536 F.Supp.3d 326
N.D. Ill.2021Background
- Underlying suit: three professional models allege Club O (Triple Location) posted their images on Club O’s Facebook/Instagram without consent, harming their images/marketability; claims include Lanham Act (false endorsement/advertising), Illinois Right of Publicity Act (IRPA) including false light, and common-law negligence.
- Triple Location tendered defense to its insurer, First Mercury, which refused coverage and sued for a declaratory judgment that it owes no duty to defend or indemnify.
- First Mercury issued commercial policies covering "personal and advertising injury" (including publication that slanders, violates privacy, or infringes copyright in an "advertisement") but containing exclusions: (a) acts done by or at insured’s direction with knowledge they violate rights, (b) publication with knowledge of falsity, (p) claims arising from statutes like the TCPA/CAN-SPAM or similar communication-method statutes, and a "Field of Entertainment" endorsement excluding privacy/copyright/defamation tied to entertainment business advertising/publicity.
- Triple Location moved for summary judgment; First Mercury moved for judgment on the pleadings. Parties agree Illinois law controls.
- The court held First Mercury has a duty to defend (summary judgment for Triple Location as to duty to defend) but declined to decide the duty to indemnify as premature; First Mercury’s 12(c) motion denied.
Issues
| Issue | Plaintiff's Argument (First Mercury) | Defendant's Argument (Triple Location) | Held |
|---|---|---|---|
| Duty to defend | Underlying complaint alleges knowing/intentional misappropriation excluded from coverage, so no duty to defend | Complaint pleads negligent failure to promulgate/enforce policies causing publications, which arguably falls within "personal and advertising injury" coverage | Court: Duty to defend exists because negligence allegations arguably fall within coverage and inconsistent pleading allowed |
| Applicability of Exclusions (a) & (b) (knowing acts / knowledge of falsity) | Exclusions apply because the suit’s true nature is intentional/knowing misconduct | Exclusions don’t apply to negligence allegations; plaintiff pleaded negligent and intentional claims permissibly | Court: Exclusions (a) & (b) do not defeat duty to defend; insurer must show exclusion clearly applies |
| Applicability of Exclusion (p) (statute-based communications like TCPA/CAN-SPAM) | Exclusion bars coverage for claims arising from statutes that prohibit/discourage dissemination | Lanham Act and IRPA are not method-specific communication statutes; no statutory predicate to trigger exclusion | Court: Exclusion (p) does not apply to underlying Lanham/IRPA claims; insurer forfeited and, on merits, exclusion is limited to method-specific communications statutes |
| Field of Entertainment endorsement | Endorsement excludes privacy/copyright/defamation claims tied to entertainment business advertising/publicity, so it bars coverage | Endorsement conflicts with the policy’s coverage grant for advertising injury; ambiguity resolves for insured | Court: Endorsement ambiguous vis-à-vis coverage grant; ambiguity construed for insured, so endorsement does not clearly eliminate duty to defend |
| Duty to indemnify (ripeness) | Seeks declaration of no duty to indemnify now | Indemnity depends on outcome/facts of underlying suit and is not ripe | Court: Duty to indemnify not decided as premature; declaratory relief regarding indemnity dismissed without prejudice |
Key Cases Cited
- Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092 (Ill. 2005) (insurer’s duty to defend is broader than duty to indemnify; refuse to defend only when complaint clearly fails to state facts bringing case potentially within coverage)
- Lexmark Int’l, Inc. v. Transp. Ins. Co., 761 N.E.2d 1214 (Ill. App. 2001) (court must determine whether alleged conduct arguably falls within categories of wrongdoing listed in policy)
- Cincinnati Ins. Co. v. Eastern Atlantic Ins. Co., 260 F.3d 742 (7th Cir. 2001) (knowledge-of-falsity exclusion does not defeat duty to defend when underlying claim can be grounded in negligent as well as intentional conduct)
- Aetna Cas. & Sur. Co. v. O’Rourke Bros., Inc., 776 N.E.2d 588 (Ill. App. 2002) (insurer relying on exclusion must show it is clear and free from doubt)
- Santa’s Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339 (7th Cir. 2010) (policy interpretation: focus on whether alleged conduct arguably falls within coverage; insurer bears burden on exclusions)
- Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037 (7th Cir. 1992) (duty to indemnify generally not ripe until underlying litigation resolves)
- Pekin Ins. Co. v. Recurrent Training Ctr., 948 N.E.2d 668 (Ill. App. 2011) (endorsement construed with the policy to determine contract meaning)
- Crum & Forster Managers Corp. v. Resolution Tr. Corp., 620 N.E.2d 1073 (Ill. 1993) (if no duty to defend exists, there can be no duty to indemnify)
- Yates v. Farmers Auto. Ins. Ass’n, 724 N.E.2d 1042 (Ill. App. 2000) (ambiguous policy provisions construed in insured’s favor)