether it was obligated to cover the claim under Lay's policy.
Meanwhile, in the underlying class action, Lay eventually settled with the plaintiff for the full amount sought in the complaint ($1,739,000 plus costs). In return, Lay received a promise by the class not to execute on any of Lay's property or assets, other than its insurance policies with Standard. Lay then assigned its rights against Standard to the class.
The trial court initially held that Standard had no duty to indemnify Lay for the underlying class action, and therefore was not responsible for the settlement. The appellate court affirmed, finding that the statutory damages of $500 per occurrence provided under the TCPA were punitive damages and therefore uninsurable under Illinois law. In 2013, the Illinois Supreme Court disagreed and reversed the appellate court's ruling, finding that TCPA damages are not punitive in nature and therefore are insurable under Illinois law. (For an in-depth discussion of the Illinois Supreme Court's ruling, see our previous post "Illinois Supreme Court Finds Insurance Coverage for TCPA Claims under Traditional Liability Policies.") The court then remanded the case the appellate court for consideration of Standard's remaining arguments.
Having lost on its punitive damages position, Standard asserted that two of the three policies at issue only covered liability arising out of leased property (so called "lessors risks") and did not extend to business operations. Standard also argued that coverage was not provided by either the property damage or advertising injury provisions, and, that if coverage was triggered, exclusions for intentional acts or rendering of professional services applied.
The court rejected Standard's argument that two of its policies only covered damages arising out of leases and did not extend to business operations more generally. The court noted that although "designated premises" limitations, which constrict coverage to activities arising out of the use or ownership of the premises, often act to prevent coverage for general business operations, no such limitations were included in Standard's policies. The court then found that the intentional acts exclusion did not preclude property damage coverage. The relevant issue, the court held, was not that Lay intended to send the faxes, but that Lay thought it had authorization to do so and therefore did not intend to injure anyone.
The court next found that advertising injury coverage applied under Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (2006), which in the Illinois Supreme Court held that TCPA blast fax damages fell within a similar advertising injury coverage provision. (For a national survey on the extent of insurance coverage for TCPA class actions generally, see our previous posts–" Call Me, Maybe? A Nationwide Survey of Insurance Coverage for TCPA Class Actions" and "Redial; Third Circuit Again Rules that TCPA Claims Are Not Covered Under a CGL Policy."). Finally, the court held that the professional services exclusion was not applicable. Even though a real estate agency is a "profession" under Illinois law, the TCPA claim did not arise out of Lay's performed real estate services, but rather out of its advertisements. Having rejected all of Standard's arguments, the court held that the damages in the underlying TCPA class action were covered under Standard's policies.
Despite its ruling, the court warned that its conclusion, combined with the Illinois Supreme Court's ruling that damages for TCPA violations are not punitive, could negate the purposes of the TCPA: "We find Standard's policies issued to Lay cover the damages alleged here, but note the purpose of the [TCPA] is to address telemarketing abuses attributable to the use of automated telephone calls to devices including telephones, cellular telephones, and fax machines. By allowing liability for telemarketing abuses to be covered by insurance, the company responsible for the abuses, in this case Lay, has no incentive to stop the abuses from occurring in the future and the purpose of the [TCPA] is unfulfilled."
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