2014 IL App (4th) 110527-B
Ill. App. Ct.2014Background
- In June 2006 Ted Lay’s real estate agency paid a fax-broadcaster to send a “blast” advertisement; ~3,478 unsolicited faxes were sent and Locklear Electric received one.
- Locklear sued Lay in a class action under the Telephone Consumer Protection Act (47 U.S.C. § 227) seeking statutory damages; Lay tendered defense to Standard Mutual, which accepted under a reservation of rights.
- Standard’s reservation letter asserted multiple coverage defenses: punitive/intentional acts exclusion, professional-services exclusion, advertising-services exclusion, and that some policies were limited to lessor’s risks.
- Lay (through Norma Lay after Ted’s death) settled the class for $1,739,000 and assigned rights against Standard to the class; the federal court approved the settlement and found Lay believed it had consent and did not intend to injure recipients.
- Standard sued for declaratory judgment; the trial court granted summary judgment for Standard (no duty to defend/indemnify). The appellate court initially affirmed on the ground the TCPA damages were punitive; the Illinois Supreme Court reversed that punitive/insurability holding and remanded for further coverage analysis. This opinion reverses the trial court and finds coverage.
Issues
| Issue | Plaintiff's Argument (Standard) | Defendant's Argument (Locklear / Lay assignee) | Held |
|---|---|---|---|
| Whether policies cover TCPA fax claims as “advertising injury” | Policies exclude coverage (professional-services and advertising-services exclusions); some policies are limited to lessor’s risks only | The policies’ advertising/personal injury coverage includes invasion of privacy by unsolicited faxes | Covered: advertising-injury provision applies; unsolicited faxes invaded recipients’ privacy (Valley Forge) |
| Whether policies provide “property damage” coverage for paper/toner/time misappropriation | Intentional act exclusion; property-damage definition requires tangible injury caused by an occurrence | Although sending faxes was intentional, Lay reasonably believed it had consent; negligent conduct triggering coverage may exist | Covered: negligent theory (knew/should have known) can trigger property-damage coverage; intentional-exclusion not dispositive here |
| Whether professional-services exclusion bars coverage because Lay is a real estate professional | Real estate activity is a professional service; advertising related to sales is rendering a professional service and thus excluded | The claim arises from tortious advertising conduct ancillary to real estate services, not deficient real estate professional services | Not barred: professional-services exclusion does not eliminate advertising-injury coverage (court follows Westport) |
| Whether Standard relinquished right to consent to settlement by allowing insured to control defense | Standard retained reservation of rights and did not consent to the settlement; settlement requires insurer consent under policy | Standard effectively surrendered control (conflict of interest); insured obtained independent counsel and settled; insurer cannot later object to consent requirement | Standard surrendered right to control settlement by not controlling defense; cannot refuse indemnity based on lack of consent; no prejudice shown |
Key Cases Cited
- Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (advertisement faxes that invaded recipient’s right to be left alone fall within policy’s advertising-privacy coverage)
- Westport Insurance Corp. v. Jackson National Life Insurance Co., 387 Ill. App. 3d 408 (advertising by a professional does not necessarily constitute the rendering of an excluded professional service)
- Insurance Corp. of Hanover v. Shelborne Associates, 389 Ill. App. 3d 795 (analysis distinguishing intentional acts from negligent conduct for coverage under property-damage provisions)
- Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 (where insurer has conflict, insured may retain independent counsel at insurer’s expense and assume control of defense)
- Myoda Computer Center, Inc. v. American Family Mut. Ins. Co., 389 Ill. App. 3d 419 (insurer that surrenders control of defense also surrenders right to insist on policy consent-to-settle provisions)
- Barnett v. Zion Park District, 171 Ill. 2d 378 (standard for de novo review of summary judgment)