Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—Ill. App.: Insurance company policy covered TCPA violations, (Jan 24, 2014)

By Jody Coultas, J.D.

An insurance company was improperly granted summary judgment in an action seeking a declaration that it was not required to indemnify a real estate agency from liability for Telephone Consumer Protection Act (TPCA) violations, an Illinois appellate court has determined (Standard Mutual Insurance Company v. Lay, January 23, 2014, Knecht, J.).

The real estate agency faxed an advertisement for property to recipients that had not given permission to receive these messages, thus violating the TCPA. Defense of the claims was tendered to the agency’s insurance company. The TCPA claims could have bankrupt the agency if a verdict were entered against it and the agency was not covered by insurance. Therefore, the agency opted for independent counsel and settled with the advertising recipients for $1,739,000 plus costs. The agency assigned its rights against the insurance company to the class in exchange for a promise by the class not to execute on any of the agency’s property or assets other than the insurance policies with Standard. After the settlement was approved, the insurance company filed a declaratory judgment.

The class representative argued that (1) all policies issued to the agency provided coverage to the agency under the allegations of the TCPA claim, (2) the agency had the right to settle the underlying action, with or without the consent of the insurance company, and (3) the insurance company’s failure to object to the settlement waived any right of consent to the settlement. The insurance company contended there was no coverage under two out of three policies because they were for lessor’s risks only and pertained to the real estate identified in those policies.

A trial court entered an order granting the insurance company’s motion for summary judgment, finding that the insurance company had no duty to defend the agency. The appellate court agreed, holding that the insurance company’s reservation of rights letter contained the disclosures necessary to avoid being estopped from raising policy coverage issues. The damages were not insurable because, under Illinois law, punitive damages are not insurable. The Supreme Court affirmed the holding that the reservation of rights letter was satisfactory to allow the insurance company to raise coverage issues, but reversed the damages holding.

The business policy involving coverage for the operation of the real estate business provided coverage for the “blast fax” advertising in this case, according to the court. However, the two policies covering various rental premises or vacant lots owned by the agency did not provide coverage for the injuries caused by the TCPA violations.

Injuries stemming from the advertising were covered by the “personal and advertising injury” provision, according to the court. The class representative had argued that the insurance company’s “personal and advertising injury” provision covered fax advertisements. Allegations of advertising injury due to invasion of privacy were covered by the insurance policy where the definition of privacy included the right to seclusion or being left alone. The insurance company argued that, even if there was coverage under “advertising injury,” the rendering or failure to render any professional service, including “advertising services,” was specifically excluded under the policy. This argument was rejected

The insurance company had no right to require the agency to obtain permission to settle the underlying suit or to object to it itself, according to the court. There was no evidence that the insurance company was prejudiced by the settlement. The settlement amount was supported by simple math and the agency’s liability was clear.

The case is No. 4-11-0527.

Attorneys: Michael T. Reagan (Law Office of Michael T. Reagan) for Norma Lay. Robert Marc Chemers (Pretzel & Stouffer, Chartered) for Standard Mutual Insurance Company.

Cases: ConsumerProtection Privacy IllinoisNews