Central Mutual Insurance Company v. Tracy's Treasures, Inc.
19 N.E.3d 1100
Ill. App. Ct.2014Background
- Tracy’s Treasures was insured by Central Mutual under primary and excess policies totaling $14 million during the relevant period.
- Idlas filed a TCPA class action for unsolicited faxes against Tracy’s; Central denied coverage and filed a declaratory judgment action.
- Central paid a courtesy defense via substitute counsel after Tracy’s retained independent counsel, creating a conflict of interest.
- A 2008 settlement provided for a $14 million judgment against Tracy’s payable from policy proceeds, with fees to class counsel and cy pres provisions; a prior related White settlement resulted in a buy-out of advertising injury coverage.
- The trial court denied Central’s summary-judgment motions; the appellate court reversed the Lay-based basis for summary judgment and remanded for further proceedings in light of intervening law
- The Illinois Supreme Court later held TCPA damages are liquidated damages and may be insurable, prompting reversal on the prior basis and remand for further fact-finding on reasonableness and coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are TCPA damages covered by Central’s policies | Central: TCPA damages are not insurable liquidated damages. | Tracy’s/Idlas: TCPA damages are covered as damages, not punitive. | TCPA damages are damages and may be covered; Lay reversed; liability to pay is not barred. |
| Is the Idlas settlement reasonable and free of collusion | Central: settlement is collusive and unreasonable as a matter of law. | Tracy’s/Idlas: insurer cannot relitigate reasonableness; settlement reasonable. | Issues of reasonableness and potential collusion require a hearing on remand; summary judgment not warranted. |
| Can Central challenge the Idlas settlement despite ceded defense | Central preserved right to contest coverage and settlement; not bound absent proper process. | Tracy’s/Idlas: voluntary settlement not requiring insurer consent binds insurer. | Central may contest reasonableness and coverage; not bound by prior approval absent a hearing. |
| Effect of buy-out of personal and advertising injury coverage on Idlas | Idlas rights vest and cannot be divested by post-settlement agreement. | Idlas may be affected by the 2005 buy-out; Olson/Reagor consistent with permitting modification absent prejudice. | Record insufficient to resolve binding effect; remand to determine adequacy of consideration and applicability. |
Key Cases Cited
- Standard Mutual Insurance Co. v. Lay, 2013 IL 114617 (Illinois Supreme Court, 2013) (TCPA damages are insurable liquidated damages)
- Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90 (Illinois Supreme Court, 1992) (damages include money to right a wrong; statutory damages fall within 'damages')
- Guillen v. Potomac Insurance Co. of Illinois, 203 Ill. 2d 141 (Illinois Supreme Court, 2003) (two-part reasonableness test for settlement and liability to pay)
- Myoda Computer Center, Inc. v. American Family Mutual Insurance Co., 389 Ill. App. 3d 419 (Illinois Appellate Court, 2009) (insurer may contest settlement where defense was ceded due to conflict)
- Stonecrafters, Inc. v. Wholesale Life Insurance Brokerage, Inc., 393 Ill. App. 3d 951 (Illinois Appellate Court, 2009) (insurer may challenge reasonableness of settlement when not given notice)
- Reagor v. Travelers Insurance Co., 92 Ill. 2d 99 (Illinois Supreme Court, 1980) (injured third-party rights vesting and enforceability of settlements)
- Olson v. Etheridge, 177 Ill. 2d 396 (Illinois Supreme Court, 1997) (Restatement §311 vesting for third-party beneficiaries; modification allowed absent detriment)